PDF: 2962 pages, 5.2 MB - Bay Area Council Economic Institute

Global Reach
D: Software/IT Services/Business Process Outsourcing
Key Findings:
• Bay Area and India IT/software firms collaborate as well as compete.
• Indian tech workers have filled a global talent gap as demand has soared.
• An enterprise IT focus has integrated Indian firms into global businesses.
• U.S. schools have not produced an adequate workforce.
• Pure cost arbitrage offshoring strategies are becoming less important.
• Using Indian talent enables high-end growth in the U.S. and expansion in emerging markets.
• U.S. Immigration policy drives away top tech graduates.
The industry sector for which India is best known has its roots in the 1969 decision by IBM to
shift to an open-standards strategy, unbundling the computer hardware, mainframe operating
system, and applications software components of its business. The same unbundling that jumpstarted
personal computing also produced an entirely new, global market for independent software
vendors (ISVs).
Stanford scholar Rafiq Dossani has chronicled the history of India’s software industry in a 2005
paper published by the University’s Shorenstein Asia-Pacific Research Center (APARC). Up until
the 1970s, most computing was done on mainframe systems by large corporate, government, and
institutional users. Custom software applications, to the extent they existed, were developed internally
because of the physical constraint that programming had to be done on site.
In the new decentralized market, traditional functions, such as basic data processing and tech
support, expanded to include system integration and maintenance, as separately developed
software programs were combined to perform customized tasks. Banks and other large enterprises
needed increased support for off-the-shelf software and began looking for low-cost options.
Israel, Ireland, and India were logical locations. Each had a domestic computer industry, a
pool of engineering talent, and English as the primary business language.
Israel, looking to support its defense industry, offered transnational software firms incentives
to relocate and hire local engineers, and Ireland opened its market upon joining the European
Community in 1973. India, in contrast, encouraged national champions. The 1973 Foreign
Exchange Regulation Act (FERA) restricted foreign investment except through minorityownership
joint ventures, which raised intellectual property concerns. Tariffs on imported
computer hardware and software were set high (135% and 100%, respectively) to protect
domestic industry.
In response in 1974, mainframe computer manufacturer Burroughs asked its India sales agent,
Tata Consulting Services, if it could send some of its programmers to the U.S. to assist a
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