How Indians made Silicon Valley the world's tech hub

Indians have played a significant role in building the Silicon Valley as the technology and innovation hub of the world, according to a 3,000-page report published by Bay Area Council Economic Institute.

'Global Reach', the report by R. Sean Randolph president and CEO, Bay Area Council Economic Institute and Niels Erich, Global Business/Transportation Consulting, took the Bay Area Council Economic Institute two years to complete.

The report emphasises and documents the deep connections between the economy of the San Francisco Bay Area with India, one the world's fastest growing economies.

'When the Bay Area's innovation infrastructure -- research institutions, technology companies, and capital and risk-taking culture -- comes in contact with India's talent and entrepreneurial energy, the combination has been explosive, unleashing powerful business and wealth creation,' the report says.

So read on to find out the fascinating story of how Indians helped shape the Silicon Valley's fortunes. . .

further.

The beginning

Ties between the San Francisco Bay Area and India go back a long time. The first Indian immigrants to California were Sikhs from Punjab in the 1850s.

Initially settling in Canada, Sikh immigrants began drifting south, riding the rails to the Pacific Northwest and eventually California. Others later made the trip directly, by steamship via Kolkata and Hong Kong; the voyage took a month.

Jobs with the lumber mills and the Western Pacific Railroad, and the opportunity to lease or buy farmland in California, were a lure.

In 1920, Indian immigrants owned 2,100 acres and leased another 86,000 in California, mainly in the Sacramento and Imperial Valleys. Today their descendants produce 95% of the Sacramento Valley's peach crop, 60% of its prune crop and 20% of its almond and walnut production.

At the turn of the 20th century, Indian engineering, medicine and agriculture students began coming to West Coast universities, including Stanford and, especially, UC Berkeley.

Then came the spike in Indian immigration. Check out how. . .

A spike in Indian immigration

The 1965 Hart-Celler Act responded to Cold War demand by eliminating country quotas and refocusing immigration policy on attracting engineers and other people with scientific training. The change prompted a spike in Indian immigration.

Many new immigrants engaged in small independent businesses -- as truck and taxi drivers, or as restaurant and small business owners.

Gujarati families -- often named Patel, after the recordkeepers appointed by rulers in ancient India to track crops and receipts -- were drawn to the lodging industry, which offered cash flow and housing.

More than half of all economy lodges and 37% of all hotels in the US are now Indian-owned, representing $38 billion in franchised and independent properties.

Technological competition with the Soviet Union and the space shuttle program, as well as telecommunications deregulation and the rise of personal computing, drove the trend. The first wave came from the United Kingdom, then increasingly from Asia, and especially from India.

Find out how the tech boom came about. . .

Tech immigration explodes

In India, the 1969 decision by IBM to unbundle its computer hardware, mainframe operating system and applications software lines launched a tech revolution.

Engineering and software graduates from Indian science and technical institutes pooled personal funds to start small computer and software companies.

Despite India's considerable talent pool, however, strict joint venture rules and high taxes and tariffs were constraints, until Indian firms and their clients devised a solution: 'exporting' Indian engineers and programmers to work in the US at client sites.

In the 1970s, there was demand in the US for integration and support services as hardware and software were getting increasingly complex. The nascent Indian IT industry had the ability to meet this demand.

But as Indian economy was closed with high tariffs and against joint ventures, Indian IT firms, started sending Indian programmers to work in the US at client sites, or if you prefer, started body shopping.

But a much broader convergence taking place in the emerging computing and software sectors would soon have dramatic impacts in both Silicon Valley and India.

Check out why most IIT-ians were going away to the USA. . .

Almost 60% IIT-ians were migrating to US by 1986

By 1980, 21 Indian firms were actively sending programmers overseas. Many Indian programmers opted to stay abroad after their assignments had ended.

By 1986, nearly 60% of Indian Institute of Technology engineering graduates were migrating overseas, principally to the Bay Area.

Limited options for graduate study at home, limited business opportunities in India, and the exciting new industries taking shape in Silicon Valley continued to draw Indian students, researchers and entrepreneurs to the region.

Cheap telecommunications and networked Unix workstations enabled remote sharing of work worldwide. India, meanwhile, granted tariff exemptions and other incentives to the software industry in 1984, to reverse India's brain drain.

US firms were facing a shortage of trained man power as the number of H-1B visas was limited.

But the Y2K scare changed fortunes, and how! Read on. . .

The Y2K scare came as a boon for Indians

These and other factors such as cheap telecommunications and networked Unix workstations that enabled remote sharing of work worldwide, prompted Texas Instruments, Hewlett-Packard, Oracle, IBM and others to shift their software R&D to India.

Home-grown firms -- TCS, Infosys, Wipro, etc. -- also started to grow though at a slow pace.

The Y2K scare came as a boon for Indian firms to prove their worth and build business relationships. When the tech meltdown led to an economy crash in 2001, they were well positioned to ride the outsourcing wave.

India and Silicon Valley have been further brought together by several entrepreneurial networks. The most known of them, The Indus Entrepreneurs (TiE) was formed in 1992 by a group of 20 entrepreneurs to help startups. TiE now has 53 chapters in 12 countries, 11,000 general members, and 1,800 Charter Members.

Meanwhile, India's most valuable exports to the US continued at a scary pace: check out what they were. . .

Students: India's most valuable exports

India is the leading country of origin for international students in the United States, with 94,600 during the 2007-08 academic year, surpassing China's 81,100; 2007-08 was the seventh consecutive year that India has sent the most international students to the US.

Some 8,300 Indian students were enrolled in California universities and colleges in 2007-08, up from 6,800 in the previous year and 5,600 in 2005-06. They account for 11.5% of California's international students.

Indian students' proportionate share of the estimated $2.45 billion spent by international students in California on tuition, fees and living expenses in the past year amounts to $240 million.

So what has been the Indian impact on the Valley? Read on further, please. . .

The huge impact of Indians on Silicon Valley

The impact of the Indian community on Bay Area has been huge.

• The report shows that the median income in the Bay Area's Indian community is more than $107,000 a year.
• Almost 75 per cent of adults from the Indian community have at least a bachelor's degree, and 70 per cent are in management or professional positions.
• Roughly 50 per cent are homeowners.
• More than 40 Bay Area venture firms have Indian leadership and/or investment activity in India.
• Indian immigrant population in the US numbers 2.48 million. Bay Area has 215,000 Indians, the second largest Indian-American community after New York-New Jersey.

The role of Indians in the US's hospitality industry too has been significant. Tata Group's Taj Hotels and Resorts chain paid $58 million for San Francisco's Campton Place Hotel, and family-owned Khanna Enterprises, headquartered in Delhi, recently bought San Jose's historic 86-room Hotel Montgomery.

The City of San Francisco has opened a Bangalore office to market the city and the Bay Area as a travel destination and is working with hotels, tour package operators, and others to develop new travel options.

It has also recently formed a sister city relationship with Bangalore, adding to a list of Bay Area-Indian sister city relationships that includes San Jose-Pune and Fremont-Jaipur.

But Bay Area firms were not to be left behind either. Check out the awe-inspiring presence of marquee US firms in India. . .

Bay Area VC firms lead investment charge into India

The report finds that the Bay Area's impact in India is deep. Most of the region's leading technology firms have R&D centers or other partnerships in India, and Bay Area venture capital firms have led the investment charge into India.

Leading Bay Area companies have established early footholds in India's growing market. Their activity reflects the drivers of India's economic expansion -- a globalised IT sector and dynamic consumer markets:

• Levi Strauss has 450 exclusive outlets in 80 Indian cities.
• Visa has issued more than 30 million debit cards and 14 million credit cards in India.
• India represents Oracle's largest investment outside the US ($3 billion since 2002) and is now its fourth largest global market, with a workforce of 24,000 and a 53% share of India's relational database market.
• India hosts Symantec's largest engineering site outside the US, performing work on more than 80% of its products.
• India accounts for one-third of McAfee's workforce, generated 100% of its patent submissions in 2007. Half of McAfee's staff of worldwide antivirus researchers works in Bangalore, enabling a 24/7 worldwide response capability.
• India accounts for one-third of Adobe's global engineering workforce.
• Hewlett-Packard is the largest player in India's domestic IT market.
• More than half of India's developer community -- about 740,000 -- works on Sun platforms.
• Cisco has placed its second global headquarters in Bangalore, to leverage India's engineering resources and develop products for Indian and other emerging economy markets.
• India is Yahoo!'s base for product and service development aimed at emerging markets.
• eBay counts 2 million regular users in 670 cities and more than 10,000 dealers across India. In August 2008, the company reported an item sold every minute on its India website.
• The San Francisco office of architecture firm Skidmore, Owings & Merrill is designing replacement housing for 22,000 slum dwellers in Mumbai, involving master planning, new housing prototypes and a team of sociologists and anthropologists working with slum residents.
• San Francisco-based architecture/design firm Gensler is part of the design team for the new $300 million Chennai airport.
• Draper International launched the first India-dedicated venture capital fund.
• Silicon Valley Bank led the migration of US venture capital to India by organising an exploratory delegation of Bay Area venture capitalists in 2003 and has established its both a consulting presence and an equity fund to invest jointly with VC clients.
• Evolvence India Life Science Fund is the first India-dedicated fund focused on biotechnology.

Indians are still nurturing the Bay Area. Check out how. . .

The Silicon Valley-India IT hub

Nearly all major Bay Area technology companies have a presence in India. Many other Bay Area businesses, including firms not primarily focused on technology, have relationships with Indian IT service providers.

Indian engineers, programmers and computer scientists in Silicon Valley and the Bay Area, are engaged in the forefront of product and technology development.

Successful Indian technologists and entrepreneurs are reinvesting in the region's economy as venture capitalists.

Bay Area technology companies with R&D centers designed to access India's large, educated talent pool; and Indian IT service and software firms are moving rapidly up-market from call centers and basic software coding to provide overseas companies with increasingly sophisticated software and systems integration services, in-depth sector-specific consulting and product engineering, and knowledge process outsourcing.

Indians began to feel the need for entrepreneurial networks in the US. And slowly they began to mushroom. Here's how. . .

The rise of entrepreneurial networks

The first Indian community organisations formed in the 1970s were cultural, reflecting a diverse and divided community. These were largely benevolent associations that welcomed new arrivals, held classes and sponsored group events aimed at preserving traditional cultures far from home.

As the numbers of first-generation, college-educated professionals grew, organisations such as the Silicon Valley Indian Professionals Association (SIPA), Indian Business and Professional Women (IPBW), the South Asian Bar Association of Northern California (SABA), and the Network of Indian Professionals increased the focus on career development, social networking, and community service.

By the early 1990s, Indian immigrant tech entrepreneurs saw a need for a new kind of group aimed at business networking and mentoring. The Indus Entrepreneurs (TiE) was formed in 1992 by a group of Indian technology professionals.

A core group of 20 entrepreneurs began TiE with monthly dinner meetings at the San Jose Hilton. Cirrus Logic founder Suhas Patil was instrumental in organising the first TiE Annual Conference in 1994, which drew a surprising 500 attendees. By 1999, it was regularly drawing nearly 1,000.

Today TiE is a global organisation, with 53 chapters in 12 countries, 11,000 general members, and 1,800 Charter Members (experienced entrepreneurs and senior, established executives recruited by invitation only).

TiE Silicon Valley remains the global headquarters and mother ship and has played an influential role in the development of many startup companies -- both in Silicon Valley and in India -- and in advising Indian universities and government agencies on entrepreneurial strategies.

Check out how Indian innovation drove business. . .

Innovation drives new business models

The ability to deploy dozens or even hundreds of tech workers on a software or systems problem for a client, at a fraction of the US cost, has lured many 'captive' (foreign-owned) R&D centers to India.

While cost is still an advantage, that model is rapidly changing as India's domestic costs rise, competition for basic business process outsourcing services is growing from places like the Philippines and China, and India's IT majors are moving aggressively away from strategies based on volume (throwing large numbers of engineers at a problem) to value (more sophisticated, high-end services such as systems integration, end-to-end product development, remote systems management, and consulting).

India's IT community, both foreign and domestic, is now focused less on wage arbitrage and more on creating intellectual property. Many overseas companies that located in India solely for cost advantage have encountered difficulties.

Many Bay Area firms follow a hybrid model, utilizing both their own R&D centers (particularly where intellectual property is a concern) and extensive partnerships with one or more Indian majors.

What's unique about India?

India's current growth trajectory began in 1991 with economic reforms that lifted the heavy hand of control planning and stimulated a wave of dynamic business growth that continues to the present.

India's development in this period parallels China's, but is based more heavily on services than on manufacturing.

As with China, the Bay Area's economic and cultural ties with India are a unique asset, manifested by value creation at both ends of the relationship. Distinct characteristics of India's economic environment support this growth:

• India's economy is privately-led, rather than government-directed, making India sometimes less focussed, but at the same time more open and diverse than China.
• India's focus on IT services and software has provided its engineers and scientists with important windows into the full range of US industry sectors -- finance, energy, automotive, health care, aerospace and infrastructure -- that are key to value-added innovation.
• English-language prevalence in India, along with Western legal and democratic traditions and business customs, has enabled deep relationships that link talent and innovation.

The Bay Area's economic and cultural ties to India are unique. Much of this uniqueness comes from the high levels of education, wealth, entrepreneurial activity and business leadership in the region's Indian community.

India's expanding economy, with its growing business and consumer markets, also anchors the relationship. The Bay Area's focus on innovation and entrepreneurship is mirrored in India's deep reservoir of human capital and its focus on technology and other services. Bay Area companies draw on both and have led the world in establishing strategic partnerships with Indian counterparts and service providers.

This relationship, properly managed, can play a major positive role in positioning the Bay Area for continued success in the global economy, the report said.

Offshoring: Indian firms go up the value chain

In recent years India's technology economy has progressed from activity based primarily on the offshoring of back-office jobs and writing software code, to a more sophisticated role where Indian IT companies are taking on more complicated tasks such as systems integration and end-to-end product development.

Wage arbitrage (trading on high-volume work and lower wage scales) is becoming less important, while more complex, specialized work is increasing.

According to Bay Area Council Economic Institute President & CEO Sean Randolph, "Many people still think India is all about offshoring and low wages, but the reality has changed dramatically. India's growing capacity for high-end services, research and product development is transforming it into a global technology hub, and deepening the quality of its global partnerships. In the process, India and its companies are becoming more deeply embedded in Bay Area companies' global strategies."

Another trend the report identifies is the emergence of a middle class of 200-300 million consumers. Reflecting this, Bay Area companies are increasingly using India not only as a base for global markets, but also to meet India's growing demand for everything from designer clothing to computers, urban planning and architectural design services, financial services, infrastructure development, education, tourism, software and cleantech. Investment by Bay Area VCs is flowing into everything from on-line gaming to fast food franchises.

Brain drain, etc

The Bay Area Econmic Institute report says that:

• India is not expected to become a source of breakthrough technology in the foreseeable future. But its growing capabilities, like China's, suggest that in the future more R&D and product development will happen overseas.

These factors are becoming even more compelling as significant numbers of Indian students and professionals trained in the Bay Area return home.

America's turn to India and other countries for engineering talent is largely the result of the US failure to generate an adequate number of home-grown scientists, engineers, and technicians.

Workforce issues will remain a concern, as India's large and growing pool of talent raises questions regarding future employment in the lower and middle range of the US service sector.

In this regard, the Bay Area faces significant challenges like:

• The region's primary and secondary education system lacks qualified teachers and has failed to produce a critical mass of students grounded in science and math.
• US visa and immigration policy unnecessarily restricts access to global talent, fails to compete aggressively for top foreign students and researchers, and discourages them from staying to contribute to the economy.

Indian technology and other professionals now in the Bay Area see growing entrepreneurial opportunities in India, leading students and recent immigrants to return home in significant numbers.

How Bay Area can be more self-dependent

The report also makes some suggestions. These focus on:

• Increased emphasis on math, science and technology in primary and secondary education in the Bay Area;
• High school and college-level business courses emphasizing entrepreneurship and global economics, alongside traditional economics and management;
• Immigration reform: To develop a J-1/L-1 visa program that allows graduate technology professionals and researchers to take jobs without first returning home; and to provide a fast-track to green cards for foreign students who graduate from US universities with advanced degrees;
• Concern with Buy America provisions in federal stimulus policy that restrict the employment of foreign nationals, cutting off US companies from the talent they need to compete;
• State and federal investment in R&D and higher education, to help bring technology to market and ensure the US and California's continued technology leadership;
• Development of R&D, investment, and export opportunities to address India's growing renewable energy, energy efficiency, and green urban design markets;
• Development of travel and tourism opportunities, through expanded air service and marketing of Bay Area's unique connections to India.

How Indian IT firms can boom globally

On the Indian side, this report's research points to:

• The need for India's IT companies, if they wish to become truly global enterprises, to expand their service centers outside India and increase their hiring of non-Indian nationals to serve those markets; and
• The need for the Indian government to sustain and accelerate economic reform, to improve government performance and efficiency, and to allow expanded partnerships and market access in a range of areas that are currently subject to major restrictions, including banking, retail trade, legal services, wine and agricultural imports, and higher education.