The Bangalore Story The rise of Bangalore as the “Outsourcing Capital of the World” ? its roots founded from the wave of globalization and liberalization which came into India in the early 1990s - is extraordinary to say the least. The city has come a long way from simply being the educational hub of southern India to being one of the strongest talent magnets in the country. Industry consensus over the years has pointed to the inherent strengths of the city as having catapulted its development to being the Silicon Valley of India. However, rarely has the enhanced pace of its evolution and growth been attributed to the impact of “calculated planning,” or even unintentional factors, that has created the phenomenon known as “Bangalored.” This article attempts to understand not only the inherent strengths of the city but also the agents of change that have transformed the unknown capital of the state of Karnataka into the Outsourcing Capital of the World.
Bangalore Rising
The following section looks at the contributory factors and ecosystem dynamics factors that have enabled Bangalore to become the Outsourcing Capital of the World.
Factor One: Growth in Area and Population
Bangalore, with its strategic location, congenial climate, and expansive territory has continued to attract inhabitants, in turn expanding its area and population. The cosmopolitan nature of the city has also become a strong drawing point for the city.
In the pre-independence era, with the establishment of the cantonment, the prospects of trade, employment and other means of livelihood increased and people started setting on the fringes of the cantonment area and various localities began to emerge from as early as the 1800s. Bangalore developed not only as a headquarters of administration and an educational center of Karnataka but also had a tremendous growth as an industrial center. Within a decade and a half after the re-organization of states in 1956, Bangalore became the seventh largest city in the country by 1971 - its population exceeding 1.6 million. Its population growth in the decade between 1971 and 1981 has been beyond any expectation and reached nearly the 3 million mark raising its place to fifth among Indian cities.
About a decade before the turn of the last century, the old towns of Bangalore began to expand rapidly. As the city expanded, absorbing smaller townships and surrounding cities, the rapid growth attracted the attention of government and efforts were set afoot for a more systematic development of Bangalore. Hence, the city was brought under a single Greater Bangalore Municipal Corporation (BBMP1). 2 It also must be noted that the Bangalore jumped from its 34th place in 2000, to the 29th spot in the future cities in 2015 (based on population growth). 3 An ambitious but realistic Master Plan 2015 is already underway by the Bangalore Development Authority based on the current population growth rate of 3.25% annually.
Factor Two:The Arrival of the Technology Industry in Bangalore
Bangalore saw the most spectacular growth with the establishment of government driven Public Sector Units (PSUs) like the Hindustan Machine Tools (HMT), Indian Telephone Industries (ITI), Hindustan Aeronautics Limited (HAL), National Aerospace Laboratories (NAL), Bharat Heavy Electricals Limited (BHEL), Bharat Earth Movers Limited (BEML) and National Government Electric Factory (NGEF). Also research and education establishments like the Indian Institute of Science (IIS), Indian Institute of Management (IIM-B), National Law School of India University (NLSIU), Indian Space Research Organization (ISRO) and Space Commission and Department of Space (DOS) acted as catalysts to the technology environment of the city.
Overall these changes made the city acclimatize to the science, electrical and information technology industries earlier than most other mega cities in India. This gave rise to the exponential growth of Internet based businesses in the city over the next decade giving rise to India’s dotcom boom. Due to the large number of professionals that the science and technology industries employed, the city became one of the hot spots for attracting technical talent from around the country in the early 1990s.
The new millennium saw Bangalore moving ahead of the dotcom burst and the Y2K bug, and the early part of the last decade saw Bangalore positioning itself for the outsourcing wave, becoming a logical (and early) incubator for the local services industry. With local talent availability and expertise already developed, the world would take notice of the city’s immense and untapped potential.
Factor Three: The Outsourcing Wave in Bangalore
The Government of Karnataka took the initiative to develop the electronics industry in the city, though may not have fully realized the gargantuan effort it would take to fully harness the future potential of the sector. With about 335 acres of land ? 18 km south of Bangalore, the Government undertook one of the most important steps to date in creating a blueprint of a new industrial park called Electronics City. As of date, Electronic City is home to over 120 ITO/BPO companies and contributes a significant amount of outsourcing and IT related revenue to both Bangalore and the country.
During the 1980s, led by Wipro and Infosys, a number of private enterprises specializing in computer systems and software development began to emerge in Bangalore. India had already been the location of choice for international corporations to recruit technical talent. What these new firms helped catalyze was the paradigm shift of India being a location for business operations and not just for ‘body-shopping.’ This initiated the reputation of ‘high-quality services at low cost’ for India in general and Bangalore in specific.
The next logical stage saw the advent of global giants into India, starting with the US-based Texas Instruments establishing an agreement with India’s VSNL,4 the first offshore software production center in the city. This event further fueled the emergence of other offshore development centers and services globalization as a truly prominent industry in the Bangalore landscape.
As the Department of Electronics (DOE) realized the potential of the employment opportunity, market demand, and technological feasibility -it developed the Software Technology Park (STP) scheme. The scheme was designed to attract offshore software production houses and 100% export oriented units, to government managed facilities offering broadband communication networks, reliable infrastructure, tax breaks, and tariff-free imports of equipment. The existing Electronics City in Bangalore was recognized as the first of the six STPI units when the scheme was implemented. The value proposition for Electronic City was further enhanced with STP’s broadband communication system being established in Bangalore while excellent Telco and Internet connectivity were made a part of the incentive to locate in the city. The other large zone for outsourcing players developed in collaboration with STPI, the central/state governments and Tata’s team from both India and Singapore was the ITPL5. Construction for the ITPL began in early 1995 and within four to five years, the park had achieved close to 75% occupancy. Karnataka also became the first state to develop and implement a state-centric IT Policy in the year 1997 (Information Technology Policy 1997).
Factor Four:Rise as a Premier Outsourcing Destination
What followed after initial incubation phase for Bangalore was extraordinary to say the least, the number of ITO/BPO companies erupted in the mid-1990s up to mid-2000s with more than 5 MNCs establishing in the city on an average every month. The events in the late 1980s were already paving the way for the offshoring of services, and as the US and Europe were beginning to face shortages of software professionals, and as their talent pools were finding difficulties in coping with the rapid expansion of multinational firms, and demand for increasingly more complex software solutions across industry verticals. Back in the 1970s and 1980s, entire batches of students from the top technical institutes in India used to migrate to the Americas or Europe. This created a large presence of Indian professionals in these firms and the Indian Diaspora promoted the belief in Indian talent and India amongst the decision makers. These factors prompted the first few ‘outsourcers’ to venture to Bangalore - they were not only surprised with the technology know-how of the professionals in the city but also with the general attractiveness of the business ecosystem of the location.
The early entrants were Texas Instruments (1985), Motorola (1987), HP (1989), Nortel (1991), Sun Microsystems (1995), Cisco (1995), Philips (1996), IBM (1997), and Intel (1998) - were conservative to start with. However, once the value proposition was proved with success stories from these early captive setups, succeeding companies such as GE (2000), Google (2004), Yahoo (2005), Microsoft (2005) among others, became more aggressive and served as very strong case studies in validating Bangalore as a feasible and profitable delivery center location for outsourced services.Looking briefly at the value some of these early settlers were able to derive from the city and the impact they had on Bangalore rising.
Texas Instruments
TI established their center in Bangalore in 1985 with only 20 professionals, the establishment now houses more than 1,200 engineers and over 500 business associates. The area of specialization for their Bangalore center is primarily Research and Development, and Sales & Marketing of semiconductor products in India. The center also contributes to TI’s innovation lab for wireless handset technology R&D.
Texas Instruments: Impact to/from Bangalore
The key achievement for TI in Bangalore was the development of economical mobile handsets; the same technology has been used by TI to become the second largest chip maker for mobile phones around the world. R&D initiatives in India have resulted in close to 300 patent applications being filed from engineers in TI’s Bangalore development center.
In order to bridge the employability gap in the country, TI (India) assisted in developing master degree programs in VLSI design and signal processing in more than 15 universities across India, including prominent institutes like the Indian Institute of Science, Bangalore. TI’s University program in India impacts 10,000 students a year in more than 400 universities and colleges across India. Texas Instruments venture into Bangalore proved beyond doubt the capabilities of the city and its benefits of cost and talent availability.
Motorola
Motorola’s captive in Bangalore was started in 1987, and this R&D center has continued to expand ever since with the company establishing an internal software development division (Global Software Group) in 1991. Apart from Bangalore, Motorola has also expanded to Hyderabad and Delhi NCR. The captive center in Bangalore focuses on software development for all Motorola handsets and research on wireless technologies.
Motorola: Impact to/from Bangalore
Motorola India develops software and applications for its handsets sold across the world, including the software used in Motorola Accompli PDA-cum-GSM phone that was launched globally and was developed entirely in India. Nearly 40% of software for all Motorola’s latest phone is researched, written and tested in India.
Motorola has been actively involved in improving the employability of the Indian talent pool by donating its networking processor technology to more than 15 top institutes in India under the IMPACT-SSS program of the Ministry of Information Technology and Bangalore based Indian Institute of Science.
Hewlett-Packard
Hewlett-Packard’s operations in India (called HP India Software Operations) started more than two decades back in the year 1989 and primarily concentrates on developing, enhancing and improving HP solutions across its varied products folio. The major wave of expansion for India operations happened in the year 2000 with 2 new centers established in the city. Bangalore now caters to a large gamut of services stretched across Customer Service to R&D for HP.
Hewlett-Packard: Impact to/from Bangalore
HP now has over 1,200 engineers working across eight different centers which are all part of HP-ISO, the center works closely with other vendors and partners like GlobalSoft, TCS and Wipro for maintenance, implementation and support services.
HP has also had a significant impact in India and Bangalore, as apart from the HP products which now reach households across the country, the company also highlights Bangalore’s capability in not just handling low-end programming but also high-end ITO services providing support services for HP’s global client bases. HP has also established a joint training lab with IIT, focusing on technologies for developing markets. The objective of the lab is to provide an environment for HP professionals to work with the academe in the creation of communication technologies.
Nortel Networks
Nortel established its first office in India in 1991, as the country began the process of liberalization for the telecommunication industry. Since then Nortel has grown rapidly, evolving into a major telecommunications player in India, working out of offices in Mumbai, Delhi, Bangalore, Chennai, Hyderabad and Kolkata. Avinash Vashistha, CEO, Tholons was instrumental in bringing Nortel to India and developing its center in the city. He further outsourced and partnered with third-party providers like TCS, Infosys, Wipro and Sasken. Nortel became the first large global client for these providers who were just taking their first steps into integrating the outsourcing model into their internal processes. TCS, the only known provider from India at that time, was made responsible for Nortel’s legacy systems, while Wipro received the contract for enterprise systems and optical networks. Infosys on the other hand was outsourced the intelligent network, new generation network and select network management pieces. Sasken’s first client was Nortel and they were contracted to take care of enterprise systems for the EU and wireless systems. It became one of the largest establishments for Electronic City, Bangalore and grew rapidly under Avinash’s leadership.
Nortel Networks: Impact to/from Bangalore
Nortel’s centers in Bangalore enabled the giant to develop expertise in infrastructure services, Internet based services, and innovation for cellular services. The company served the Indian domestic market by partnering and collaborating with BPL Innovation Business Group as well. Nortel also invested heavily in the academe and partnered with top institutions like IISc in Bangalore, IIT in Kharagpur and IIM in Ahmadabad.
IBM
IBM re-entered India after their exit in late 1970s due to restrictions on MNCs at that time. Their entry back to India came with a joint venture with TCS. However, the opportunity of establishing in Bangalore was soon visible and IBM Global Services was established in 1997. The center first became the development and testing center for IBM, was soon the location for numerous (and significant) projects such as the Blue Gene and IBM’s Giga Processor successfully. The expansion for IBM in Bangalore continued with another new facility for web-based application development, the Solution Partnership Center (SPC).
IBM: Impact to/from Bangalore
IBM was able to strike the right on-site (India) and off-shore (US) mix and that resulted in the phenomenal growth of the company. Currently their India center employs over 4,000 engineers and tester and also a sizable BPO headcount after their acquisition of Daksh eServices, India"s third largest business process outsourcing firm in 2004. IBM Daksh was the first acquisition done by the company in India and it helped them develop significant competencies in the BPO space.
IBM went ahead to establish a Center for Advanced Studies in their Bangalore facility to promote co-operation between employees and key engineering institutes in India. The center (one of eight around the world) offers advanced technical course students (like M.Tech., MS and PhD) from top institutes in India, access to IBM research repository and its personnel for solving complex development problems. IBM collaborates with NIIT to improve the employability of the talent pool by training them with IBM software technologies. Also the global giant introduced the National Entrance Test (NET) for IBM Advanced Certificate courses in software engineering - a structured short certificate program offered by authorized centers in India.
Established Center of Excellence
The dimensional factors of 1) growth and expansion of the city, 2) its early introduction to technology, 3) the infrastructural/regulatory preparedness, and finally 4) the impact of early entrants ? have provided the catalyst to the rise of the services outsourcing industry in Bangalore. Though the outsourcing trend in India may have started in Bangalore ? it did not stay there for long ? other Indian cities and countries across the globe soon followed suit. The Top 5 offshore nations are India, Philippines, Ireland, China and Brazil, followed by the Next 5, which today include Poland, Vietnam, Canada, Mexico, and Russia. 6
One of the pronounced advantages for Bangalore was the establishment of entrepreneurial ventures from the likes of Infosys and Wipro and others like TCS, Satyam, HCL, Genpact, Cognizant and Patni - who setup large development centers in the city. Due to the success which these companies have experienced, the perception of Bangalore as a viable delivery location was created quickly in the client nations. With the city developing an image of a destination with excellent infrastructure while offering affordable labor that was supportive of global delivery processes and attune to their growing back-office operational needs. This perception was maintained till the mid 2000s, as global clients continued to see how Bangalore’s infrastructure and the talent availability kept improving. In terms of talent pool, the now flourishing outsourcing sector was given an added boost through the aspirations of the Indian youth, who had seen a paradigm shift from wanting to become a doctor or an engineer to becoming outsourcing professionals.
Bangalore has since continued to attract the largest firms, expanding their service folios and operations across the city. For the most well known names like IBM, Accenture, Oracle, SAP, Motorola, HP and Dell - Bangalore is a part of their strategic corporate plans and they already have multiple centers employing thousands of people in the city.
However, the recent economic crisis in the US has drastically reinforced the belief (though mis aligned at times) of Indians (and outsourcing per se) taking away American jobs. This is the phase where we have witnessed protectionism, changes being brought into international trade policies and revival of phrases like Bangalored, which originated in the 1990s and literally meaning that someone’s job has been taken to Bangalore or outsourced.
Specialization in Outsourcing
Bangalore has established itself as the center of excellence for outsourcing services, encompassing the entire spectrum of low-end to high-end services.It is also considered as an established destination for a wide array of services ranging from application development & management, testing, business analytics, English language contact center, engineering services, financial services, healthcare services, HR outsourcing, IMS, product development, R&D and emerging in new service lines like animation & game development. 7
Bangalore is equipped to take on its role as a complete outsourcing destination and has continued to be a global leader when outsourcing competencies and delivery capabilities are concerned. During its evolution, it has proven capable of mastering one outsourcing process after another ? this capacity to enabling it to become the established destination that it is now. Starting with low-end ITO/BPO processes like customer service and software testing to specialized KPO processes like R&D, business analytics and engineering services.
Bangalore has also remained one step ahead of its competition by adapting new domains and technologies, necessary to keep ahead in the fast-moving services landscape. With the advent of technologies like virtualization, cloud computing, green-IT, Bangalore will once again evolve and reinvent itself to stay at the pinnacle of outsourcing destinations.
Anatomy of an Outsourcing Destination
Bangalore’s ongoing journey has given evidence to its evolution and provides us substantial proofs to what ecosystem dynamics are necessary for a location to become an established outsourcing destination. This succeeding section provides hypothetical comparison for a typical entrant, emerging, and established outsourcing destination in terms of two critical factors: headcount of professionals in the city and employability.
Entrant: Outsourcing Location
A typical new entrant in the outsourcing location landscape has the characteristic of the employable talent pool numbers being higher than what the industry employs. This means that the attrition rates are low and the salary inflation is automatically controlled by the surplus in supply of professionals. Moreover, the employability curve in these locations is also more or less flat.
Emerging: Outsourcing Location
Emerging destinations have a different headcount and employability curve. While the employability curve is steeper, the headcount curve rises more sharply to match supply of talent. However, emerging locations have enough availability of talent to further support the demand for headcount expansion. Emerging destinations for this reason have been able to control other factors like salary and attrition.
Established: Outsourcing Location
Established destinations like Bangalore are however, different when we compare them to emerging destinations in terms of the industry headcount and the employable pool that the city offers.
Tholons calls the crossover of the employability curve by the headcount curve as “Point of Scale Resistance” - or the point where the availability of employable pool is unable to support the growth of the industry headcount. This point of resistance is responsible for the location being pegged back in its growth due to factors like attrition and salary inflation coming into play. For locations which don’t offer large number of employable pool, the point is reached early and the location quickly loses its attractiveness, however, Bangalore with its rapid population growth and migration of outsourcing professionals has been able to delay the resistance of scale for a longer period. Moreover the employability curve also was rising sharper than most other cities with institutions flourishing in and around Bangalore.
According to a popular hypothesis, the first phase of growth for an industry drives the academic institutions. However, as the industry matures the institutions start to drive the enterprises. This is the phase that the outsourcing industry in Bangalore has matured into, where the talent pool drives the industry since the employability curve is now under the headcount curve.
The academe has risen to the challenge of supplying the employable talent pool to the outsourcing industry. One more important factor that has had a significant impact on the employability is the aspiration of the youth. Once the industry became successful, the student population of India wanted to be a part of the high-growth outsourcing industry. NASSCOM8 and the Ministry of HRD also implemented both immediate and strategic plans to improve/increase both employability and scalability. For example, 10% of all Indian graduates are produced in the state of Karnataka, which has historically been a place for technology and R&D based institutions in India. Along with the best available IT infrastructure in the country, coupled with the scalable/employable talent pool ? Karnataka became a powerhouse for the outsourcing industry. Along with the significant migration of outsourcing talent pool (for ITO/BPO/KPO) from across the country, Bangalore is also showing favorable signs of gaining on the employability curve.
Bangalore: Outsourcing Scorecard
Outsourcing Revenue: US$15.9 billion
Outsourcing Headcount: 584,000
Demographics
Population: 6 million, over 50% aliens (Foreigners or from other States of India)
Population Growth Rate (CAGR 2000-2015): 2.74% per annum
Temperature
Minimum (January): 15° Celsius
Maximum (April): 34° Celsius
Precipitation
Minimum (January): 3 mm
Maximum (September): 195 mm
Additional Remarks
58% of (33 out of 58) CMM Level 5 companies in India are established in Bangalore
Contributes around 34% to India’s total outsourcing revenue of US$47.3 billion
Issues with infrastructure (road traffic congestion, increased time of transportation, slow development of facilities) are hindering the growth
Bangalore offers the most congenial risk profile among other Indian metros with minimal threat of terrorism, regionalism and political disturbances; however, the city is prone to a high-level of bureaucracy and corruption
Considered the best outsourcing destination, established destination for multiple outsourcing processes like ADM, testing, business analytics, contact center, engineering services, financial services, healthcare services, HR outsourcing, IMS, product development and R&D
Bangalore is well on its way to become the fourth largest city in India after Mumbai, Delhi and Kolkata by overtaking Chennai and Hyderabad by 2015
Sources & References
Bangalore Development Authority, Bangalore Master Plan 2015
Bangalore: Globalization and Fragmentation in India"s High-tech-Capital, April 2007, Christoph Dittrich
IIM, Ahmadabad, Bangalore Cluster: Evolution, Growth & Challenges, May 2006, Rakesh Basant
IIM, Bangalore, “Evolution of Bangalore ICT Cluster: A stage theory based on crystal growth model”, Mathew J Manimala, September 2006
William Green, US International Trade Commission, “Growth in Services Outsourcing to India: Propellant or Drain on the U.S. Economy?”, January 2006 FIC
1 BBMP: Bruhat Bengaluru Mahanagara Palike
2 Source: BDA (Bangalore Development Authority)
3 Source: World Urbanization Prospects, United Nations
4 VSNL: Videsh Sanchar Nigam Limited
5 ITPL: Information Technology Park Limited
6 Source: Tholons Top50 Emerging Outsourcing Destinations 2009 (www.省略/top50.html)
7 Source: Tholons Location Assessment 2009
8 NASSCOM: National Association of Software and Services Companies, is the premier (non-profit) organization that represents and sets the tone for public policy for the Indian outsourcing industry; set up in 1988 to facilitate business and trade in software and services and to encourage advancement of research in software technology.