Multinationals lead India's IT revolution

By Steve Schifferes
Economics reporter, BBC News, Bangalore

India's software and outsourcing industries are growing fast

When 13-year old Taylor, who lives in Modesto, California, wants help with her homework, she no longer goes and asks her mother for help.

Instead she goes to her computer and gets on the internet, where she dials up an e-tutoring service, TutorVista, based in Bangalore, India, for help with her maths and English.

GLOSSARY Outsourcing: Moving company functions from internal departments to external firms Offshoring: Relocating corporate activities overseas. Nearshoring: Relocating offshore activities nearer the client's home country BPO: Business processing outsourcing - moving white collar tasks like accounting or invoicing. to an external firm Captive firms: Companies owned by foreign multinationals who perform outsourcing services for the parent firm UK call centres/US contact centers: Offices where workers provide telephone customer services like sales

"My daughter is literally at the top of every single one of her classes and she has never done that before," says her single-parent mother, Denise Robison.

Denise pays $2.50(£1.26) per hour for the service, a fraction of the $40 per hour charged by US online tutoring services or the $100 an hour charged for face-to-face tutoring.

The Internet IT services revolution

Denise's experience is just one small example of the IT services revolution that is sweeping the world of business, and is changing the face of India.

In the past, economists thought that only goods could be traded across borders, while most services could not be imported and therefore were not subject to the same pressures from international competition.

The IT sector has a definite potential for contributing to broad-based growth and broader economic objectives Professor Nirvikar Singh, University of California, Santa Cruz

But the internet has changed all that, and now the fastest-growing portion of international trade is trade in services.

And it is big companies, not private individuals, who are making the most of the lower cost of many internationally traded services.

They have found that it is cheaper to outsource many white collar tasks - such as accounting, IT support, and payrolls - to locations overseas.

See who is moving to India

The global leader in the provision of these services, known as business process outsourcing (BPO), is India, which exports $25bn per year worth of these services, a figure that is expected to rise to $60bn by 2010.

Advantage India

There are many reasons why India has become the centre of the global IT services industry.

We believe that India is the hub for the world where the ICT sector is concerned Wim Elfrink, Chief Globalisation Officer, Cisco Systems

It has a highly educated workforce, with two million college graduates a year, all of whom speak English.

It has excellent international data communications links, and good internet access in the major cities.

And the wages of its professional IT workers average one-quarter to one-tenth of the wages of equivalent posts in Europe or US.

Infosys' IT campus in Mysore can train 10,000 workers

But the Indian IT services industry only began to develop when the government opened the country to the forces of globalisation, ending regulation at home and lowering barriers to foreign investment, in the early 1990s.

The government deliberately targeted the export-oriented IT services sector for growth, giving it special subsidies.

Multinationals rush in

Foreign multinationals flooded into India, eager to take advantage of the cheap professional labour and the opening up of one of the world's biggest markets.

Shopping mallls have proliferated in Bangalore, India's IT capital

The first US multinational company to enter India was Texas Instruments, back in 1988.

At first they faced considerable obstacles in getting data sent back to their head office in the US.

The Indian Ministry of Communications refused to allow them to set up their own private satellite dish unless a government official was present in the control room of the company's satellite data transmission centre at all times, according to the company's first Indian managing director, Srini Rajam.

But within a decade all such barriers were swept aside, as the cost of data transmission plunged due to the creation of trans-oceanic fibre optical cable networks.

Now more than 500 major international companies have IT operations in Bangalore alone.

Among the household names are Hewlett-Packard, Dell, IBM, and Accenture.

A faster chip

For Intel's John McClure, the company has no choice but to be India.

Office space in central Bangalore is dominated by foreign multinationals

Intel's Indian development centre played a key role in the company's strategy to develop new chips for computers which will be compatible with Microsoft's new Vista operating system, which will begin rolling out in January.

Mr McClure told the BBC that Intel's new R&D centre ramped up quickly in order to lead in designing Intel's new dual core Centrino chip for laptops.

Microsoft itself has established one of its three global fundamental research centres in Bangalore - the other two are in China and at Microsoft's HQ in the US.

The fact that so many hi-tech companies have located in India can bring broader advantages.

"The IT sector has a definite potential for contributing to broad-based growth and broader economic objectives," says Professor Nirvikar Singh, University of California, Santa Cruz.

World hub

It is clear that it is no longer cheap labour that is attracting these companies.

In December, Cisco Systems, announced a $1.1bn investment in Bangalore, creating 6,000 jobs.

It will be run by its new chief globalisation officer, Wim Elfrink.

Companies like Cisco see being in India as vital to spotting the next generation of products and services that the company should be making.

"We believe that India is the hub for the world where the ICT sector is concerned," said Mr Elfrink.