History Helped Emergence of Indian IT Powerhouses

History, though considered drab by the majority, sometimes offers answers to unique questions that unexpectedly pop up during tea-time chats with friends. The questions by themselves appear simple and within reach, but somehow the answer eludes us.

Tea time last Sunday along with a few friends from fields other than IT threw up a similar question.
"When the IT boom began about a decade and half earlier, in the 90s in India, we saw the emergence of small IT players like Wipro, Infosys, TCS, HCL , Satyam, etc that have today gone on to establish themselves on the global stage as key players in the ITES (Information Technology Enabled Services) segment. Why is it that other global IT bell weathers like IBM were late in recognizing the emergence of these new age Indian companies? Why did they not make an entry into the Indian market early enough to stamp their authority and smother all competition?"
Everybody set their eyes on me expectantly seeking an answer. I was thrown off guard at this sudden attention. I sipped on an empty tea cup hoping for some tea that was not forthcoming. I cut a sorry figure. Later in the evening when I was having my summer shower, my mind was still working hard on the question. It was then that I had a brainwave. The emergence of the Indian IT companies was in the years between 1985 and 1990. When did IBM enter the Indian market ? No.....no...I remember that IBM was there in the Indian market long before that. I wasn't sure....My brain was providing me confusing inputs.

I cut short my shower, switched my computer and within seconds was plugged into the World Wide Web (WWW). A few searches and clicks later, I was there with enough material on my Firefox browser tabs to tackle the issue at hand. A clear picture emerged...one that sure took me by surprise.

It was the year 1974. Operation 'Smiling Buddha' was unleashed by the then PM, Indira Gandhi. On May 18 that year, India exploded her first nuclear bomb that had the world gaping in horror. Repeated assurances from India that it was a peaceful explosion found no-takers in the world's bureaucratic circles thanks to the ceaseless US lobbying and arm-twisting. The West immediately imposed sanctions resulting in severe and comprehensive economic and technology related curbs by a number of states.

India retaliated by embarking on a process of nationalization that became the political mantra cutting across party lines in India. Even after Indira Gandhi's Congress party suffered a overwhelming election loss and Morarji Desai of the Janata Dal was elected Prime Minister, India was univocal on its resolve on nationalism. The first companies to bear the brunt of this swift government policy change, that was a Indian tit-for-tat against the nuclear embargo were the foreign MNCs like Coca Cola and IBM. These business power houses were asked to place 60% of the India operations of the company under domestic ownership or leave the country. Unable to cope with the stringent regulations, these multinationals were thrown out of the country in 1977 not to return for another 15 years.

Looking back, I now realize how significant those 15 years were for Indian based companies to emerge as shakers and movers on a global scale. I do not want to undermine other factors like WTO agreements, the throwing open of Indian economy by the Narsimha Rao government and the globalization effect that served to provide the necessary impetus to the Indian IT industry. However my point here is that all these later factors might have fizzled out in producing the necessary effects, had it not been the single important decision of the Indian governments in the 1970s to take an draconian stand on nationalism. Come to think of it. Had India not conducted the nuclear tests, the Western powers might have never imposed the nuclear embargo. The wave of nationalism might never have swept the nation and giants of the likes of IBM would have had a stranglehold in the field of IT in India. With the economy opening up in the 90s, IBM in India would have just killed competition at first sight. We might never have had the opportunity of seeing the likes of Wipro, Infosys and TCS as they stand today. Even if they would have survived the heat from IBM (given the presumption of its continued presence in India since the 70s and all through the 80s and 90s), they might have had to contemplate a minnows existence in their own country.

The Hindu in 2001, mentions HCL India quoting, (on the eve of the 25th anniversary of HCL)

"Fortunately for us -- sometimes you need luck in this business -- IBM, along with Coke, was asked to leave the country. That created a huge void. Those days, IBM used to sell refurbished computers in India. And we went into that void and quickly tapped that market. That was a huge piece of luck. We had an amazing response from Indian companies for our new product."
So, don't you think that Indian IT companies need to be thankful to all the Western governments of the 70s for having forced severe sanctions on the country. Had the Western powers some inkling of what the future held, they might have had second thoughts before imposing the sanctions. What do you feel ? Throw in your comments.


Rakesh said…
that is a good analysis...any parallels with wat happened after 98 sanctions?? especially in the scientific research/dual technology areas.

The very fact that west wants to have nuclear pact with India within yrs of the latest round of sanctions demonstrates that sanctions are not in their best interests.
Vijay said…
The fact that the sanctions imposed following Pokhran II - Operation Shakti, were withdrawn in just 5 years speaks volumes of the growing clout of Indian economy in the global scenario. Imposing sanctions is bound to hit back the Western powers that have grown addicted to the services and products provided by India and China. Pokhran I sanctions led to the development of Param supercomputers by India. Pokhran II led India to develop high resolution 1 metre satellite photography techniques ourselves. It is only when a nation is suppressed that it reveals its true might. Japan still serves as a golden example. To summarize in A B Vajapayee's words, " A strong and nuclear India is not just a stabilizing force for world power politics, but also is the right of 1/6 of the world population" . Power respects power and nothing else.
jacob cherian said…
good analysis, vj. but india should have been producing more of real companies. i mean, companies like nokia in finland, companies in the core product business. the indian IT biggies quoted here are mere consulting companies right?

if finland can do it, why cant india? what is holding us back? time for another analysis? i think now is the right time to set the seeds for the real product companies..

btw, i found the post at humdigg.com
Vijay said…
Though the question is a bit out of track, I will attempt to answer your question
Consider the factors
a. Real companies that do core product business require people who dedicate lives to research in labs. India surely is not a hotspot when it comes to this. After years of closed door policies, India has opened up and it is only now that our people are getting a taste of real money and spending power. When service oriented jobs fetch easy money, neither employees nor investors will be ready to go in for research oriented business. However one exception I find is the Indian pharmaceutical companies. They are into some real hardcore innovations.
b. There is no gurantee of success in research orieneted business. Even Nokia to attain the level it has done today, would have left a trail of startups that got squashed by Nokia. This too is high risk propsition that Indian companies at the moment are not taking.

My take on the whole thing is that innovations will have to be a spin-off from the services company. When companies like Wipro, TCS, Infy make huge money and feel comfortable on risking a portion of the wealth on innovation, only then shall we start seeing the emergence of such companies in India. Remember IBM started off selling computer hardware, microsoft sold MS-DOS that wasn't even its own. They later pumped money derived from these sources to come up with innovations like the PC and Windows respectively. Also don't forget that in the process, Apple and Mac got sidelined.
shiva said…

Can anyone comment on evolution of IT in Health Sector in India ?
Somya said…
I am Somya doing my masters in information systems at London School of Economics. I give presentations and write articles for my class on how India's IT sector is growing exponentially. Thanks for the posts they are informative and also throw many questions of which i try to sought answers.
All the Best!!
Allwyn said…
excellent analysis ..in fact now i am feeling dat WITS just got lucky ..and I don't believe so much in luck!..lols