Saxenian on Bangalore, 5 years ago

Back to India: Indian software engineers are returning with enthusiasm and etrepreneurial know-how, Saxenian, WSJ January 24, 2000

The Bangalore boom: From brain drain to brain circulation? Saxenian. In Bridging the digital divide: Lessons from India, Kenniston and Kumar (eds.), 2000, National Institute of Advanced Studies, Bangalore.

Bangalore: The Silicon Valley of Asia? Saxenian, Conference on Indian economic prospects: Advancing policy reform, Center for Research on Economic Development and Policy Reform, Stanford, May 2000

In 1999 and 2000 AnnaLee Saxenian wrote a series of papers and articles (1, 2, 3) about Bangalore's prospects of becoming the Asia's "Silicon Valley." She drew heavily on her research of Taiwan and the Hsin-Chu hardware cluster in the analysis. Reading these pieces is an interesting look back in time - and useful for putting the current hype in perspective.

At the time India seemed successful in - but limited to - its role as a source of cheap, reliable and routing software coding. To her surprise, Saxenian found that increasing numbers Indian entrepreneurs in Silicon Valley were starting businesses in Bangalore and elsewhere in India. Given the importance of Taiwanese Silicon Valley entrepreneurs for Hsin-Chu's success, she saw this as a hopeful sign for Bangalore. Returnees were bringing angel/venture capital, business models and knowledge of (U.S.) customers with them, along with a willingness to take risks. The government of Karnataka seemed intent on supporting the growing IT industry. All this contributed to a new-found hope in India's IT potential.

However, there were enormous obstacles still to overcome. The bureaucracy and red tape were overwhelming despite the goverment's efforts to help - or at least stay out of the way. Physical infrastructure remained a huge problem. Many Silicon Valley Indians stayed in Bangalore long enough to set up their companies facilities, but then moved back to the U.S. As a result, there was no group comparable to the 'argonauts' (Taiwanese who shuttled between Hsin-Chu and the Valley several times a month) that Saxenian considered crucial Hsin-Chu's success. In addition, many of these new facilities felt more like Silicon Valley outposts than like Bangalorean service centers; most of the people linking India and Silicon Valley were a part of large, international firms, rather than independent entrepreneurs. This severely limited the potential for knowledge spill-overs, both technical and organizational. In 2000, the software industry was still dominated by the "big three" Indian firms (Infosys, Wipro, TCS) and smaller, specialized firms had yet to develop in significant numbers, heavily skewing the size distribution of firms. So, while the anchor firms (both Indian and foreign) were well-developed, the mix of large and small firms typical of successful clusters hadn't emerged.

In the end, Saxenian felt that the ingredients for Bangalore's success were not yet in place, but that the potential was increasing. It would need to develop quickly since Bangalore was already experiencing wage inflation and could no longer compete solely on cost. Competitive pressures were forcing it to move up the value-chain.

In short, there is a small but growing technical community linking India and Silicon Valley - one that could play an important role in upgrading the Indian software industry in the future.

In Saxenian's opinion, Bangalore's best bet was to focus on the domestic market - as a driver for innovation, entrepreneurship, market scale, and knowledge networks. The industry would thus develop a broader base as various firms specialized in different niches. It would also grow enough to allow more specialization (another important factor in cluster development).

Finally, Saxenian pointed out that IT was a success story that should inspire other industries - it would never be able to serve as India's main development strategy.

Many of these points remain valid today, even though there have been some important changes. The emergence of various speicalized, smaller firms (e.g. in biotech and bio-informatics) has gone some way towards balancing the mix of firm-sizes and introducing variety. Bangalore's success in attracting R&D labs and R&D outsourcing is letting it move up the value chain and increase the scope of technological expertise. The amount of venture capital is also growing rapidly and set to increase even more.