Rediff.com« Back to articlePrint this article

How Indians made Silicon Valley the world's tech hub

Last updated on: November 25, 2009 20:51 IST
The Embarcadero district of San Francisco looking toward the Oakland Bay Bridge is seen from the Coit Tower.

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. . .

Click on NEXT to read on further.

How Indians made Silicon Valley the world's tech hub

Last updated on: November 25, 2009 20:51 IST
Sikh boys dressed as the five beloved Sikh Gurus.

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. . .

How Indians made Silicon Valley the world's tech hub

Last updated on: November 25, 2009 20:51 IST
Gujaratis take part in rehearsals for the 'garba' dance ahead of Navratri festival.

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. . .

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
Techies at their computer terminals.

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. . .

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
Software professionals read at a library.

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. . .

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
The Y2K scare came as a boon for Indians.

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. . .

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
Indian students at a US university campus.

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. . .

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
The role of Indians in Bay Area's economy has been significant.

The huge impact of Indians on Silicon Valley

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

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. . .

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
Oracle CEO Larry Ellison.

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:

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

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
An Indian IT employee.

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. . .

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
NYT columnist and author Thomas L. Friedman at a TiE conference.

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. . .

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
Indian engineers work at a technology start-up company in Bangalore.

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.

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
The Bay Area's economic and cultural ties to India are unique. Indians at an ID parade in New York

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:

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.

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
An Indian IT employee.

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.

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
A panoramic view of the Silicon Valley.

Brain drain, etc

The Bay Area Econmic Institute report says that:

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:

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 Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
Computer motherboards at a recycling factory.

How Bay Area can be more self-dependent

The report also makes some suggestions. These focus on:

How Indians made Silicon Valley world's tech hub

Last updated on: November 25, 2009 20:51 IST
An Indian employee at a call centre provides service support to international customers.

How Indian IT firms can boom globally

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