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Software/IT Services/Business Process Outsourcing
Growth Constraints
India’s IT-BPO sector grew during the 1990s, largely due to the relative absence of government
interference. As Wipro co-founder Vivek Paul puts it, “We love to remind the government that
the only reason we’ve been so successful is because they didn’t know we exist.” Still, the industry
had, by the late 1990s, begun to bump up against the limits of that success, including:
• lack of access to early stage venture capital to help small and startup firms expand;
• lack of a domestic market, due to the focus on custom software development for an
overseas customer base;
• a shortage of qualified graduate talent in specialized skill areas (only 300 master’s and 25
doctoral graduates annually as of 2000, according to NASSCOM);
• outdated university curricula and lab facilities;
• poor university-industry linkages, with faculty not encouraged to publish or consult; and
• scarcity of project management skills, placing domestic firms at a competitive disadvantage
versus transnationals.
The Y2K crisis exacerbated these problems, but also created an opportunity. A number of
India’s best and brightest engineers and programmers were already in Silicon Valley, working for
tech companies and research institutions, or attending graduate school. In the late 1990s, speculation
began to build that computer operating systems and applications worldwide might crash at
midnight on December 31, 1999 as their internal clocks might fail to recognize the new millennium.
Indian engineers and programmers were in place, at the center of the storm, doing cutting
edge work in computing and software.
But the sheer scope of the potential problem required even larger numbers of trained bodies,
working around the clock, company by company, to avert a possible crisis. It was the chance Indian
IT services and software firms were looking for to scale up, broaden their offerings, and prove
themselves in the global market. They not only gained unprecedented visibility into the complex
enterprise computing functions of the world’s largest companies and government agencies, but in
the U.S., they also encountered—and embraced—the lifestyle and culture of Silicon Valley.
In research conducted by the Public Policy Institute of California and UC Berkeley professor
AnnaLee Saxenian, it was reported that the number of Indian-run tech startup companies in Silicon
Valley grew from 47 firms in 1984 to 774 in 1998. By 1998, Indian-run firms represented 7% of all
Silicon Valley startups, accounting for $3.6 billion in sales and employing more than 16,000 people.
Subsequent research by Saxenian and a team from Duke University showed that 25.3% of the
nearly 29,000 engineering and technology companies formed in the U.S. over 1995–2005 (about
7,300 firms) had immigrant founders. Of those, 26% had Indian founders—a larger percentage
than immigrant founders from the UK, China, Taiwan, and Japan combined. California had the
largest share of Indian-founded engineering and tech companies.
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