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Why Information Technology Suits India -
March 13th, 2007
by Paul Taylor
Why Information Technology Suits India The Industrial Revolution was possible because after having established the appropriate political conditions by means of the Glorious Revolution of 1688, the English bourgeoisie concentrated all its efforts in fructifying the commercial revolution it had launched by the end of the Middle Ages.11 Similarly, India because of its democratic political set-up is ideally suited to exploit the information revolution. Information Technology by its very nature needs and breeds democracy, freedom and democratic institutions. India is the largest and most vibrant democracy which encourages the free flow of information and ideas. English, which is fast becoming the international business language, thanks to the Internet, is used extensively in India. India also has a well educated human resource pool who have a good grounding in mathematics. Add to this the confidence of successful young entrepreneurs, who are now in decision-making positions all over the world. There is a view that the Indian brain has good abstraction capabilities which is suited for cyberspace. We missed the industrial revolution because Indians are not good at tinkering, however, a knowledge based society suits our psyche.12 The brain drain which took place since independence is now changing to a reverse brain drain, with successful IT savvy Indians pouring money and resources into India. These whiz kids are also networking with each other to ensure success to more people. Many successful entrepreneurs are now returning to India to exploit the opportunities in this market. Indian Institutes of Technology (IITs), were recently categorised by Washington's City Magazine, Washingtonian, as among the world's pre-eminent technical finishing schools. One of its alumni, Gururaj Deshpande made a big impact in the US when his company Sycamore Networks made an amazing debut on the Nasdaq stock exchange. Sycamore, which enables fibre-optic networking technology, was offered at $38 per share, opened at a shining $280 when trading began on the Nasdaq and finally closed at $185, a dazzling gain of 386 percent over the offer price. This storied market debut has now become enshrined as part of Nasdaq folklore and made even the venerable Wall Street Journal refer to Deshpande's vaulting success in reverential terms. Another IIT alumni, Arun Netravali, has been appointed as head of Bell Laboratories—the worlds largest R&D organisation in communications. Since 1925, Bell has generated over 30,000 inventions and its scientists have won six Nobel Prizes and countless international awards. Whether it is communication satellites, cellular telephony, digital networks, fibre optics or modems, its work in these fields is widely recognised. At last count Arun Netravali had 60 patents with the Massachusetts Institute of Technology (MIT). As the digital revolution morphes and evolves with breakneck speed, Indian Americans seem to be in the forefront. More importantly, as their political and economic clout expands, the media is beginning to pay attention. The Washington Post covered the Indian American community's emergence as a powerful lobbying group in Capitol Hill—beginning to show the same astute political skills and savvy as the Jewish and Irish lobbies.13 Today there are more than 20000 Indian millionaires in the Silicon Valley. Most of them started off with little more than an engineering degree. Jokingly, they describe it as the 'revenge of the nerds'. These techie tycoons are looking to invest not just cash, but significantly, also time and expertise in India. These successful entrepreneurs are now promoting Indian start-ups. Today a network of Indian technocrats called The Ind-US Entrepreneurs, or TiE, acts as a mentor for other Indians. Networking within the US, and, with the not-so-distant homeland-India, is the order of the day. American Indians are donating money to children's charity homes, advising financial institutions on how to catapult venture capital investment in India and providing contacts and expertise. As Mr BV Jagadesh, an active member of TiE sums up, "Yes, we are successful, but now a lot of us feel we should create the same sort of environment and momentum for people back in India".14 Today there is a general belief that though knowledge may be flowing from the North to the South, but 'usable knowledge', which creates wealth, does not flow. There is a growing fear in the developing world that the collective knowledge of the world may become the proprietary knowledge for a few countries that will use it for commercial reasons. The developing nations find it difficult to actually get the flow of technology from the developed countries. There has been a paradigm shift in India's thinking on the economics of knowledge and the issue of intellectual property rights (IPR). Earlier, India had a philosophical attitude towards the economics of knowledge. We did not believe in patenting knowledge, ideas and information. Now India is not only patenting knowledge but also lobbying for an international regime on Intellectual Property Rights based on equity and ethics.15 Another major global paradigm shift, which is benefiting India, is the reducing costs and importance of hardware and the increasing costs of software. Today hardware costs only 10 percent while the software component costs 90 percent of the computer system. Since hardware is losing importance, countries like Korea are losing market share in the IT industry, while countries like India are benefiting because of software.16 Countries like India, which have a strong intellectual and human capital in the field of software stand to benefit by the increasing importance of software in the information technology industry. At present India is exporting low level software i.e., the $2 per hour variety. However, the core competence of the Indian software writers is in high-end software exports i.e., the $2000 per hour variety.17 Indian software exports form 10.5 per cent of the total exports of the country. The value of exports stood at $2.7 billion in 1998-99. If India can target the high-end software this value is likely to increase many times over. By 2003, software exports will overtake all other sectors of exports in India. Another trend today is that the services industry is replacing the manufacturing industry the world over as the fastest growing part of the economy. There is a great opportunity for countries like India because of this shift. Services like medical transcriptions, tele-medicine, and bill collections over the Internet, universal libraries, etc which use modern information technologies cost almost 10 times less in India than in advanced countries. In India almost 40 per cent of our national wealth comes from the service industry. If India can build a good information infrastructure capable of supporting sophisticated, fast and cheap communication technologies, it has the potential to become the Asian hub for all services related activities in the region. There is a potential Rs 55000 crore (US $13 billion) market which will provide employment to 1.1 million people by 2008.18 There are many other indications which clearly indicate that it is 'Advantage India' as far as the information revolution is concerned. The latest slogan in the IT industry is, "Move Work to India". India stands to gain extensively through IT—enabled services. A spurt in global telecom links—through Internet and other devices makes it feasible for companies located in the US and other developed countries to sub-contract work to countries where English is extensively spoken, but personnel are available cheaply. The services include call centres, medical transcription, animation, back-office operations, revenue accounting and creation of legal databases. India has a 10-12 hour time difference with the US and has established brand equity in mega markets about its software capabilities. All these factors will help India.19 A majority of the Internet start-ups on the West Coast of the US are Indian. Many Americans are giving their Internet start-ups Indian names in order to corner some market share. In the world of the Internet even small companies have a level playing field and can compete with the big names in the IT industry in niche areas. Creation of virtual libraries and information databases is another sector which India can exploit. There is a potential $10 billion opportunity in this field.20 The writing on the wall is absolutely clear. Information Technology has the potential to push India into being one of the worlds leading economies. The Indian Prime Minister, AB Vajpayee says that, "India has what it takes to be a 'Knowledge Superpower', and the government will do all it can to make it happen. It is often said that the first industrial revolution bypassed India. Let it not be said that India was not in the vanguard of the knowledge revolution".21 >>Impact on International Relations Soft Power of Information Technology The exercise of soft power (the ability to achieve the desired outcome in international relations through attraction rather than coercion) in the information age requires credibility in order to be persuasive. Establishing a reputation for credibility involves providing accurate, filtered and relevant information even if it may reflect badly on the information providers own country. Governments that can credibly assure potential partners that they will not act opportunistically and will provide accurate information will gain advantage over competitors whose promises are less credible. During the Cold War, the United States was a more credible ally for Western European countries than the Soviet Union because, as a democracy, the United States could more credibly promise not to seek to exploit or dominate its allies. 22 In the colonial era, when various countries including India were fighting for independence, it was the Soviet Union that was a credible partner to all colonies because it championed the cause of the colonies for independence. Being an open society and a democracy, India is in a better position than countries with authoritarian regimes to assure potential partners of its credibility. India's recent success in the IT industry, the development of indigenous satellite and other electronic technologies, our ability to creatively use the Internet and the increasing success of Indian entertainment exports—film, TV, and music-draw attention to India's competitive advantage in these fields. The Indian media's self-confidence has been built in the face of decades of free competition in the cultural marketplace since India has remained an open society. Indigenous talent in the information and entertainment media has always been willing to benchmark itself against international competition and has not just survived but thrived. It is the export of indigenous entertainment that is important in projecting Indian images and India's image across the globe. The foreign policy dimension of the entertainment and information export (especially software export) should be obvious to any student of international relations because modern power in today's world is increasingly being projected through the soft power of information technology. Democratic and liberal India can make more effective use of various media than autocratic and insular regimes.23 India must continue to exploit this advantage. More importantly we should be aware that we possess this advantage. Export Controls Some governments insert various conditions in their trade laws in order to deny other countries access to their R &D and their high-technology exports. They have been restricting the export of hi-tech goods and services in the name of national security. The revolution in IT compounds threats to national and international security by greatly facilitating the transmission of information to potential aggressors. However, private markets and enterprises dominate information technologies. Therefore, efforts by the government to restrict their transfer have foundered because of the difficulty in stemming the flow of such technologies and the reluctance to forego the profitable revenue from this largely non-defence trade.24 While export controls may be justified in some sectors like encryption software, the use of denial and delaying techniques in other sectors may be counterproductive.25 Developed countries are using skilled manpower from many developing countries to develop these technologies. Pressure from the knowledge workers and the economics of the export of high-technology will force nations to ease export controls. The involvement of the Chinese in the US information technology industry needs to be studied in detail. "Today Silicon Valley has become Beijing's East Berlin, its gateway to the best Western technology. About half of the 900 technology transfer cases investigated annually on the West Coast involve Chinese", according to a US Defence Intelligence Agency analyst. "They have hundreds of front companies and have hundreds of people working in those companies", says a western military attache in Beijing.26 Cooperation Among Nations China has shown keen interest to step up cooperation with India in the field of IT. The Chinese IT industry has doubled every two years in the 1990s and the compound rate of growth between 1995 and 1998 has been estimated at 32 percent per annum. The total market in 1998 was estimated at US $ 36.5 billion. It has been suggested that Chinese and Indian companies could combine to provide software solutions in Japan and Korea. The Centre for Development of Advanced Computing (C-DAC) in India has suggested providing training courses in advanced computing and multi-lingual technology. The Chinese have also expressed interest in setting up joint ventures with India for the manufacture of computer hardware and components.27 One of the first visits by a Chinese delegation to India to restore normalcy to Sino-Indian relations after the Pokhran nuclear tests in 1998, was by a high level Chinese delegation headed by Qu Weizhi, Vice Minister of the Ministry of Information Technology to study India's software sector.28 The Joint Statement issued by the Prime Ministers of India and Pakistan at the end of the Indian PMs visit to Lahore in February 1999, identified IT as one of the areas to improve bilateral relations among the two countries. They decided that: "The two sides shall determine areas of cooperation in Information Technology in particular for tackling the problems of Y2K".29 There is tremendous scope for cooperation between India and Japan, India and the European Union (EU), and India and the US in the field of IT. According to Mr Kenichi Ohmae, the author of The Borderless World, described as "Mr. Strategy" and the architect of the ambitious "Malaysian Multimedia Super-corridor", Japanese companies are good at manufacturing, but bad at computers. They do not have a clue what to do with their computer set-ups that do not talk to each other. These "legacy systems" pose hurdles in developing a coherently integrated management, sales and supply chain, he feels. Indian IT experts have the capability to make these systems web-enabled and help Japanese companies become more efficient and cost effective, according to Mr Ohmae.30 In the European Union (EU) there is a shortage of 400,000 IT specialists. The business potential in the Euro conversion in UK alone is $2 to 3 billion. Indian software firms are poised to export software and services worth $3 billion for Euro-related IT projects in the next 3 years.31 At present Indian software exports to the US amount to 58 percent of the total while that to the EU accounts for 21 per cent. According to the US Ambassador to India, Richard Celeste, Indian and US governments can learn a lot from the cooperation between the IT industry of the two countries. The two governments should learn how to convert problems into opportunities, inculcate the quality of openness and learn how to improve productivity from the IT industry. According to him, there has been a 24 hour partnership between the two countries in cyberspace which has brought the two countries closer despite a 'blow-hot, blow-cold' relationship at the diplomatic level.32 Issues before India in the 21st Century India's IT sector will require 2.2 million globally competitive professionals to achieve an annual revenue of $90 billion by 2008, according to the NASSCOM—McKinsey Study ™ released in India on December 17, 1999. Having established a reputation for themselves in the software market these software professionals are likely to be much in demand. The annual output of trained manpower in the software sector in India is 70,000 persons with qualifications above the post graduate level. These numbers simply do not add up to the requirement of 2.2 million professionals by the year 2008. Moreover, countries like Malaysia want to build their 'Multimedia Super-corridor' with Indian talent. With a high bleed level of Indian software professionals to foreign shores, the Indian government is taking steps to train more people as well as retain professionals by providing added incentives. However, there is likely to be a "War for Indian Talent" in the next ten years and India needs to create opportunities to 'pull' these software professionals.33 Earlier, products had 90 per cent material and only 10 per cent of knowledge component. Today products have 95 per cent knowledge component and 5 per cent material component, which is a revolution by itself. General Electric (GE) will hire 350 Doctors of Philosophy (PhDs) in India every year and Ranbaxy, an Indian pharmaceuticals Multinational Corporation (MNC) hires 131 PhDs every year. Oracle and IBM have set up research facilities in India. All these factors indicate that in a knowledge-based society, India is likely to become a global research and development (R & D) platform. This will give India tremendous strategic leverage in the information age. We need to provide our knowledge workers with a good intellectual climate if we want them to operate from India.34 An important ingredient of India's IT strategy in the 21st century will be to "Anchor Indian IT MNCs" abroad, that is, encourage top Indian IT companies to become global MNCs. In Europe, Nokia is worth almost 2 per cent of Finlands GDP. Sweden is called the 'Silicon Valley of Mobile Phones' because of Ericsson, while SAP has played an `Anchor MNC' role for Germany. Silicon Valley in the USA serves as a regional development model which has an economic leverage of its own in the world. Companies like Hewlett Packard (HP) and Cisco played a critical anchor role in the Silicon Valley. All these MNCs encouraged innovation within their country and created a global brand equity for their products.35 Israel, a small country with no natural resources worth the name and with enemies all around has a wide array of hardware and software products, even as nearly 150 of its IT companies are listed on the Nasdaq. Israel has nearly 85 venture capital companies, spends nearly 2.2 per cent of its GDP on R & D, most of which goes to hi-tech industries, primarily IT and has a marketing muscle due to the global network of Jews and the connections that Israel has with the US and other European countries.36 India needs to encourage some of its top companies in the software field to become global MNCs. They can do this through acquisitions, by getting closer to customers and by using low cost financing tactics. Interdependence and networking will be the new mantras for countries like India in the 21st century. The compulsions of international trade, advantages in sharing technology and information and the globalisation of R & D will bring nations together. The Indians in the Silicon Valley expect more and more cross pollination between the people and governments of India and the US. Contentious issues like sale of hi-tec military hardware and dual-use technology, export controls and sanctions can be tackled through good networking, interaction between the US-India Business Council, lobbying firms employed by the Indian Embassy, the Indian-American community and the Congressional caucus on India. The 21st century will see a cooperation and networking of the intellectual capabilities of weaker nations, regional groupings and interest groups through information sharing. Such networking may lead to power centres and the formation of a polycentric world. The players in this polycentric world will depend on who decides to network and with whom.37 Conclusion In the 1950s, one of the Directors of the London School of Economics (LSE) had remarked that, "If a politician were to discuss politics without knowledge of economics, it would be a miracle if he talked sense". The same can be said about science and technology in the information age. IT is affecting all three pillars of national power: political, economic and military power. India essentially has three advantages in the information age. It has a democratic political set-up, a gene pool in human resource capital that is probably the best in the world, and English is widely used throughout the country.38 India's biggest success is its intellectual capital. About 5 million second generation American Indians are together worth US $ 250 billion per year, which is almost 60 per cent of India's GDP. This money can come to India if we build a good infrastructure and create a suitable climate for the growth of information technology. The Japanese understanding of 'Quality' is worth deep reflection. Using quality, what Japan did to the international automotive market, India has an opportunity to replicate in the software business. This means understanding and implementing "standards" and developing a customer oriented perspective.39 India now needs to break from its ideological moorings of becoming a champion of the interests of developing countries against the developed world in an increasingly pragmatic world. Trade negotiations are increasingly being carried out on an industry to industry basis. The position a country adopts in one area of trade negotiations need not necessarily determine the issues it emphasises in another area.40 In trade negotiations we must develop as many options as possible at the unilateral, regional and global level. India should now use the power of information technology, which has the potential to make India a power to reckon with in the first decade of the 21st century.