Industry consultants have long been predicting the demise of Indian info tech.They have cited attrition rates, rising costs, and even the advent of cloud computing as reasons why the Indian tech industry will suffer steep declines. But they have been dead wrong.
Within a short 20 years, Indian IT has grown from almost nothing to a $73 billion industry. Even during the recession, the industry grew 6 percent and remains on track to grow an estimated 15 percent this year. That is because Indian technology companies have been moving up the value chain to provide such high-value tasks as research-and-development and business-transformation services. Now Indian industry is riding its fourth wave: the development of sophisticated technology products.
The Indian technology industry got its start running call centers for companies in the West. In the 1990s, it took on low-level IT work and Y2K remediation. In the 2000s, it started performing sophisticated R&D. Indian engineers are today designing aircraft engines, automotive components and manufacturing plants, next-generation microprocessors, telecom products, and medical devices. According to Indian trade group Nasscom, India's engineering R&D services industry has grown from $1.4 billion in revenue in 2004 to $10 billion in 2010. Nasscom forecasts that this will reach $24 billion by 2015 and possibly $45 billion by 2020.
New Breed of Entrepreneurs
Now, instead of providing IT services, as the big outsourcing companies do, a new breed of Indian startups is developing high-value products based on intellectual property. And they are focused on solving problems of the developing world rather than those of the West. Four significant trends are facilitating this transition.
1. Hundreds of thousands of workers in India's IT industry now have more than a decade of experience. The same entrepreneurship dynamic is at play as in the U.S., where some skilled workers reach middle age, get tired of working for others, want to build wealth before they retire, and have ideas for products that solve real customer problems—so they start companies. The average age of American tech entrepreneurs is 39, and they typically use their own savings to bootstrap their startups. Thousands of Indian IT workers are following the same path.
2. India has the largest population of young people in the world and now graduates around 500,000 engineers a year. So far, the biggest inhibitors of youth entrepreneurship in India have been the social stigma associated to failure and the low social esteem bestowed on startups. In the arranged-marriage system—which is still the norm in India—a young male who joined a company such as Infosys (INFY) or IBM (IBM) would command the best marriage proposals, and those who took the startup path risked trading down. No longer. With the success of the first generation of tech entrepreneurs, attitudes are changing. India's youth are also more willing to defy marriage customs to fulfill their dreams. Tech entrepreneurship is becoming cool and gaining respect.
3. Local markets and the cost of developing technology were a constraining factor for cash-starved startups. With the advent of cloud technologies and low-cost development tools, anyone, anywhere, can create world-class products and market them globally.
4. India is the world's fastest-growing mobile market, with more than 20 million new subscribers every month. Low monthly plans, cheap handsets, the expanding reach of cell-phone infrastructure, and the advent of 3G and 4G technologies are transforming rural and urban businesses by improving connectivity and expanding markets. People are also using cell phones for business transactions, banking, information research, and entertainment. India's software developers are devising new and innovative applications for its masses. As a result, entrepreneurship is booming. Startups are building sophisticated medical devices, Web technologies, cleantech products, and mobile applications. Nasscom reports that the Indian software products industry alone produced revenue of $1.6 billion in 2008; it forecasts that this will grow to $11 billion per year by 2015.
During my last three trips to India over the past 12 months, I met about 400 local entrepreneurs. The technologies I saw weren't just Twitter- and Facebook-type applications, like what young entrepreneurs in Silicon Valley produce. Indians are building micro-marketplaces and news services for villagers; medical technologies that make health-care services more accessible and affordable; systems that help solve public transport problems; and earth-friendly inks and battery technologies.
So unlike the previous waves of Indian IT, this one won't lead to more outsourcing. It will lead to the development of innovative new technologies that can benefit the world.