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Indian infotech needs to partner east Europe, target China

First and foremost we have to remember that in today’s world no one can afford to rest even for a moment. Especially not in a sector in...

First and foremost we have to remember that in today’s world no one can afford to rest even for a moment. Especially not in a sector in which technological and other forms of change are as swift as they are in information technology. Recall what happened in Silicon Valley — in a moment so many stars shot off the sky. Recall that the other day Ireland was one of our main competitors in software; it still is today, but it is also a country firms like Wipro now view as a potential market.

Next, the one way to counter the backlash that is welling up is to provide services of such quality, at such cost that the firms in US, Europe etc, that use them become lobbyists for us. They should be telling their contacts in those governments and legislatures that they will be rendered uncompetitive if they are prevented from accessing India.

That is what happened in manufacturing vis a vis China: American firms that had invested in China, American firms that were importing from and exporting to China are the ones that worked overtime to ensure sanctions were not imposed on that country in the wake of Tiananmen, with the severity many were urging.

Third, we must go on diversifying our markets. The figure we encountered earlier — that the US accounts for 60 per cent of our IT exports — is not something that should by itself discourage us: perhaps the US accounts for some similar proportion of the use of IT as a whole. But it should caution us. Germany and Japan are the obvious markets we should target: Germany’s IT market is worth $ 66 to 70 billion; our IT exports to Germany are only $ 250 million — that is, if you accept our figures; they are just $ 50-55 million if you go by German figures.

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And as countries like Cyprus, Bulgaria and others join the European Union, forming strategic alliances with their companies, even setting up subsidiaries there can help us vault over such tariff or non-tariff barriers that may be set up in the coming years. They have strengths — for instance, in mathematics. We have strengths from which they can gain — for instance, entrepreneurial skills as well as good knowledge of the markets that have to be targeted.

‘‘And frankly,’’ says an Indian IT executive who has long worked in Europe and knows it well, ‘‘there is racialism. Mounting a campaign, ‘Our jobs are being taken away by Indians’ is easy. Mounting a campaign, ‘East Europeans are stealing our jobs’ will be difficult. Others within Europe will muffle those voices.’’ So, alliances with those who will be joining the EU. And there is no time to lose — some of them join from the coming May.

One other potential market is the host of western firms that have set up operations in China. Many of our major software generators supply various kinds of software services and products to their principals outside China: given the fact that they already know the acumen of our firms and professionals, their subsidiaries in China will feel quite comfortable in assigning work to our firms.


Fourth, we can be certain other countries will learn to provide several of the types of services that we have been supplying. And each of them will have advantages of its own. For instance, that we know English has been one of our advantages. Little Mauritius, as its professionals pick up IT, will have an advantage in accessing the French market: Mauritians speak French as their mother tongue.

The Chinese will soon overcome English: and they will do so with the focused pursuit that has become their hallmark — a report said the other day that they had imported 20,000 teachers of English, and that many of them had been deployed in the IT industry; another report said they had decreed that every taxi driver — that should actually read ‘‘even every taxi driver’’ — in Beijing would have to be fluent in English by the time the city hosts the Olympics four years from now.

The lesson is obvious: formidable as our achievements are, as others will start doing what we have been doing, we must continually aim to provide ever more complex IT services and products.


And we can do so. After all, we are among the half a dozen countries that put satellites into space; we are among the few that have manufactured guided missiles; we are among the three or four that have put supercomputers together on their own; we are among the few that have developed nuclear weapons; our scientists have done excellent work in imaging from space.

Each of these tasks has required software of high complexity. Far from sharing the requisite technologies, software etc, other countries have done everything they could to deny them to us. All of the required software and hardware have been devised by our own professionals. So, our scientists and IT companies can.

Indeed, apart from moving to more complex IT products, we should move to integrating the software services we provide with providing complete business solutions. Recall what Indian professionals were able to do to turn the Shinsei Bank around in Japan. There is much that our IT firms can learn from the sort of mutation a firm like IBM is going through. We think of IBM as a company manufacturing computers. The fact is its computers are not ‘‘manufactured’’ at any one site now. What it does by way of hardware is better described as ‘‘assembly’’ — of components produced in many countries.

Even more significant, providing hardware is itself becoming an activity that describes the past of IBM. The Economist reports, ‘‘Big Blue (IBM) expects profits to migrate to software and services, and is managing its product portfolio accordingly. For example, it has sold its hardware drive business and acquired the consulting arm of Pricewaterhouse Coopers, an accountancy firm. Slowly but surely, IBM is morphing from a technology vendor with a strong IT-services arm into a business consulting firm that also sells software and hardware.’’ (The Economist, May 10, 2003, page 18).

We have much to gain by vastly extending the range of non-IT services that are provided via IT. Lawyers and chartered accountants are ever so expensive in the US and Europe. You just have to get our young graduates of the National Law School to bone up on American or German law, or our accountants to learn the particulars of accounting practices in those countries, and they will provide the high-flying legal and accounting firms there the kind of research and back-up assistance they can’t dream of.


And thanks to the advances in IT and telecom infrastructure, that assistance can be provided in real-time, online. The same goes for medical diagnosis and counselling. And for a host of other specialisations.

But there is a prerequisite. A country cannot go on doing increasingly complex things in thin air. Unless institutions of higher learning maintain standards of excellence, and unless they produce persons of requisite quality in large numbers, the country will not be able to maintain such lead as it has acquired.


F.C. Kohli, one of the pioneers of the IT industry in India, began a presentation the other day with a telling figure. ‘‘A few institutes like IITs together produce about 2,500-3,000 top class first degree engineers. About 2,000 migrate abroad, another 500 opt for business management.’’ You can infer how many will be left at the end of the stream for scholarly work in their disciplines.

The numbers signing up for basic sciences — mathematics, physics, chemistry — has been falling at an alarming rate. Such trends have to be reversed. Many proposals for doing so have been advanced. Among them is the elementary one — of multiplying the sheer number of persons in such disciplines that we turn out: Kohli and his associates conducted a most imaginative analysis of the gap that exists between one of the best institutions in Mumbai and the regional engineering colleges in Maharashtra. And he has devised a concrete —and inexpensive — plan to upgrade the latter so that the number of engineering graduates can be multiplied ten-fold.


Similarly, the smallest changes in governmental regulations will cause a flood of private investment to come into institutes of higher learning. Why should we have just five IITs? Why should we have only half a dozen IIMs? Why not 50 of each — and each of the standard of the present ones? Reforms in this sphere will repay the government’s efforts a hundred-fold in no time. And unless they are brought about swiftly, India will not attain the leadership we talk about in fields like biotechnology, indeed it will lose the lead it has established in IT also.

Several kinds of steps are being taken to counter the backlash:

l NASSCOM as well as our embassies are working with companies that are locating operations in India, and with their associations. Together they are documenting — to senators, to governors, to their staff — the advantages that have accrued to the US economy, for instance, as a result of the services that Indian IT companies have provided.

A recent study by the Mckinsey Global Institute estimates that every dollar’s worth of labour cost outsourced by US firms creates $ 1.45 to $ 1.47 worth of wealth worldwide. A full $ 1.12 to $ 1.14 — that is, 75 to 80 per cent — of this comes back to the US: not just in reduced costs — Mckinsey estimates that costs get reduced by 45-55 per cent of initial costs of the operation, by 65-70 per cent once the business processes too are re-engineered; not only in increased revenue — because of the huge reduction in costs, American firms can now go after unpaid amounts that were earlier too small to pursue; on top of all this, the off-shoring provides orders for US firms — a call centre is set up in India, telecom equipment for it comes from …

l We have to redouble coordination with countries that have as much interest in accessing western markets as us — including many that are competing with us for this space: China, Mexico, Brazil, South Africa. As happened at Cancun, together we have to convince the developed countries that we will not open our markets for goods if protectionist walls are put up to block services.

There are other things to which we must pay special attention lest we give a handle to those who are campaigning against outsourcing. An American expert well versed in IT trends in the US, and one sympathetic to India, illustrated this by what he told me the other day. ‘‘You are just one privacy incident away from disaster,’’ he said, pointing to the urgent need for our firms to ensure that the data they receive, the processed data they send back is completely secure.

He pointed to a chilling instance: a firm used to get medical data transcripted by qualified persons in prisons: one of the persons handling the data threatened to use it in an unauthorised way, and that was the end of the arrangement.

What should governments be doing to help the IT industry grow even faster?

Tomorrow, part III: The government and IT

First published on: 04-01-2004 at 00:00 IST
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