India's IT industry greased to move up value chain

Robin Elsham

BANGALORE: As the heat builds ahead of the June arrival of the monsoon rains,

construction workers - some saree-clad women - rush to get the 300-room Leela

Palace hotel ready for its July opening.

But why the rush? This is Bangalore, India's high-tech capital. In

California's Silicon Valley, hundreds of Net-driven businesses have gone belly

up as the investment bubble in anything Net-related went bust.

Can the outlook really be so different for India's Silicon Plateau?

Absolutely, say people like, US chipmaker Analog Devices chairman, Ray Stata.

Earlier this month Stata committed $10 million of his own money to bankrolling

Indian start-ups in the telecommunications and Internet areas.

"We see tremendous opportunities in nurturing the kind of technology

talent that is available in India," says Stata, explaining why chipmakers

like Analog, Texas Instruments and Intel are keen to expand their influence

here. And it's not just chipmakers. In recent weeks, a long list of Fortune 500

companies in other industries and global investment houses have announced plans

to pump big-time money into the Indian info-tech industry.

Cisco, Ford, Sun Microsystems, IBM, Texas Instruments, Intel and SAP, the

German manufacturing management software giant, all have announced plans to pour

tens to hundreds of millions of dollars into India. Among investment houses,

Nomura International, the global arm of Japan's largest securities company, last

week joined Bank of America Equity Partners in cumulatively taking a 30 percent

stake in Global Technology Ventures, an Indian venture capital fund.

Altogether, venture capital inflows into India are expected to nearly triple

this year to between $1.75 billion and $2 billion, according to one survey in

February. Vijay Angadi, managing director of ICF Ventures, a Bangalore-based

venture capital fund, estimates that overall, there are 60-70 funds with a total

$3 billion to invest in fledgling Indian info-tech companies.

Fortunes



Lots of money is also coming from Indians who have made fortunes running
infotech companies abroad. Guys like Kanwal Rekhi, former chief technology

officer at Novell Inc, the Salt Lake City-based business software giant; Suhas

Patil, one of the founders of semiconductor equipment maker Cirrus Logic; and

Vinod Khosla, one of the three co-founders of Sun Microsystems.

They are now using their vast fortunes to bankroll Indian start-ups, a trend

that could in time alter the entire global IT industry by staunching the outflow

of talent from India, the world's leading source of software engineers and

programmers.

The US computer industry already depends heavily on that flow. And to counter

their own shortages of home-grown talent, both Germany and Japan last year took

steps to expand the number of work visas issued to foreign computer specialists,

with the lion's share going to Indians.

Indian engineer ratio



Of the 3.2 million Indians living in the United States, more than half a million
are software professionals. At many leading American IT companies, Indians

constitute such a large proportion of the staff that managers refer to the

company's IER - Indian Engineer Ratio.

Indians account for 36 per cent of the software engineers at NASA, 34 per

cent at Microsoft, 28 per cent at IBM and 17 percent at Intel, according to

Sachin Kulkarni, a Pune-based IT career advisor. Many Indian engineers work

stints at these companies as training stops on the way to running operations of

their own. More than 7,000 high-tech companies in California are run by Indians,

generating an estimated $60 billion in sales annually.

Nowadays, though, Indian entrepreneurs are increasingly looking homeward when

choosing where to establish companies. "Technological advances keep

creating business opportunities for infotech entrepreneurs with access to

expertise, capital and enough highly-trained manpower," explains S V

Ramanathan, a venture capitalist. "India now has plenty of all three."

Some 77,000-computer engineers are expected to graduate from Indian

universities this year, according to the National Association of Software and

Service Companies (NASSCOM). Cost considerations also play a role. Indian

software professionals on average make only 15 per cent as much as their

counterparts in the United States, according to Goldman Sachs.

Digital signal processors



The potential of the Indian software industry can be glimpsed from the work
being done in Bangalore on digital signal processors (DSPs), a market worth $6

billion last year and growing at 35-40 per cent annually.

It's a market tailor-made for the Indian software industry, as the market for

the chips used in virtually every sort of electronic device is still in its

adolescence, extremely fragmented and with a tremendous amount of work to offer

boutique-style software houses.

India's potential to create companies in new fields like DSP programming

explains why workers are still rushing to complete hotels in Bangalore.

(C) Reuters Limited 2001.