Silicon tectonics

Bangalore's loss is Hyderabad's gain.

Bangalore developed rapidly through the early 1990s as the software and computer capital of India. It is now equally quickly losing its monopoly hold over everything that has to do with software and computers. The Garden City´s place in the sun is being challenged by other metros of the Indian south, mainly Hyderabad, Madras, Pune and Bhubaneswar, in that order.

There were several reasons why the global players flew in to set up shop amidst the tree-lined avenues and colonial and post-colonial villas of Bangalore. These included Bangalore´s fine legacy of higher education, a ´cosmopolitan´ population, its salubrious climate, and importantly, a receptive Karnataka state government offering a variety of incentives. The mix had proved irresistible. All too quickly, however, roads and power supply failed to keep pace with the growth of industry and population. Despite its hifalutin industries, Bangalore began to look and smell of just another crowded, unplanned, congested Indian city, and the software companies began to look at other options.

Bangalorian blues
Karnataka, or in fact largely Bangalore, accounted for INR 12 billion, or 29 percent, of India´s software exports in 1996-97. Karnataka presently hosts 130 of the 700 major companies in the software business in India. The spectacular rise of Bangalore had mainly to do with the quick clearance of projects. Karnataka was the one place where the ´single window´ policy´ actually worked. In 1996-97 alone, for instance, projects worth INR 16 billion were cleared by the government. The software technology parks (STPs) set up by the state also had a lot to do with this growth and development: the Bangalore STP alone has some 150 units, the biggest in the country.

Against this backdrop, if the fact that the software industry is looking elsewhere comes as a surprise, the answer lies in the complacency which overtook the Karnataka authorities. They just did not provide a reliable power supply, which meant that most units were forced to set up their own backup units. Start-up firms could not afford this. Neither could they contemplate real estate, given the fact that the sheer money power of multinationals had pushed rentals in Bangalore sky high.

Another problem was human resource. In the first flush of success, as Indian firms won and executed projects and multinational corporations moved in, software engineers asked and were paid a king´s ransom. But the high payscale could hardly be sustained, particularly by the Indian start-ups, which went scurrying to ´affordable´ cities such as Hyderabad and Madras. Bangalore also no longer had a monopoly over the supply of skilled manpower once software institutes sprouted in the other cities.

Another drawback that became evident as time went on is that Bangalore does not have a fully operational international airport. Nor has Mangalore port developed as an easy conduit for Karnataka-based industries.

Paradise lost
Bangalore´s fall from grace was confirmed during the National Association of Software and Service Companies (Nasscom) ´97 meet – the industry´s annual showcase. The theme of the conference was "India -A Software Paradise". Though held in Bangalore, not one Karnataka minister was present. R.V. Deshpande, the then state Industries Minister, said that he had not received an invitation to the event, to which Nasscom´s President K.V. Ramani replied: "Ours is not a political conference. Not to all our meets do we invite politicians…"

It cannot be overlooked that the chief guest in Bangalore was the Chief Minister from Hyderabad, Chandrababu Naidu, described by Ramani as "the most IT-savvy person in the country". And so, right under the nose of the host Karnataka Government, the laptop-carrying Naidu wooed information technocrats to "investor-friendly Andhra Pradesh". He showed a remarkable grasp of technology, and wowed the software industrialists with talk like this: "We wish to bring a SMART – simple, moral, accountable, responsive and transparent – government."

While others promised single window passage for entrepreneurs, Naidu was one step ahead, offering a "multi-media window" for IT initiatives that chose to come to Andhra. If this did not worry the Karnataka Government, what certainly did was Naidu´s plans to set up an "Indian Institute of Information Technology" in Hyderabad and to build a cyber city – Hitec City (Hyderabad Information Technology and Engineering Consultancy City).

To counter the marauding Naidu, Karnataka is not without solutions, including its own planned "Indian Institute of Information Technology" as part of the much-touted Policy for the IT Industry, announced by the state government on 9 June 1997. This ambitious policy includes, besides various fiscal incentives, the cre ation of a pool of software engineers to meet the demand-supply gap, software parks in Mysore, Mangalore and Dharwad, a VSNL gateway for electronic communication, and training centres in districts. The policy also envisages the issuing of internationally recognised quality certifications such as the 1SO-9000.

All good intentions, but the policy has been gathering dust in the State Legislature. In contrast, over in Hyderabad, Naidu is backing up promises with action. Besides the Hitec City, his initiatives include a "Government Internet", video conferencing facilities between Hyderabad and the districts, and promotion of Andhra as a site for IT-related projects of the Centre. The speedy decision making has impressed potential investors, who are also attracted by exemption from sales tax, plans to ensure regular supply of power, and single-window clearances that cut delay and red tape. Naidu has also come up with innovative plans to build a software-related workforce through an extensive training programme.

While as of now Hyderabad has attracted only low-end operations such as "Y2K", the future seems assured. Hyderabad´s climate is harsh in comparison to Bangalore´s, but there is enough to tilt the balance in favour of the Andhra capital. Hyderabad is also said to be attractive to Non-Resident Indians who wish to set up facilities because many affluent NRIS happen to be Telugu-speakers with origins in Andhra.

Cosmopolitan competition
Besides Andhra, there is a redirection of software companies to other centres in the South. Madras has emerged as an attractive destination because of its abundance of software engineers: some 25 percent of all software engineers in India are from Tamil Nadu. Besides this, the state government´s Tamil Nadu Industrial Development Corporation and the Electronics Corporation of Tamil Nadu have been doing a commendable job of wooing IT investors with various incentives. Madras has emerged as the IBM-Mainframe capital of the country, and a lot of "Y2K" also gets done here.

As for elsewhere, high-end computer work, whenever it moves out of Bangalore, tends to head for Pune, which is fast emerging as another major software development centre. Besides its welcoming climate, the major advantages of Pune are its good educational institutions and its proximity to Bombay, India´s commercial capital. Much of the low-end work has also got diverted to other metros such as Bhubaneswar in Orissa.

At the start of the software revolution only Bangalore looked cosmopolitan enough for the multinationals to touch down on. Today, other cities also seem to be coming up to the mark. There is no doubt that Advantage Bangalore is a thing of the past.

W hat matters ultimately is that India retains its edge in cornering a significant portion of the international software business, as far as the local economies are concerned, yet it is indeed of interest which city gains and which loses. For the moment, Bangalore´s continuing loss is indeed the gain of others. However, given that the projected turnover of the software industry is expected to be upwards of INR 200 billion by the turn of the century, just a couple of years hence, it would not harm Bangalore to correct its course and get back on track.

Indian chips

A turnover of INR 64 billion, a growth rate averaging 50 percent per annum, and exports exceeding USD 1 billion. This is where the software industry in India is. The industry has been bullish for the last few years, recording in 1996-97 an overall growth rate of 53 percent over the INR 42 billion turnover in 1995-96. Of the INR 64 billion turnover in 1996-97, INR 39 billion was contributed by exports, while the remaining INR 25 billion came from domestic revenues.

The software industry is driven by three main spurs: one, offshore software development, which is its bread and butter; two, the Millennium Bug or the Year 2000 ("Y2K") problem, on which count software companies are assured of business at least till the end of the century; and three, the Internet. With their overseas arms, Indian companies are well placed to take advantage of this exploding industry which offers limitless opportunities.

The industry has also been trying to move up the value chain. Beginning in 1992-93, it has rapidly moved from on-site services to offshore services and packages. As a result, the contribution of offshore services to total exports went up to 41 percent in 1996-97 from 29 percent in 1992-93. Many players are trying to move towards what is known as "systems integrating activity". Little wonder then that a World Bank study puts India as the No 1 choice for sourcing software packages and professionals.