http://www.indianexpress.com/full_story.php?content_id=38409
Saturday, January 03, 2004
SPECIAL TO THE EXPRESS
PART I
In infotech, we have a headstart so let's not put up our feet
Ensuring IT remains in Indian territory
ARUN SHOURIE
JUST 600,000 persons working in our information technology sector
today create $ 16 billion worth of wealth every year. IT exports are
liable to touch $ 13 billion this year - that is, in spite of
recessionary conditions in their principal markets, our IT
professionals and firms will earn about Rs 60,000 crore for the
country in foreign exchange. Those earnings will account for over
one-fifth of our total exports.
Such figures represent phenomenal, spectacular growth: 15 years ago
the activity was hardly known; just five/six years ago the figure was
not $ 16 billion, it was $ 5 billion. Similarly, but for the successes
of this small number of firms and personnel, our export performance
would have looked very different from what it does today. And with
that the level of foreign exchange reserves too would have been
substantially lower.
More significant for the future,
India and Indians have contributed significantly to the growth of
this field - one-third of the start-ups in Silicon Valley were by
Indians.
We are today one of the principal knowledge-generators in this field
- over 100 of the Fortune 500 companies have set up R&D centres in
India. Among these are some of the world's cutting-edge IT firms -
Intel, IBM, Microsoft, Motorola, Hewlett Packard, SAP, Sony, Samsung,
Texas Instruments. Each of them relies on and seeks to avail of
India's strengths in IT.
We export IT and IT-enabled services to over 133 countries. Our
firms are training people in IT in 55 countries. A single Indian firm
- NIIT - today runs 100 training centres in, of all places, China. The
government itself is setting up training centres for people in other
countries.
The other day, the prime minister inaugurated the Kofi Annan Centre
for Excellence in Accra, Ghana, for the people of west Africa; in
March he will be inaugurating a Cyber City in Mauritius for the people
of east Africa - a project that accounts for about half of a $ 100
million credit line to the country, the rest to be used to provide
other IT-related services, like education.
Our IT firms have become standards of excellence: today
three-fourths of the world's CMM Quality level V companies are in
India.
They are providing software services, of course; they are also
contributing to the creation of software products. When I ask my
colleagues in the Ministry of Information Technology for some recent
examples, they list scores in no time. The Pramati studio/server has
been rated among the top 10 in middleware; an i-Flex Banking product
has been among the top three for three years in a row from 2000 to
2002 and is today the world's number one.
We often regret that while we have made impressive strides in
software, we have lost out to China, Taiwan etc, in hardware. There is
much weight in the lament and addressing it has to be a priority for
the government. But we should not lose sight of the other side that
a number of high technology hardware products are being designed in
India for the global market. The Philips DVD video codec; the Apple
iPod audio codec; the Texas Instruments' OMAP; Microsoft's JSharp; the
Adobe reader for Palm and iPaq; Intel's start up'' utility; Cisco's
IOS core components; Hewlett Packard's ux; the OpenView kernel;
components of Oracle's Pro-c; MBIL is the third global optical disk
manufacturer; VXL Instruments is the third global terminal
manufacturer; HiCal supplies magnetics for the world's foremost mobile
handset manufacturer, Implusesoft; the manmar imaging software for
ultrasound scanners; Purple Vision's signal processor these and many
more hi-tech products have all been substantially designed in India.
Another factor that augurs well for the future is that we are
rapidly expanding the infrastructure required for the future growth of
this sector we have already laid out 500,000 km of fibre optic
network; the other day I had the privilege of inaugurating Param Padma
the fourth generation of Indian supercomputers, entirely conceived
and put together in India; we have taken the first giant step in
grid-computing: the link between Bangalore and Pune is already
operational soon, the grid will link major research institutions in
nine cities.
But we cannot afford to rest for a moment especially because this is
a sector in which technologies change like lightning, and because the
very success that our firms and professionals have secured has made
them the target of many a protectionist manoeuvre.
What are the trends that our IT industry has to face? What steps
should we be taking in the face of those trends?
Telling the trends
The first, of course, is the fact that our rivals are also adding
strength to their operations just as we are. Ireland, Israel etc, were
traditional centres for the kinds of services we are providing today.
Countries such as China and Vietnam are acquiring the competence
rapidly. Moreover, there are a slew of countries that will be joining
the European Union from May 2004 from Cyprus to several in eastern
Europe.
Firms operating in these countries will naturally acquire preferred
liaisons with European firms that seek reliable, cheap IT services
the firms will be part of the same economic bloc; there is in a sense
the advantage of cultural affinity; there is that much lesser prospect
of a backlash about loss of jobs in the countries that will outsource
to them.
And we should not forget that several of these countries have special
strengths not many of us know, for instance, of the great competence
countries like Hungary and tiny Bulgaria have in mathematics; few of
us know countries such as these had been assigned specific areas
during the Soviet period in which they then specialised, and that
these specialisations encryption and surveillance technologies, to
take just two instances today constitute excellent springboards for
providing many IT-related services.
Second, as the past two/three years have reminded us, we have to be
ever alert to the vicissitudes of our markets. And that for several
reasons. Eighty to 85 per cent of China's software industry is
directed at meeting the demand for IT services within China. In our
case, almost the same magnitude is directed at meeting demand outside
India.
Also, our IT exports are heavily concentrated on a few countries the
US accounts for almost 60 per cent. Recessions, turbulence, backlash
in these few countries can thus have disproportionate effects on our
firms here.
And how a particular development will eventually affect us is not
always evident. The recent recession in western economies, for
instance, created contrary pressures: on the one hand, it intensified
the pressures on their firms to cut spending on IT solutions and to
confine these to activities in which the applications of IT resulted
in demonstrable gains in competitiveness; on the other, the
recessionary conditions also intensified the pressure on such firms to
improve their competitiveness by availing of the unique combination
that India offers that of high talent, low costs and ever-improving
infrastructure.
For the same reasons, what effects will the recent revival of economic
activity have? Will it entail higher outlays on IT by western firms,
and thereby make them source more from India? Or will it loosen the
pressure on them to avail of that unique combination?
Third, of course, is the problem that has arisen precisely because of
success: backlash. It is real: protectionist legislation has already
been introduced in eight states of the US; there is also a move to
introduce a Buy American Act'' at the Federal level. Unions in the
UK, in Australia have begun agitations against outsourcing functions
to India. Moves of this kind are liable to be stoked even more in the
coming months. In our principal market the US 2004 is an election
year: the president and vice-president are up for re-election, so are
one-third of the senators and the entire House of Representatives.
Of course, there has already been a major shift of jobs to China in
manufacturing, but that does not make this new shift of services any
easier. On the contrary, the sentiment is the opposite We lost
millions of jobs to China, are we now going to lose more millions to
India?'' The media both reflects and feeds this sentiment: when a firm
in the US expands its operations and decides to locate an R&D centre
in India, the headline reads, Oracle moving 2,000 jobs to India''.
Moreover, the ones who are getting affected by outsourcing are the
more vocal lot the white collar workers. Many of them are college or
high school drop outs: they have little prospect of finding jobs
outside operations like call centres. And the location of functions in
India this time has occurred during recessionary conditions quite
the opposite set of conditions during which American manufacturing
firms set up their establishments in China.
For the past year there have been signs of a recovery but till the
past month the data that was coming out was being used by critics of
outsourcing to point out that what was taking place was a jobless
recovery''. The result is portrayed in a Forrester study: of every 100
IT workers who have been displaced only 65 have been able to get
re-employed; that 50 per cent of those who got re-employed had to
accept jobs at lower earnings. So there is a ready, disgruntled
constituency for the politician to exploit, and this is an election
year.
Economic trends apart, there is a structural feature of the IT
industry that makes for possible difficulties. While IT registered the
most conspicuous growth in the US, UK, etc, trade unions were not able
to establish themselves in the industry. These organisations feel that
outsourcing is the issue on which they can get IT/ITES professionals
to sign up.
And the advantages
There are just as many trends on which we can build. First, as we
noticed, India's telecom infrastructure has improved dramatically over
the past five years. It is set for even greater improvements in the
coming years. With the laying of fibre optic networks all over the
country, a firm in San Jose, California would find it as easy to
access services from a firm in any one of 300 cities in India as from
its neighbour across the street.
This expansion is being and will be assisted even more by the recent
feature of our economic landscape namely, intense competition among
progressive states, each eager to prove itself to be the better
investment destination. Bangalore and Hyderabad are not the only
cities that are competing today. Gurgaon, Noida, Kolkata, Pune,
Mumbai, Cochin are each trying to woo IT firms. Mangalore, Mysore, and
half a dozen others have begun taking the first steps too, and have
already begun registering successes.
Second, firms abroad have become accustomed to outsourcing doing so
has become part of the business model of more and more companies.
Mckinsey interviewed 50 Fortune CIOs a few months ago. None of them
reported outsourcing more than 15 per cent of the firm's IT budget to
India. But when asked what their plans were for the coming years, 70
per cent reported they would be outsourcing more than 15 per cent to
India.
The figures at the other end of the scale were the direct opposite: 73
per cent reported they were outsourcing less than five per cent to
India; that figure was down to two per cent when the CIOs were asked
about what they planned to be doing in the near future.
Because of my current position, every week representatives of some IT
giant or the other come to call on me. One of them after another
reports how his firm is doubling and quadrupling staff in its Indian
offices: Intel, Microsoft, SAP, Oracle ... Indeed, we hear less than
is in fact happening these days firms that are expanding operations
in India forgo the customary launch festivities lest these become
occasions for unions back home to ignite scares.
Third, apart from the advantage that flows from Indian IT
professionals having proven their capabilities already, the unique
advantage that they have had vis a vis their competitors in China and
east Europe is certain to weigh in their favour for quite some time.
Firms in China, Vietnam, east Europe can write software, no doubt.
Their professionals will soon learn to do so in English, no doubt.
But Indian firms are able to provide not just software for
transforming an operation. They are able to provide complete business
solutions something firms in countries such as China, unfamiliar as
they are with reigning financial systems and business practices, will
take some years to master.
Fourth, a series of new disciplines is about to break out in India for
which IT will be what arithmetic is to calculation. Biotechnology,
nanotechnology, telemedicine, telesurgery, distance learning, products
with embedded software, automated production processes, product design
and many more. Each of these will see a leap in the coming years in
India, and in each of them IT will be a basic ingredient.
Finally, we are at the threshold of breaking out of a handicap that
has hobbled us thus far: scale. Why is it that a firm like Nokia
produces handsets in China but not in India? There are several
reasons, of course, but among these is the question of scale: the
demand for new handsets has been so much greater in China at that
scale, the firm reaps many economies.
Now that two million new telecom subscribers are being added every
month, India too becomes a place that is attractive enough for a
potential manufacturer to locate his facilities here. The same will
soon be true for products that are used for IT and IT-enabled
services.
What should we be doing to build on these advantages?
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