India imports entrepreneurial service, exports e-services
Bangalore, India drive 25 kilometers outside this citys center past the old automobile parts factories and cement plants and you will come to an area called Whitefield. Go on past the brand-new, 200-seat, technical support call center Dell Computer opened this summer, and past General Electrics 1-year-old, $40 million R&D facility.
Eventually, you will arrive at International Tech Park Ltd., referred to in Bangalore simply as ITPL. You cant miss it: three gleaming, 13-story towers in the middle of a 68-acre complex that provides a total of nearly 1.2 million square feet of office and retail space.
Its like a space station plunked down in the middle of an underdeveloped country. Designed to be self-sufficient, ITPL has its own water treatment facility, a 9-megawatt power plant and satellite telecommunications links not to mention a food court, bank branches, underground parking and a gym.
The technology park a joint venture of Tata Group, one of the largest and oldest corporate conglomerates in India; a consortium of Singapore companies; and the government of Karnataka had trouble attracting tenants to occupy it in its first phase, completed in 1997. Now it enjoys almost full occupancy, housing more than 100 companies, and what once threatened to become an expensive disaster now stands as a symbol of sorts of the future of Indias IT industry.
ITPL is a place where entrepreneurs are expanding beyond the traditional "code factories" that made India a software powerhouse, to provide knowledge-based services to which businesses all over the world can turn for help in building or managing critical parts of their Internet infrastructures. As a result, they are transforming India into a global e-services leader.
"In India, youre seeing companies move from being mere arms of multinationals based overseas to being global companies in their own right," said Dorothy Leonard, a Harvard Business School professor who has studied entrepreneurial groups in the U.S. and India. "Weve seen a real cultural mindset change."
Take Bangalore Labs, on the 7th floor of Innovator, the west-facing building of the ITPL complex. Founded in November 1999, the company bills itself as Indias first managed service provider and offers a range of services that include network application monitoring, managed Internet security and technology consulting. With 100 employees, Bangalore Labs has a network operations center staffed 24 hours per day in three shifts.
Co-founder Joy Nandi, executive vice president in charge of business development, is well-aware of the reputation of the Indian IT industry. "India is looked upon as providing cheap labor," he said. "Were still considered a third-world country."
But Nandi is among the entrepreneurs trying to change that perception. Bangalore Labs is out to compete in the world market on skill sets, not cost. Its true, he conceded, that there are cost advantages to being based in India. Nandi estimated he saves 55 percent to 60 percent by operating in India rather than the U.S. But that doesnt mean Nandi prices his services lower; it means his margins are better than those of his overseas competitors.
"Weve taken the tune that we want a bigger role, to provide greater value to our customers," said Nandi, 31. "For a company like ours, theres no better location than India at this point in time."
The kind of remote services offered by Bangalore Labs and others will be central to e-businesses everywhere in the next decade and beyond. As the Internet and telecommunications networks become increasingly advanced, it appears India is well on its way to becoming one of the worlds leading suppliers of knowledge-based services.
"If you look around the world, no other country except India has the depth of manpower, the low cost base, the high quality of standards," said T.V. Mahandas Pai, chief financial officer of Infosys Technologies, the largest software development company in India. "Some of the most highly educated people in the world, especially in technology, are in this country."
The trend is rooted in Indias rise as a provider of low-cost software development in the mid-1990s. Bangalore, a city of about 6 million in the southern Indian state of Karnartaka, got on the high-tech map by offering low-cost, high-quality software development.
Hundreds of international companies, including IBM, Intel, Microsoft, Oracle, Sun Microsystems even American Express have since flocked to Bangalore, the "Silicon Plateau" of India. Here they set up remote development centers or contracted work to local firms, attracted by the generous supply of highly trained, English-speaking computer science graduates and the fact that they could pay those workers a fraction of the salary programmers in the U.S. command. Starting programmers salaries range from $550 to $650 per month.
The industry has provided the countrys largest and fastest-growing export: India expects to ship more than $9 billion worth of software in 2001, a trend that many compare to the migration of electronics manufacturing to Asia in the 1980s or, indeed, the overseas migration of many other industries.
"India has a 10-year plan to become a software powerhouse, and they are way ahead of that," said Intel CEO Craig Barrett at a recent technology business conference. Earlier this month, Barrett visited India, where Intel recently opened a new e-business software laboratory on Infosys Bangalore campus.
Having established itself as an indispensable center of software development, India is now beginning to emerge as an equal partner on the world technology stage. Rather than just providing pools of inexpensive labor, Indian IT companies are offering higher-value services to their foreign customers. Part of this is due to the worldwide cooldown in IT spending, which has pinched the companies bottom lines and prompted them to look for higher-margin revenue streams.
But more than that, observers say, a new Indian entrepreneurial spirit is developing, aided in part by experienced and wealthy Indian technology executives in the U.S. That spirit is leading local companies toward competing head-on with other global companies, trying new business models, taking risks and, sometimes, failing.
Bangalore is where it all started, and today it is one of the worlds top cities for technology development. About 80,000 people work in Bangalores high-tech industry, many of them graduates of one of Bangalores more than 100 research universities or technical colleges. In all of India, there are 580 engineering schools and 245 universities.
The locals call Bangalore "The Garden City" of India because of its many trees and gardens and year-round mild temperatures. Theres a cosmopolitan feel to Bangalore, home to a wide variety of ethnic groups from all over India. Dozens of pubs and restaurants have sprouted in the last few years, most catering to the new class of relatively well-to-do IT professionals with pints of beer for 40 rupees (about 90 cents). And in a development that has cheered many of the areas weary globetrotting technology executives, Lufthansa next month plans to initiate Bangalores first direct international flights, flying straight to Frankfurt, Germany, instead of doglegging through Bombay.
Still, this is India. The streets of Bangalore are choked with traffic, and getting around can be difficult. Besides automobiles, theres a constant stream of diesel trucks, buses, three-wheeled auto-rickshaws, mopeds, bicycles, carts and pedestrians vying for the right of way. An estimated 200,000 stray dogs roam through Bangalore and can be seen lolling around on median strips. Cows forage through the drainage ditches, eating garbage. Theres even the occasional monkey: At certain hotels, guests are reminded to shut their windows to keep out fruit-seeking simians.
By most American standards, the infrastructure of Bangalore is in shambles. The citys power grid occasionally cuts out; lights will flicker off for a moment or two, and no one takes much notice. The telephone system, run by the government-controlled monopoly provider, is comparatively underdeveloped and unreliable. In India as a whole, there are 28 phone lines per 1,000 people.
But if you walk into just about any IT companys office, you might as well be in San Jose.
Stroll over, for example, to the offices of Cisco Systems India in the Prestige Waterford building at 9 Brunton Road, one of two main buildings Cisco occupies in Bangalore. Its a little eerie, in fact, how closely it resembles the home office in the U.S., with its five floors of cubicles, two large testing lab areas and covered outdoor patios where staffers can eat lunch. One difference is that all the conference rooms are named after Indian ragas, the different melody patterns of Hindu music.
Cisco, which has said it plans to invest $200 million in India over the next three years, employs about 700 people at its Global Development Center in Bangalore. Characteristic of the first wave of foreign technology development to land in India, Ciscos GDC is basically an annex of the U.S. headquarters. The big difference is that the Indian workers show up twelve-and-a-half hours before their colleagues on the West Coast. The close collaboration is made possible by Cisco Indias aggregate bandwidth of 12 megabits per second back to San Jose, over which engineers exchange data and voice, and participate in weekly videoconferences which, to accommodate the time zone differences, are either early in the morning or early in the evening.
"There is really no demarcation of what work is done here and whats done in San Jose," said S. "Dev" Devarajan, who heads the center. "Its really an extension of the facilities back in San Jose. We do much of what they do, except we dont have the physical number of people here."
Across town at IBMs Bangalore headquarters, more than 3,000 developers write code for IBM customers, as well as for Big Blues own software product lines. There you will find Vijay K. Sukthankar, who might be Indias biggest Linux nerd. "If you open my drawer, you will find lots of penguins," he said, laughing. Sukthankar is the general manager of IBMs Linux Technical Center here, a group of 10 programmers that works with about 200 IBM Linuxdevelopers in Beaverton, Ore.
The group in India makes recommendations on new features that might be added to Linux, then manages the code development. Currently, Sukthankars crew is working on remote access services, scalability features and IP version 6 support for Linux.
The India Linux team collaborates primarily with those IBM engineers in the U.S., but Sukthankar also interacts with open source developers in Australia, Germany and Japan. Hes also active in Bangalores local Linux user group, which has 600 active members and meets every month to share industry news and programming tips.
"Linux is popular in India because its free and you can do a lot with it. You can learn from it," Sukthankar said. "If you buy Microsoft Windows, you dont get the source code; you dont understand whats happening inside it. Students in grad schools really want to understand whats happening underneath in the operating system."
Like many Bangalore IT veterans who work for multinational companies, Sukthankar has lived and worked all over the world, his career taking him wherever his talents and interests led. He first joined IBM in mid-1994, spent about two years in Boca Raton, Fla., and landed briefly in Japan and in Europe, before coming back to India. "The amount of cultural experience you get working here is phenomenal," he said.
That international cross-pollination of ideas, facilitated by the Internets long tendrils, has altered the corporate culture among Indian IT firms in recent years. It has also nourished the seeds of entrepreneurship among the technology elite. Such a cultural transfer was inevitable, the by-product of the working relationships between Indian software developers, IT executives and the customers or colleagues they deal with on a regular basis, who are often located outside of India.
In some cases, the cultural export to India has been deliberate. When Sun decided to open a development facility in Bangalore in 1999, it wanted an insider to start the operation in order to instill its own values. The company picked seven-year operations manager Avinash Agrawal, a native of India, to oversee the center, which now has 320 staffers.
"The culture of Sun is more informal than traditional Indian businesses," Agrawal said. "Some of the new students I meet with have a habit of saying sir after everything. I tell them, Look, call me by my first name. Its very egalitarian here. My door is always open; if someone has an issue they can always bring it up with me. Its not an us-against-them mentality, in terms of the management and the workers, which is typically what its like in traditional Indian companies."
Hands Across the Water
The migration of 100,000 Indians to the U.S. every year, many of whom work in the high-tech industry, represents an estimated economic loss to India of $2 billion, according to the United Nations Development Programme. Its classic brain drain: The most talented people leave a country to pursue greater career opportunities somewhere else. But the exodus from India has also provided valuable networks of business contacts for the home country and, whats more, some Indians in the IT industry are even deciding to come back to their homeland after accruing experience in the U.S. or elsewhere (see sidebar, "Homeward Bound" on this page).
"These guys who went abroad were the ones who brought the multinationals into India to do offshore software development in the first place," said B. Mahesh, joint director in Bangalore of Software Technology Parks of India (STPI), a government agency that promotes the countrys software industry. "And they are coming back to start companies. They have contributed a lot to this industry."
Kailash Joshi is one of those guys. Joshi, who now lives in San Jose, worked for IBM for 24 years, having come to the U.S. in 1954 from a small town in northern India. After his career in technology, Joshi, now 59, wanted to give something back to his native country, following the traditional stages of life in Hindu philosophy, which holds that in the third stage of your life you return your debt to society. So in 1994, he founded The IndUS Entrepreneurs, an organization that lets entrepreneurs of Indian origin share experiences and learn the tricks of the trade. Today, TiE counts 6,000 members in seven countries, and holds an annual convention in Silicon Valley.
"The people who made it big in Silicon Valley came from modest, middle-class backgrounds. They were very competitive in academia, so theyre bright and good thinkers," Joshi said. "That maps extremely well with theconditions in India. Frankly, the only thing theyve lacked that we have in the U.S. is infrastructure bandwidth and telephones."
TiE has served to inspire and guide an unknown number of entrepreneurs, in the U.S. and India, to start their own businesses. One of the key ideas it has spread is the Silicon Valley notion that its OK to flop indeed, a failure gives someone the experience to try something else. "Failure in many Asian countries is seen as personal failure and hard to separate from a failure of a business," Harvards Leonard said. "Theres evidence that in India, now, theres a shift happening, separating personal failure from professional failure."
And beyond just helpful words of advice, Indians who have succeeded in the U.S. have stimulated the entrepreneurial culture by pumping money into ventures on the subcontinent.
E4e "entrepreneurs for entrepreneurs" is a technology holding company established in October 2000 that has assembled a $125 million fund with plans to incubate about a dozen companies focused on Internet-delivered services in three years. The companys investors include K.B. Chandrasekhar, who founded Exodus Communications and Jamcracker, and Som Das, a former general partner of venture capital firm Walden International.
The venture has a dual base of operations, with its headquarters in Santa Clara, Calif., and an office in Bangalore. In that sense, E4e is hoping to create companies in its own image. "Were looking for Indian entrepreneurs interested in the U.S. market, or U.S. entrepreneurs looking to use India as a back end," said Sridhar Mitta, E4e Indias managing director, who has cross-continental ties as former head of Wipros Santa Clara subsidiary.
In its Bangalore offices, E4e has 11,500 square feet of mostly empty space. Its sitting there, unoccupied, waiting for a startup to come in and begin working immediately. So far, E4e has backed four startups: Aztec Software and Technology Services, iCelerate, iSeva and Vinciti Networks. "We believe this is the decade of the entrepreneur in India," Mitta said. But, he added, so far there arent any success stories or benchmarks among the nascent Indian entrepreneurial community.
The world of high-tech Indian entrepreneurs can sometimes be a small, small world. Bangalore native B.V. Jagadeesh came to the U.S. almost 20 years ago. Hes a former colleague of Chandrasekhar Jagadeesh was Exodus original chief technology officer and is now president and CEO of networking company NetScaler.
In the last five years, hes invested in four Indian startups and three Indian-focused venture capital firms. Jagadeeshs companies include iNabling Technologies, a Bangalore venture that has created an e-mail appliance for the Indian market that costs about $150.
"My goal was to help take India to the next level and be able to say, We have more capabilities besides being a human skills supplier to the rest of the world," he said. "India should be able to produce products for the global economy."
A Palace That Software Built
Meanwhile, the companies supplying skills to the rest of the world have become the largest IT companies in the country and a huge source of national pride, if not envy, among regular Indians. "People used to come to India to see the Taj Mahal. Now they come to see Infosys," said the cab driver on the way to the companys campus.
Its supposed to be sort of a joke, but here is the American tourist on his way to see one of the wonders of modern India, a sprawling palace built by software: Infosys 1.1-million-square-foot campus on the outskirts of Bangalore. The compound, which accommodates 4,400 of the companys 10,000 employees, has a swimming pool, a Jacuzzi, a gym, a putting green and three huge food courts including a Dominos Pizza. The coffee bar serves 13,000 cups of coffee each day.
Infosys, a 20-year-old software development company whose 277 customers include American Express, Cisco, Nortel Networks and Northwestern Mutual Life Insurance, is one of the most respected companies in India. Last year, 350,000 people applied to work at Infosys; the company hired 4,400.
Part of Infosys success and, more broadly, that of India as an IT destination must be attributed to regulatory changes the Indian government adopted in the 1980s that made conditions more favorable to software development companies.
Under the governments STPI program, software exporters will not pay any taxes until 2010 at which time the issue will be reconsidered and pay no duties on capital imports. "When there was a boom in hardware, India missed out," said Mahesh, STPIs joint director in Bangalore. "The government didnt want to lose that opportunity again with software."
Furthermore, India boasts of its Western-style intellectual property rights laws, democratic government and judicial system factors that Indian IT executives bring up in pointed comparisons to China or Russia, which have designs on becoming low-cost providers of software development to rival India.
Another barrier India is removing is the government monopoly on international telecommunications services. The state-run telecom provider, Videsh Sanchar Nigam Ltd., is set to be privatized by the end of 2001, and will face competition in 2003.
Even with government control over the Internet access market, the cost of bandwidth has fallen in the past decade: In 1991, a 64-kilobit-per-second leased line connection outside the country cost $100,000 per year. Now the same link costs $17,000 per year.
Nevertheless, the most favorable tax policies cant shield the Indian IT sector from the global slowdown in technology spending. Infosys, which saw its revenue almost quadruple in the last two years to $413.9 million for the fiscal year ended March 31, is now expecting more modest growth of 30 percent in the coming year.
"There had been a set of huge drivers in the market the Internet, telecom spending, Y2K [year 2000], the e-business trend," said Nandan Nilekani, Infosys president and chief operating officer. "All these drivers have now slowed down or vanished in some sense. So its really back to basics right now."
To continue their long-term growth, the large IT companies have realized they need to offer higher-value services in order to compete with worldwide consulting firms Accenture, Ernst & Young, KMPG and PricewaterhouseCoopers, as well as technology services firms like Electronic Data Systems and IBM Global Services. Infosys executives have said they are looking to acquire a strategy consulting company with a presence in the U.S. The other major Indian-based companies are following suit. At the same time, the U.S. consultants have been looking at ways to take better advantage of the cost efficiencies of the "offshore development model."
"We are trying to emulate what the Big Five are doing, and theyre emulating us," said R. Ramanan, vice president of Tata Consultancy Services, the giant IT services arm of privately held Tata Group.
It seems clear that Indian technology services companies are destined to become ever more integrated into the economic fabric of the U.S. and other countries. The first digital footbridges connecting the world will soon be superseded by ultra-fast and ultra-cheap transoceanic superhighways.
Real-time interaction between customer support reps in India and the U.S. and U.K. is a reality today. One of the hot startups in this segment, generally referred to as "IT-enabled services," is Bangalore-based CustomerAsset, which launched in April 2000. In the year-and-a-half since its launch, the company has swelled to 640 employees. It has landed 10 overseas customers and 13 that are based in India, though CustomerAsset wouldnt disclose customer names.
The same preconditions that make India ideal for outsourced software development also apply to call centers. There are 200 million Indians who speak English. Theres a large population of highly educated people India will produce an estimated 2.5 million college graduates this year. And not only can college graduates be hired to answer telephone calls from halfway across the world for about $220 per month, but they view this as a fantastic career.
K. Ganesh, CustomerAssets 39-year-old CEO, said the main difference between his company and the traditional software companies is that a significant portion of the cost of operations about 80 percent is in the telecom infrastructure basically, everything needed to route toll-free numbers from the U.S. to India. For IT services companies, on the other hand, 80 percent of the expense is peoples salaries.
Another key difference is that CustomerAsset takes over a core part of its clients business processes which can make some prospective customers very nervous.
"Instead of the companies in the U.S. taking the call, were taking the call. This is very different from saying, I want a certain portion of my Web site development to happen somewhere else. The amount of risk involved in the minds of our customers is much, much larger," Ganesh said.
But except for what people wear, the facility looks and sounds exactly the same as a call center in the U.S. Ganesh recalled that CustomerAssets first visitors from the U.S. refused to believe that the customer representatives had never been to the U.S. "They know about the Knicks game and what the weather was like in Houston. We can actually train people to understand the culture and be comfortable conversing with a housewife in the U.S.," he said.
For more complex development projects, however, Jerry Rao, chairman of boutique IT consulting shop MphasiS BFL, believes successful global IT companies need workers on both continents. In fact, Rao himself is practically always on a plane, commuting among the office near his home in Santa Monica, Calif., and the companys two other main centers in New York City and Bangalore. Talk about jet lag.
The specialty of MphasiS with a customer list that includes J.P. Morgan Chase & Co., Citicorp, FedEx and Singapore Airlines is to help clients with integration and middleware solutions without getting rid of their legacy systems. Earlier this year, MphasiS merged with Indian software company BFL, becoming MphasiS BFL, a 1,400-person company. About 1,000 of its employees are in India, in development centers in Bangalore, Pune and Bombay; 250 are in the U.S.; and 150 are scattered elsewhere in the world.
MphasiS operates using a hybrid concept of a virtual team its neither on-site nor offshore. To Rao, it is the perfect blend of the U.S. consulting model and the Indian outsourced model.
"Usually you either have 20 consultants sitting in the clients premises doing coding, testing and bug fixing, or, in the offshore model, the client gives you a set of specs, gives you 90 days to turn it around, and takes it back to test and launch it," he said.
The virtual development model keeps the hardware in San Francisco or wherever it happens to be, and 10,000 miles away over the telecom link a programmer in Bangalore works on the code as if he is sitting next door. "Today the telecom links are stable and affordable, so you can do this, and do this very well," Rao said.
Another essential facet of the virtual team model is that it is the only way Rao believes MphasiS can successfully sell higher-value, more complex solutions.
"You have to have credible staff on the ground where your customer is," he said. "When specs are dynamic, when youre talking about integrating a lot of off-the-shelf products, you cant make it work without a presence at the client."
Aside from figuring out what time zone hes in, Rao said his major challenge as a cross-cultural business executive is to draw from the strengths of the U.S. and India, rather than become ensnared by the shortcomings of each. In India, he said, people tend to be far more process-driven, far more control-driven. In the U.S., people tend to be more entrepreneurial and quicker in their decision making.
"You dont want to succumb to the weaknesses of each culture," he said. "The U.S. can be too much shoot-from-the-hip sometimes. But at the same time, you dont want to get screwed by the Indian bureaucratic mindset.
"What you want," Rao said, "is the best of both worlds."