Buffalo, not Bangalore
– thus thundered Barack Obama, and placed the blame of job losses in the USA on India’s door. Bangalore has acquired the image of a ‘poster boy’ for the Indian IT industry, and the city has itself become famous as the IT hub of India. Bangalore alone accounts for almost a quarter of annual turnover of the Indian IT industry. There have even been comparisons with Silicon Valley, with some people even going to the extent of calling Bangalore as the “Silicon Valley of India”. I wonder if someone would next call Silicon Valley as the “Bangalore of USA”.
Over the last decade, there has been a tremendous noise in India, about India turning into a global IT hub, a knowledge based information superpower, which is the ultimate location for all things IT. The Indian IT (Information Technology) industry is often touted as the global powerhouse. In our over-enthusiasm, we often forget that even though India generates around USD 65 billion annually (2009 figures) from the ‘IT Industry’, we are just a big source of a lot of cheap labor.
Sometime back, I came across an article by Prafull Bidwai, a noted columnist, in which he termed the Indian IT industry as ‘Cyber Coolies’. Despite the apparent unflattering overtones in the word itself, one cannot dispute the fact that our IT industry is at best a glorified labor provider, and our feted “IT Giants” have failed to provide even a single proprietary product which could create waves in the global IT industry (perhaps except Finacle, a banking and finance solution by Infosys, and which is used by a number of MNC banks around the globe).
So, what does Indian industry actually excel at? Well, we are the leaders in the so called IT Enabled Services, or ITES. These are basically services such as BPOs, call centers, KPOs etc, which extensively use IT to provide backend and customer services to primarily overseas customers. That our ITES industry is hugely dependent on foreign clients is also not a secret anymore, with hardly any Indian company enlisting the services of such companies.
It cannot be disputed that India is one of the leaders in the global IT space, though that leadership is unfortunately limited to the low end of the Industry. The high value end, the one which really produces profits, is still dominated by US giants, such as Microsoft, Oracle, IBM, EDS etc. Even the newly developing fields of SaaS and IT Consulting are dominated by global giants, primarily based in USA. Hundreds, even thousands of Indian developers work for these companies, either based in India, or at location. They provide a lot of groundwork, yet obviously, the royalties and the profits belong to the companies.
The biggest factor that has historically attracted, and still continues to attract the global giants to India, is the presence of a huge pool of trained labor force, available at very cheap rates. That a large proportion of this workforce can communicate in English is an added bonus. The Indian workers are available at a fraction of a cost of the native workers, thus saving huge costs for company. Yet, the companies continue to employ native IT workers for the really high end jobs, while their Indian counterparts continue to slog away on the routine jobs, and bringing out the new versions – at least those who are based “off-shore”.
And even this advantage is threatened, with the emergence of centers such as Vietnam and Philippines, where labor is STILL cheaper. China is reportedly training its IT workers in hundreds of thousands, especially to teach them English (reportedly in stadiums, where thousands can be accommodated in one go!). What is the Indian IT industry going to do once the cost advantages slip away?
Another major challenge for the Indian IT industry is the very high rate of attrition in the Indian companies. The new engineers, once recruited, keep changing jobs very rapidly to get higher salaries. This has also led to a very fast increment in salaries - it is reported that salaries in the IT space have increased by an average 20-30% over the last several years (Well, at least before the recession hit ! ). This endangers the continuity and cost estimates of the projects, and the foreign clients are increasingly turning wary of this. This has also led them to explore IT location of Eastern Europe – Romania, Bulgaria etc.
The redemption for the Indian IT industry lies in moving up the value chain, and at a rapid pace. The Indian IT companies need to transform their strategies, and concentrate on developing high end products, and not only provide backend code-writing services for global clients. But this is easier said than done. Yet, the fact remains that if the Indian IT companies want to make their mark in the global arena, they will have to come up with a tangible game plan. Or else, they will simply remain the cyber coolies of global IT giants.