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Software/IT Services/Business Process Outsourcing
Burroughs customer with system software installation. Banks and other IBM end users contracted
with Indian firms to ensure IBM compatibility of new applications software packages.
By 1980, 21 Indian firms were actively exporting programmers overseas, earning a combined
$4 million annually.
Many of those Indian programmers opted to stay on after their assignments. Many of the foreign
firms that left India, following the tightening of investment rules under FERA, were the early
clients utilizing India’s exported programmers. And by 1986, Dossani reports, nearly 60% of IIT
engineering graduates were also migrating overseas. Indian government “protection” had produced
a brain drain.
The Workstation Changes Everything
A convergence of factors in the mid-1980s altered the Indian IT landscape:
• Development of the Unix workstation decentralized computing power; the programmer
could be located offsite and networked in.
• Prime Minister Rajiv Gandhi’s 1984 New Computer Law lowered hardware and software
tariffs; made software exports eligible for bank financing and exempt from the
licensing raj; allowed foreign firms to set up wholly-owned software development operations
for export; established technology parks to promote the industry; and exempted
exports from income tax.
Texas Instruments and Hewlett-Packard branched into software R&D. Citigroup developed
custom software for internal use. TCS, Wipro Ltd., and other Indian firms shifted from exporting
programmers to outsourced custom software and product development based in India.
India’s 35 software firms in 1984 grew to 700 by 1990.
The new industry needed space, and Mumbai was expensive. Bangalore offered cheaper real
estate and infrastructure, including the first technology park created under the New Computer
Law. It was geographically located at the center of four states that produced more than half of
India’s engineering graduates, and it had been the birthplace of the Indian Institute of Science in
1909. TI, HP, IBM, Accenture, Oracle, Dell, and General Electric added to the critical mass, setting
up India headquarters there.
The presence of the transnationals attracted new domestic market entrants, ratcheted up competition
for talent and clients, and raised both the quality and technical sophistication of work being
done in Bangalore.
By focusing on exports—first of programmers and later of custom software—Indian companies
avoided the obstacles of a small domestic market, weak IP protection, and lack of adequate university
R&D or university-business links. And, where traditional Indian manufacturing industries
were heavily regulated, software and IT services were a new sector, offering relatively intangible
products and services that largely escaped the heavy hand of government intervention.
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