How has the fast internet changed India
Dinesh C. Sharma
lives and works as a journalist, columnist and book author in New Delhi. His latest book on the Indian health system is coming soon.
Translation: Stefan Mentschel
Software and services for the whole worldIndia's IT industry has experienced a boom over the past few decades. Hundreds of domestic and foreign companies with more than three million employees are active in the industry today. They develop software and provide services - from simple administrative tasks to specialized market analyzes. The companies benefit from the low wage costs, among other things. But the IT location India is gradually losing its competitive advantages and increasingly has to fight off international competition.
Infosys Campus in Bangalore (& copy picture-alliance / dpa)
Many visitors to the southern Indian metropolises of Bangalore and Hyderabad or from Gurgaon in the north of the country are surprised by the modern skyscrapers that characterize the cityscape there. The steel and glass towers are home to numerous companies that make their living with information technology, software and services. Huge corporate offices such as the Infosys campus in Bangalore need not shy away from comparison with the competition in California's Silicon Valley. Indian companies employ tens of thousands of engineers and technicians. Almost all foreign companies with a worldwide reputation have locations in India with a huge number of employees.
The information technology and outsourcing (IT) industry has become one of the leading industries since the liberalization of the Indian economy in the early 1990s. It employs around three million people and contributes a substantial and steadily increasing share to the gross domestic product - in 1997/1998 it was 1.2 percent, in 2010/2011 it was 6.4 percent. According to industry estimates, Indian IT companies achieved revenues of around 100 billion dollars (72 billion euros) in the 2013/2014 financial year. The majority of this - about 86 billion dollars (62 billion euros) - comes from export earnings.
Computer Technology in India: Beginnings and Historical Perspective
Not so long ago there was only a small market for IT products in India and a poor infrastructure that stood in the way of the massive expansion of the high-tech industry. So the question arises as to why the country was able to become one of the world's largest exporters in this area. Some observers see the reason for this in the economic liberalization that was initiated in 1991. Others believe that the business related to the fixation of the software bug in the transition to the year 2000 (Millennium Bug or Y2K Bug) as well as the euro changeover were the decisive turning points. Added to this are factors such as the large number of well-trained workers with relatively good knowledge of English and the shortage of skilled workers in the West. But there are other factors that were important in developing a robust IT industry in India.
The government of Jawaharlal Nehrus already used modern computer technology for state economic planning and important research projects in the fields of nuclear technology and space travel. Multinational companies like IBM have been given permission to operate in India. At the same time, the training of engineers was strengthened through the establishment of elite universities such as the Indian Institute of Technology (IIT). The electronics industry was declared a key area and the government began promoting projects in this area across the country. As a result, there were many Indian specialists who were familiar with software development and programming as early as the 1970s.
Regardless of this, the promotion of the private IT industry did not begin until the mid-1980s with the adoption of new policy guidelines for the use of computers (New Computer Policy of 1984) and software (Software Promotion Policy of 1986). Software development was recognized as an industry and export with the help of satellite-supported data transmission from state-sponsored technology parks was allowed. IT companies that settled there were able to benefit from tax breaks and other subsidy measures. The aforementioned economic liberalization, changes in foreign policy after the end of the Cold War and the international breakthrough for Internet and mobile telephony in the 1990s gave the industry a further boost.
Decades of Growth: From Software Coding to New BusinessesIn the past few decades, the IT industry in India has developed rapidly. In the early 1980s, companies were mainly doing labor-intensive tasks such as coding software for customers in America and Europe. For this, Indian engineers were sent to the client for a certain period of time - the business model became known as body shopping. At the same time, US corporations such as Texas Instruments and Citibank began setting up their own software development centers in India due to the low labor costs.
The early 1990s saw the establishment of Indian "software factories" that took orders from large foreign companies. With the improvement of telecommunications connections and the introduction of international quality standards for software such as CMM (Capability Maturity Model or Maturity Model), more and more development projects have been relocated to India. The Indian companies also set up global sales systems that enabled them to expand to America and Europe and to serve customers in a targeted and timely manner through branch offices set up there.
At the turn of the millennium, new business areas were added when multinational companies began to relocate parts of their service and development divisions (backroom operations) to India. They were attracted by the low cost and the large number of available labor. Foreign consulting and outsourcing companies such as EDS, Accenture, Convergys and IBM also settled in India due to the advantages of the location.
Software services and outsourcingThe Indian IT industry is currently dominated by three areas - the development of customized software and software services; the outsourcing of business processes (Business Process Outsourcing, BPO); Research and Development (R&D) and Engineering Services. In the fourth area - in the development of product software - there is still room for improvement.
Around half of the export revenues are generated with application development, software tests, IT infrastructure management, system integration and consulting. This is followed by the BPO area, which includes the operation of call centers, other forms of customer care, accounting services and logistical support. More than 200 multinational companies have now relocated their backroom operations to India. Indian BPO companies also work for customers in almost 70 countries.
A niche offer in this area is what is known as Knowledge Process Outsourcing (KPO), in which Indian companies provide highly specialized services for international customers. This includes market and business cycle analyzes, financial and legal services and data management. Offers in the area of tutoring for schoolchildren and students or the medical evaluation of X-rays are also relatively new. All of these companies employ highly qualified personnel such as teachers, doctors and lawyers.
Growth market: services in research and developmentResearch and development and engineering services are another growth market. Semiconductor manufacturers such as Texas Instruments and Cadence settled in India early on. General Electric opened the John F. Welch Technology Center in Bangalore in 2000 with around 3,000 employees - at the time the company's largest development center outside the United States. Around 700 international companies now operate R&D centers in India. There are also design teams from Indian companies such as Wipro, HCL Technologies and Tata Consultancy Services who work for international customers. HCL, for example, has established itself as a design forge for medical technology devices - certified by the US FDA.
According to an official study, foreign companies invested around 29 billion dollars (21 billion euros) in research and development in India between 2003 and 2009. Germany ranks third after the USA and Great Britain. For example, SAP, Mercedes Benz and Volkswagen operate R&D centers in Bangalore, Pune and other technology locations in India. The work that Indian R&D units do for their parent companies includes product development and improvement, product design and process development. According to the US Patent Office, more than 1900 patents were filed in this way between 2006 and 2010. The pioneers were companies such as IBM, Texas Instruments, General Electric, Honeywell, Intel, Cisco, Microsoft, Oracle, SAP and Adobe.
Challenge 1: Loss of competitive advantageSince the success of the Indian IT industry depends above all on exports, changes in the global economy - such as fluctuating IT spending by companies - have a direct impact on business. It is true that the trend towards outsourcing is irreversible. However, the growth rate in the IT sector fell from 32.6 percent in the 2006/2007 financial year (April to March) to 13 to 15 percent in the current 2014/2015 financial year. If this trend continues, growth will level off in the single-digit range in the near future.
There are many reasons for that. The most important one is that India is beginning to lose its competitive edge over international competition. The Philippines, China, Vietnam, Poland, Hungary, Mexico, Brazil and Egypt also pay relatively low wages for well-trained employees. In addition, the local governments attract companies with numerous perks. The Indian government has already warned of the "serious risk" that these countries could overtake India as the preferred investment location in the BPO sector. In the Philippines, for example, the IT industry is growing rapidly and is now half the size of that in India.
A particular challenge for the Indian IT industry is the training level of the workforce. Although the country has around four million university graduates annually (including half a million engineers), most of them are not fit for the job market. The companies must therefore first train the graduates themselves in training and further education programs before they can employ them. In addition, the productivity of engineers and academics in Indian companies is overall much lower than that of foreign competition.
The English language skills of the graduates - which used to be India's major advantage over other countries - are no longer so good. The results of language tests recently carried out by the Delhier company Aspiring Minds were more than sobering. According to this, 43 percent of Indian engineering graduates are unable to have simple conversations or write e-mails. 25 percent lack the ability to understand the language in order to be able to follow the curriculum in engineering. 30 percent of computer science students did not understand the basic theoretical concepts of programming. A full 80 percent were unable to apply their theoretical knowledge in everyday work.
Challenges 2: Missing innovations and new developmentsThe lack of innovations and new developments in Indian industry have also become a major problem in recent years. The vast majority of Indian engineers develop and produce intellectual property for foreign clients - be it in R&D centers of multinational corporations or at Indian companies that develop products and services for foreign companies. This means that future income, for example in the form of license fees, does not flow to India, as the Indian developers have no rights to it.
Although BPO services are still dependent on well-trained and at the same time inexpensive staff, this is now available in many countries. Companies can therefore react quickly and relocate their locations as required. The software business is also changing rapidly due to new technologies such as cloud computing and new development and sales systems such as software as a service (SaaS).
If India as an IT location wants to remain competitive in the future, new products must be developed and intellectual property created in the country itself. The huge Indian domestic market continues to grow and demands new products, so Indian companies should shift up a gear and meet this demand themselves. Just relying on the provision of inexpensive and labor-intensive services leads to a dead end in the long run. Government and policy makers are called upon to improve the quality of school and engineering education in universities as soon as possible. Only in this way can the country benefit from its young population.
Overall, the Indian IT industry has to adapt to increasingly tough competition and be ready for entry into new technologies such as nano computing and quantum computing, which will change the face of information technology over the next few decades.
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