It is 11:30 am on a Thursday morning, and Shiladitya “Sunny” Ghosh is just heading from home to his office in his two-month-old Hyundai Santro, one of a growing breed of foreign compact car brands in the Indian market. His office – enterprise application software firm NetGalactic – is just five kilometres away, in the southeast part of Bangalore called Koramangala.

    Mercifully the traffic jams – though nowhere near the massive sprawls of Bombay or Bangkok – that are beginning to crop up in other parts of the Silicon Plateau of India are not yet in Koramangala, and Sunny’s ride is swift and smooth. As head of business development, he was working till late last night taking client calls in Europe and the US for a new product “incubated” by NetGalactic: a software development workflow product called Skelta. NetGalactic is one of a growing number of Indian software firms to begin the migration up the value chain from a services firm to a product firm. On Friday night, Sunny plans to check out a movie – perhaps Mumbai Matinee or The Matrix Reloaded – and Saturday, of course, is reserved for one of the trendy new clubs popping up at the rate of almost one every few weeks: perhaps Spinn or i-Bar.

   The drive to work by IT workers across the city – especially to the techpark clusers in Whitefiled and Electronics City – takes them past dozens of billboards reflecting the “offline noise” of a well-heated IT industry: Intel, IBM, Texas Instruments, Wipro, Infosys, Sasken and Socrates.
Bangalore, home to the most dynamic of India’s IT firms, hosts the entire range of tech companies ranging from “body shoppers” and offshore development centres to back-office operators and multinational branches, with some product developers high-end R&D units thrown in.

   Few other countries illustrate the vast potential and also the domestic challenges of unleashing and harnessing IT as vividly as the billion-strong sub-continent of India. As a content-rich country with a free-press climate, an affluent tech-savvy diaspora population spread across the world from Silicon Valley and Sydney to Singapore and Southall, and with a huge pool of cutting-edge infotech and design skills, India has a lot to offer the domestic and global Internet market. But there is also the dark side to the proverbial coin: poor connectivity outside of the major cities, low levels of B2B activity online, and government policy footdragging in terms of creating a level playing field for infrastructure players.

    India has about 25 million Internet users, 30 million cellphone users, and a teledensity of just over 5% in a country with close to half the population hovering around the poverty line. Though India is still by and large a developing nation, there is also a burgeoning information society within. 25% of India’s workers are in the service sector, 60% are in the agricultural sector, and 15% in industry. India has more information workers than Japan, and the same number as the US. Overcoming the digital divide in conjunction with other socio-economic divides will remain one of the key development issues for decades to come.

    In terms of employment, the IT and IT-enabled services sector cities like Bangalore are a burgeoning industry and continue to draw significant pools of talent and energy, despite the current economic downturn globally. India seems to have cemented its position as “outsourcing centre of the world,” and Indian software, services and content companies hubbed in cities like Bangalore are gearing up to migrate up the value chain from basic services to products. In addition to tapping the global software market, having a sizable domestic user base means India can sustain a lot of local infrastructure, content, foreign capital investments, and an online market in general – unlike other smaller countries who need to be focusing much more on overseas markets.

    Although the growth in percentage has dipped a bit, the Indian IT industry still continues to grow at a steady pace. Irrespective of the slowdown, leading Indian IT software and service companies have continued to grow at over 50% – admittedly down from 65%.

    The Indian software and services industry has mushroomed from $50 million in 1988-89 to $3.9 billion in 2000-2001, over half of it in exports to countries like the US. It covers the entire spectrum from low-skilled medical transcription and remote call centres to high-end telecommunications software and e-commerce services – and in the last part of the last decade, a number of Internet media pioneers have emerged as well, led by Rediff and Satyam Infoway, who have listed on NASDAQ.

    Creating and sustaining a mature IT industry requires building and harnessing the requisite capacity in areas ranging from software and hardware to datacom and management skills. This requires a significant availability of formal educational and vocational training offerings for students and workers in e-business and
m-commerce. In India, the Indian Institutes of Technology, Indian Institutes of Information Technology and Indian Institutes of Management are offering courses and modules in areas ranging from embedded systems to global software project management. Professional training institutes like ApTech, NIIT, Pentagon Academy and SSI Technologies offer a range of courses in software engineering as well.

    As a result, India has more info-workers than Japan, and the same as the US. India’s software sector accounts for close to 325,000 employees, and at least 55,000 are needed each year to meet existing levels of demand.

   Today close to 300 Indian software companies have a US. presence. At one end of the spectrum, the Net opens up a huge market in teleservices – transcription, translation, data entry, project design, accounting, network management, Web services, remote education, and help desks. Some critics view these companies as low-tech sweatshops for MNCs, but they provide much better salary levels as compared to local jobs while also exposing employees to global standards of professionalism and new emerging ideas for potential startups.

    A highly publicised report on the infotech industry in India, released by NASSCOM and McKinsey Consulting, urged the Indian software and services industry to lift its revenue goals from $3.9 billion in 1998-99 to $87 billion by 2008. Software exports of Rs40,000 crore in year 2001-02 will represent a 41% growth over the previous year’s software and service export revenues, which totaled Rs28,350 crore.

   India will have to develop over 2.2 million high-quality knowledge workers in software related areas by 2008. A recent study by NASSCOM and the Boston Consulting Group projects a $9-billion business opportunity for Indian IT companies from global
e-solutions services market by 2005. The domestic market for e-solutions is expected to grow from a base of $65 million in 2000 to $500 million in 2005.

     With its strong base of government defense labs and manufacturing companies in the automotive and electronic sectors, the south Indian city Bangalore has blossomed and matured as a major design and development location. Sun, Intel, Sun Microsystems, ZiLOG and a number of other companies have set up design and development centers in Bangalore. Sun’s India Engineering Centre in Bangalore may eventually become its largest such centre outside the US. Lucent Technologies, Hewlett-Packard, and Oracle also plan to exploit Bangalore’s cost and talent advantage and expand their operations here.

    The IT-enabled services market includes a wide range of activities like engineering product design, purchase order processing, editing, transcription, remote network management, logistics tracking, financial processing, call centre support, telemarketing, remote billing, collection centres, subscriber management and help desks.

   For many of these services, 50% to 90% of the processing can be outlocated, and 70% to 80% of these costs can be significantly reduced. While the IT sector may be nervous about economic slowdowns in the US, the IT-enabled services sector in India may actually gain from US companies outsourcing non-core functionalities to Indian companies.

   Numerous companies are targeting the e-CRM space in India. Some, like 24X7Customer (which manages 85% of Altavista’s e-mail-based customer support), manage the entire outsourcing operation right from setting up telecom switches in client premises and routing calls to managing the private leased circuit to offices in India and servicing the customer requests.

   Voice-based call centres and Web-enabled CRM services are being offered not just for technical support – as with QSupport.com – but for other customer-centric activities for US and European companies like financial order processing and payroll processing to ticket bookings and medical transcription. These are run either by Indian companies or the Indian subsidiaries of MNCs like GE Capital and Dell.

    Indian software and services companies are scrambling to migrate from legacy application development and maintenance to Internet-centric computing and convergent platforms.
Wipro, NIIT and Aptech have software development centres in India for high-volume offshore work, and have marketing presences in over 35 countries. Companies like Infosys are moving to a more value-based pricing approach as compared to a cost-based approach. Some Indian companies have also begun making small acquisitions in the US, and set up alliances abroad.

    Areas ripe for foreign companies to consider Indian alliances include strengthening Internet security, data caching, Web-enabling legacy systems, XML-enabled application integration, implementing e-commerce sites (e.g. auctions, B2B exchanges), developing enterprise portals, managing content-heavy sites, standardising plug-and-play technologies, evolving WAP utilities, spinning off hi-tech consulting services, remote education and training and online market research.

    Precious management expertise from Indian Internet veterans in Silicon Valley is increasingly being ploughed back into the home country, via numerous start-ups and out-sourcing partnerships; these entrepreneurs have become popular role models for an entire generation of aspiring ICT-savvy youth. Much of this “brain bridge” from Silicon Valley also extends to venture capital into the Silicon Plateau, Bangalore.

   The crown jewel of India’s IT industry is undoubtedly Bangalore. Formerly a hub of the aerospace industries of India, it then became a major centre for hardware and subsequently software companies. Bangalore’s strengths include widespread English skills, sheer numbers of programmers, experience in managing global software and services projects, growth in MNC development centres, and connections with non-resident Indians in Silicon Valley who are excelling there such as VC Vinod Khosla, Sabeer Bhatia of Hotmail fame, Desh Deshpande of Sycamore and KB Chandrashekar of Exodus.

   A supportive role via mentoring, lobbying and sharing of best practices is also played by the regional office of NASSCOM, which recently held a “Spot the Star” competition in Bangalore to identify and reward the best promising product player in the city. The list of contestants is indicative of new directions that Bangalore’s IT industry is taking.

   They included Itellix (a Web services management tool provider), Subex (a world leader in software product suites targeting fraud detection for telecom companies), VXL eTech (a boutique developer of embedded product prototypes), Pradot (a medical transcription company targeting private physician groups in the US rather than hospitals), Srishti Software (vendor of knowledge management products for discovery), and LG Soft India (the software development wing of the South Korean electronics giant).

   “We are seeing a promising maturation of Indian companies. The India brand for software services and back-office operations worldwide is well cemented. Now we are seeing well-focused product companies emerge, with the right pedigree of promoters, technology suites and management,” says Poornima Shenoy, head of NASSCOM in Bangalore.