Friday, March 10, 2006

Casteism in Indian tech sector

This is a deliberatively provocative title; though, I believe you will agree with me at the end of this piece that it is not unjustified.

Caste systems are traditional, hereditary systems of social stratification. Though historically and geographically widespread, the most well-known caste system today is the Indian caste system.

In my current role, I meet a whole lot of entrepreneurs from the IT sector - many of whom run software product companies. I also meet a lot of academicians and armchair thinkers within the industry. The common refrain everywhere is "Indian companies should develop products and move up the value chain"; "The growth in IT services is really people driven, and there is a limit to headcount-led revenue growth"; "The services model is not sustainable since there is a limit to how many people you can hire"; "There is need for non-linear growth of the Indian IT industry" and so on.

Not for a moment am I deriding these comments. India has had several software product success stories I-flex; Subex Systems; Nucleus Software, Ramco Systems, and many more in the embedded software space - notably Ittiam. These are smart, successful entrepreneurs who have braved huge odds and developed commercially successful IP.

However, the comments described before smack of at best good intentions with very little evidence to back it up. My common questions to such comments are as follows:

How many software product companies are there in the world with revenues of over USD 1 billion? (only 9). How many of these are US head-quartered? (8 of 9). Does this mean that the rest of the world does is not 'innovative' or has not 'moved up the value chain'? What is value chain? What is high-end of the value chain? Higher margins? Higher revenue per employee? Higher profit per employee? There is no commonly accepted definition, in my limited knowledge.

Lets take margins. In a sample of 82 listed product companies in the US, the average net margin was -3%; that's right - a negative 3%. If you exclude the 8 large companies, the margin drops to -14%. Is that high value added? Not if I were a shareholder.

So what higher end are we talking about? Most of this stems from an unspoken, unrecognised casteist sentiment. Low end work (read application development, testing etc) is seen as fit for shudras while software products is fit for Brahmnins. And when pushed, I find that many of the people who express these sentiments are in fact Brahmins. (Disclaimer: before I am accused of being politically incorrect and a reverse casteist et al, let me confess that I am of Brahmin stock myself.)

And while I have my share of concerns about the headcount led growth of Indian IT services companies, let us also remember that some of the highest revenue software products have been created by the very same IT service companies.

I have nothing against debating how to stimulate innovation in the country, but when the debate is not backed by credible data, there is a danger of us promoting wrong solutions without having pondered the true problem.

This discussion is nowadays spreading into the BPO sector. Call centres are low-end while Knowledge Process Outsourcing (the new buzz word - not my creation!) is high-end. Again, the above issues are true even here. I know many call centres who are more profitable than so called KPOs; and, most of the work in so-called KPOs is actually limited to Internet searches and populating spreadsheets. Let me reiterate I am not deriding the potential of our fine young talented graduates, CAs, MBAs and doctors to do acturial valuations or read x-rays (which they are increasingly doing). But I argue with the fact that such categorisation actually demotivates people. There are hundreds of thousands of kids working in call centres, working nights, using globally cutting-edge technology and delivering world class services, and creating employment for workers in retail and real estate and security and housekeeping companies. Why should we categorise their efforts as low-end when they are contributing to the country?

Why are companies or countries innovative? There is considerable debate over whether innovation is supply led or demand led. I subscribe to the latter school of thought. Innovation flourishes when there is adversity. Some of the most successful businessmen in India trace their roots back to some of the most adverse climates in India (Marwaris from Rajasthan or Kutchis from Gujarat; not unlike the homeless Jews in the West.)

In every sector in India which has been opened up to competition, there has been innovation in product offerings, pricing, customer service (insurance, cellphone services and low-cost airlines, to name three recent ones). In sectors where there is little competition, innovation has been limited or non-existent (power supply?). There is little use in blaming supply side factors (academia-university interaction, R&D spend, venture funding, entrepreneurial culture) unless the macro-economic conditions improve and permit free competition (low tariffs, no regulatory barriers), this country is unlikely to be swept by a wave of innovation.

Is it any wonder that 8 of the world's 9 largest software product companies come from the US, arguably one of the most open markets of the world?


Blogger snigdha said...

hey that's a story! actually two -- the second one is -- the myth called kpo!

1:04 AM  

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