Till the early ‘90s, India was a closed market with high customs duty for imported equipment. This created a need for local companies to design, develop and manufacture computers. Local companies such as HCL & Wipro designed and sold computers for the local market, but key components such as processors, memory and hard drives were imported. The difference in customs duty for components and complete sub-systems was large enough for the companies to sustain and exist. PCs ran on DOS, but workstations required Unix, and local companies invested heavily in porting AT&T Unix onto their platforms and developed solutions on them. This fuelled the local software development market. As the economy opened up, this difference was reduced, and new designs of top-tier computer manufacturers worldwide entered the market. New designs coupled with higher performance operating systems impacted the local design companies.
To increase sales and revenues, international companies began outsourcing to India, a country then seen to have lower overhead costs. This saw Indian companies make huge profit margins, as well as a transfer of technology to the country.
It was also a time when large numbers of MNCs started operations in India. Captive design centers started with low-end work, and module level work to kick-start operations, which gradually developed into core design centers over a period of time. TI, Analog Devices and IBM are examples of companies that were able to move core development work to their India design centers by the late ‘90s. Such activity saw the development of local talent, trained in top quality high-end work, many of whom became domain experts in hot technology areas like networking, telecommunication, media, entertainment, etc.
During this time, local product services companies such as HCL and Wipro were working with startups and small/medium enterprises especially in the area of telecom where entire chips were outsourced to India (from specification to silicon), in addition to verification and back-end support activities. This saw the capability level of the services companies increase in India, and the product engineering outsourcing trend started.
Post bubble
When the dotcom bubble burst in early 2000, it was initially thought that outsourcing would be reduced as companies reduced workforce and looked inward. But with increasing margin pressures, outsourcing gained momentum. This trend saw companies such as Intel, Oracle, HP, etc., investing heavily to increase their presence in India. This improved Indian engineering capability, which by then had the experience of working on delivery of world-class products from their India design centers.
Since then the entire eco-system has evolved rapidly, and is poised for the next level of growth, especially with the announcement of investment in semiconductor fabrication units across the country (assisted by the industry friendly semiconductor policy of the Indian governement). The India Semiconductor Association (ISA) has been instrumental in the setting up of this policy.
Going forward
The availability of high-end engineering talent has enabled some homegrown startups in the high-tech space. It has also prompted an increase the availability of high-end engineering talent to the services companies. It has also resulted in new services companies set up to service very niche areas. Today, there is engineering skill available in the areas of processor design, ASICs design, test and packaging, and more.
You can reach Raju Pudota at rpudota@denali.com
