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I read this article on the HBS website and could not contain my gag-reflex! What he says goes against every major wealth and growth driver that has been proven the last century or so.

True Prosperity for a country comes from Inventions and Innovations, creating better more efficient and effective ways to do the same thing - from the Steam Engine, to The Cotton Gin to Genetic Mapping recently. This is basic fundmental research into the nature of things and those are the only things that bring fruit. If Einstein had not pursued the basic relationship between Mass and The speed of Light, many of the current good and bad inventions like Nuclear energy and Nuclear proliferation may not have been possible making many of the countries rich beyond imagination, even if it means selling weapons based on these innovations.

India is at a very good inflection point now. There will be widespread debate about the wisdom of pursuing a cheap labor strategy alone for too long. It is already done and China is focusing totally on additional higher valued things, even in Manufacturing. They don't want to be making cheap plastic buckets anymore, they want to be assembling more expensive electronics and cameras since their laborers standards have risen. The labor arbitrage advantage has such a short lifespan that if we do not learn lessons from how it vanished quickly in Singapore, Malaysia and  Brazil and plan our alternative moves, we would not have anyone to blame.

If anything, India needs to build much more IISCs, in addition to IITs or IIMs. The IITs and IIMs will bring fruit in the short and intermediate time frames and only more IIScs will bring prosperity 20 years from now.

That is the way to true prosperity. Real, globally acknowledged, globally peer reviewed science, gets done there and you can see many Bio-tech companies coming out of Bangalore because of that.

The Chinese understand this very clearly and seem to be making steps towards making many of their universities go after fundamental science also in addition to beefing up their production of engineers and educated technology workers. This is the one that is needed for Inventions and Innovations to follow after fundamental breakthroughs.

There are many areas like fundamental Computer Science, Physics- Nuclear and otherwise, Bio technology, Biology, that can all lead to truly good breakthroughs in IT, Nuclear Energy, ALternative Energies, Biotechnology, etc that can see original and ground breaking proprietary things that can lead to prosperity 20 years from now. They cannot be ignored because on the other side of the US meltdown, India will be growing again even more rapidly (if it affects it at all), wages will rise and one day we will be left with a more expensive labor force and not too many prospects.  China will face the same situation also.

My 2 cents for what they are worth!

Nari, I completely agree with your comments about the general growth of an economy, but I am not sure why you think the writer does not! Radjou's earlier articles speak along very similar lines as your comments too, from what I can tell. The issue, I think, is whether the IT industry, pursuing the "cheap labour strategy" that you refer to, is throttling innovation and invention and, if so, what the long-term impact on cities like Bangalore will be. So let me take my own stab at it.

First of all, I think it is unfair to state that the IT industry is throttling innovation. Innovation can be of many kinds and it is only because companies have innovated that the industry has grown to tens of billions of dollars from nothing twenty years ago. In ANY economy, that's a tremendous achievement, particularly so in pre-liberalization India. Any assertion that innovation has to be perforce technical is a very narrow perspective, I think, so let's just go ahead and accept that the IT industry IS innovative in various ways.

The second issue about Bangalore's future is, IMHO, much more complex. For a whole community to prosper over the longer term, innovation has to occur in a variety of domains and in a wide range of industries. The process-led innovation of the IT industry is inadequate to move a whole urban economy, although they can contribute significantly to it. There had to be innovation in a much wider context and, from what I can tell, there is. In just the last year, when we've been selling in Bangalore, the companies and ideas that we've seen in execution is just amazing. Right here in forgotten localities like Jogupalya and Srirampuram, companies in everything from agarbattis to ice cubes to stem-cell banking are growing very well, debunking traditional Western market theory. I don't know if it is the innovations from the IT industry that others are learning from or it is just that people in every industry are intelligent and innovative, but the sense of purpose and drive here is very strong. As a consequence, Bangalore will continue to grow, I think, encompassing a much wider set of people and professions than ASP programmers and Java analysts. Of course, I also see this across the country, so there is definite growth in the near term. It may be true that we are only seeing innovation and not invention, but I think that's a matter of time and sequence - as companies gravitate to higher levels of confidence in their own future, they will begin to invest into R&D, as some of the more aggressive ones are already doing. That will in turn fuel the continuing growth of the country, as you point out.

Any nay-sayers out there? I'd love to hear about the issues to watch out for, the challenges that could derail us in the future. That will help solve them ahead of time!

Narasimhan:

I went back and looked at other entries in Navi Radjou's blog and saw the entry that said that IT industry is choking off inoovations and inventions and read it fully. I don't agree with him that IT Industry is exactly actively choking off innovations and inventions - but in IT and ITES, they could explore true innovations more aggressively.

I think we may be confusing the effects of two different beasts - One that is export oriented - IT and ITES related sectors and one that is Local growth oriented - local businesses like you mentioned.

In IT and ITES, it is still primarily Labor Arbitrage that we are banking on. Tracing the history of IT and ITES in India, it used to be On-site placement of people that started with Tata Burroughs and Tata Consultancy with mainframe trained people that started the whole indutsry. Then it grew with more and more onsite placements and then the onsite placements funded the offshore model. The offshore model started doing small things like bug fixing and moved on to bigger things like end to end full cycle software development or at least tried to, around 2005 or so when lots of CIOs descended upon India to offshore bigger projects. I am not so sure that this totally offshore model grew at rates they expected, before the other problems with the US markets hit this year.

Process Innovations are a very dangerous self-delusional advantage. I don't think any of the IT majors have any processes that are secret, unknown to others and significantly different and unique to them. So back to competing on prices! There is nothing that ONE IT  or ITES company does that is unique to them and have them a defensible longer term advantage. Company culture, diligent recruitment, excellent facilities may all make some difference but not too mcuh.

Is there potential for IT/ITES companies to innovate truly? Absolutely! There is nothing magical about SEI/CMMI when it comes to software development. You can be Level 5 certified and still get the same results - Unsatisfied customers, software that does not do what the customer needs today! IT companies in India can think beyond what a few ivory tower guys say in a University and fashion their own development methodologies by trial and error and make new methodologies that work. ITES companies ideally should focus on Process Improvement and automating processes rather than just staffing them with people in India. They can come up with true business transformation methodologies but that requires patience and some level of derision from customers globally for some time! They used to laugh at Toyota products and their quality 20 years ago. Not any more - Now Ford advertises that their quality is AS GOOD as Toyota! But that requires confidence, patience and a dedication to the idea of innovation and invention and pride in India - not just lip service and marketing!

Now Innovations and Inventions in Local India-Growth related industries - this is thriving. Having cell phone service here in the U.S ATT/Cingular and Airtel in India, I can tell you that Indian Cell service is 100 times more innovative and inventive than ATT, Hands -down. The ATT model is a legacy one and cell phone service is trapped in a previous century model where there is no money or incentive to innovate bacause the instrument is subsidized by the phone company and you are sort of trapped. In India since you buy the instrument and you can move between providers, there is great, constant innovation.

The problem is when local growth industry hits the saturation point like Cell service in Indian cities. Now is the time you are looking for quantum leaps in Innovation and Invention that will take you beyond your own borders into global markets. Thst's where companies like Apple/iPhone change the whole game with 3G service and a great phone like the iPhone - that's where you need very strong science/advanced development to take you beyond local growth into breaking into global markets.

Ireland is a great example as a warning- once the local markets stopped growing, they hit an economic glass ceiling and they cannot grow beyond that. Ireland was so attractive five years ago, that many immigrants to the U.S from Ireland moved back. Not anymore! When local growth hits a saturation point that's when economies hit the stage where many countries like Japan, Singapore, Malaysia are. What can take them beyond that is true science, inventions and innovations. That's where planning on a 20 year horizon helps. You don't do this now, when local markets stop growing, things become dull. Walk around in Bangalore and see if local Panwallas and stores are as excited about selling Airtel and Vodafone service that they were even three years ago - not so! That's because urban cell phone service markets are already saturated and the push has moved to rural areas.

I will shut up now and hear what others have to say!

Dear Narashiman & Nari:

This is an interesting topic and it requires deeper interactions and debates. I try my best to share my thoughts in simple terms. Will be happy to participate in a live debate.

Yes there are many facts in the article. It is not only applicable for Bangalore & IT but to other industries & cities as well. Our self-esteem must go up when we say that we can do the work in a cost-effective way. The word "Cheap" can be considered as a strength not as weakness.

India innovation (not Indian Innovation) story is weak. Improvements are there but needs acceleration. Innovation combined with greater efficiency can make us one of the leaders. We should not be too bothered about becoming a super-power until we know there is not even a single death due to lack of food or job.

Let's remove the negative connotation attached to the word "cheap labour" by replacing it with highly "efficient workforce". Efficiency without innovation is too dangerous. Lack of efficiency is a slow poison. Hence, we must have a balanced strategy to operational excellence and innovation. I don't see innovation happening across the field until we learn to respect all jobs.

If non-IT students can take up IT jobs, then we must introduce one year job-oriented courses right after +2 and induct them into companies. While working they can learn more. This way, the poor people need not sell all their assets to get some title next to his/her son/daughter's name. We must learn to value knowledge more than the degree they get.

There must be a cultural revolution across the country to converge rather than dividing the workforce in the name of state, language, religion or politics. Research without addressing the self-esteem of the people will not be very successful. The research fund must be utilized without corruption.

Today some of the employability issues are not due to lack of jobs but due to low self-esteem. Low self-esteem is mainly caused by societal pressure that supersedes individuals' interest & needs.

Nari, Lakshman, these are very good comments. But the way I am reading your comments, both of you seem to be agreeing with the nay-sayers in Radjou's article - that IT has the potential to throttle innovation and, therefore, that is probably what will come to pass in 20 years in Bangalore. An example like the Indian mobile network underscores the point that, while there IS innovation in other areas, the IT business does not seem to demonstrate such overt examples. And the call for systemic changes in education and employability are things outside the ambit of the IT industry, again implying that the industry as it is today will not help Bangalore in the long term. I am probably putting words in your mouths , but that's only to force a somewhat extreme position: are we or are we not enabling innovation in the IT industry today?

One outside indicator we can consider is the level of tech entrepreneurial activity in Bangalore. From what I have seen, the online networks of the Open Coffee Club and HeadStrong are most active in Bangalore, in comparison to any other city. A number of well-known start-ups are also from here - redbus.in, for example. The founders are mostly young, first-time entrepreneurs who are products of the current IT industry. I think that says a lot about what the industry has done for innovation - possibly not in itself, but certainly outside.

On the other hand, both your comments are terrific directives for industry and society in general. We absolutely need the initiatives and structural changes that you guys talk of, if we are to see the IT industry impact people in this City across the board. Without these initiatives, the IT industry will continue to impact Bangalore only in the "trickle-down" model that it does now. I hope we have more people thinking like you do and making things happen in those directions, so 2025 will see Bangalore as THE Silicon Valley, not that place around 101!

One smart-alecky comment: yes, the iPhone does change the game, but in ways that are worrying, IMHO. India has not had a "bundled" phone - phone+contract - till Apple came along. Thanks to the iPhone, we now have to pay a premium for the device AND be tied to the same operator, choice be damned. Welcome to the North American definition of "free markets", right here in India!

Narasimhan:

Yes. You are putting words in my mouth.  It is not that IT in Bangalore and elsewhere is suffocating Innovation but can more aggressively pursue it as I am positive they will do in the coming months once the US/UK market meltdown Tsunami has washed over Indian IT.

The other alternative is "To face The Bear" and plan 5, 10 and 20 year strategies and go after them diligently. Like the Chinese are doing with their manufacturing right now!

The way I see out is to leverage local experiences to innovate globally - These innovations can be tried out locally, bugs worked out properly and then taken globally!

Let's take a minute and review the latest winners in the 2008 Technology Innovation Awards from the Wall Street Journal:

http://www.dowjones.com/innovation/index.html

You will notice that in Transportation the Gold was won by Tata Motors and the Nano Cars!

In Wireless, TCS won the Gold for the mKrishi service - getting information to farmers by mobile wireless!

Congratulations to the Tatas! They are truly leading the way in Global thinking with their purchase of Land Rover, Volvo etc, and now with these awards for innovation!

You will see that there are many medical devices and fundamental innovations in Bacteria detection or Chemical detection that have many many applications in Medicine, National Security and Food safety! These are the ones that will make many many US companies gazillions of dollars in export income. That's why the US is the largest economy on earth and others not!  There is not one hospital in the world or one airport inthe world that does not need these devices when they are out in production!

Same with the Nano! If it works well, the export market is humungous!

The lessons here are two -1.  Innovation needs to be fundamental and game-changing and 2. It needs to have global applicability and income potential and not just noodle around Bangalooru or Chengalpattu!

mKrishi and related spinoffs have similar global applicability and income potential.

Companies that handle pre-processing of Visa applications at U.S consulates in India have developed human and computer systems that can handle these smoothly. They are currently bidding and getting global business at U.S consulates globally and other consulates like U.K., Australia, etc at their consulates all around the globe. For example, U.K high commissions in Beijing wants the same system installed and run!

Our company participated with one of the Indian IT Biggies in bidding for the Ministry of External Affairs project - the Passport Seva project. The goals of this project is to reduce the passport application and award process in India, from weeks and months to 3 Business days for a normal passport and 1 business day for a Tatkal passport. Since SLAs are very very crucial in this bid - the Government will not pay for an application if SLAs are not met - our company's SLA monitoring software was needed!

It has now been awarded to TCS. When this is up and running and successful, this is a great model that TCS, I am sure will sell to every country around the world. Developed country or not every country in the world is frustrated with weeks and months for a passport to be processed! If you can prove it in India with the scale of operations Passports have in India, you can do it easily anywhere else in the world!

This is the kind of Big Thinking that has global applicability that can build an IT/ITES business that is solid and can provide revenues an order of maginitude greater than our current estimates!

This can also take us out of the "Crabs in a Boiling Pot" approach. Crabs in a boiling pot pull each other down when one tries to get out by climbing on the sides. Competing on price alone is the same! It pulls everybody down.

There are tons of great innovation examples emerging everyday but the trick is to identify those that have global applicability and potential, instead of those that have local ones only. Indian domestic market is a large market and worth going after. Lessons learned there can be used o perfect your own offering and then taken globally!

Thinking is such a simple, but powerful thing. Think small and you will be small. Think big and suddenly things start happening! Things are already happening in india. We need to scale them to a level that we are past competing with each other on labor arbitrage alone!

Dear Kannan,

I am astounded that you have penned what many inlcluding me would not dare to articulate ...great and keep it up..We In India deserve to learn some hard issues from another Indian based in US.

Three Cheers to you

Sporadic Innovation is happening in India. Sixty years of socialism and dependance on government for almost everything is one of the major cultural factors. Another cultural factor is what I call as "Invented Here" syndrome (opposite to NIH syndrome in some developing countries).

We have tremendous need and scope for innovation. I pin my hope on IT SMEs and startups to do much as business models and culture of large IT companies do not encourage innovation (barring a few).

Quality of education and attitude IT workforce is another are that requires attention.

Positive reinforcement by Government and big companies coupled with few shocks (like the current IT Meltdown) could change things for better.