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The Secrets of India’s Success By: D.Manggala (September 9, 2003 for Issue in Global Competitiveness course) Executive Summary What are the secrets of India’s success in information technology? By using Porter’s Diamond Model, this article tries to answer that question. Based on the analysis, it seems the only determinant in the Porter’s Diamond that creates India’s success is Factor Condition (i.e. the Indian intellectual capital and “Indian connection” in Silicon Valley). The supporting determinant outside the diamond is the outsourcing trend in current global competition, which can be considered as the Chance in the Porter’s Model. This could be mean one of these possibilities: either Indian success will not be sustainable or Porter’s model needs revision. Talking about Porter’s model revision, it is necessary to consider Landes’ perspective on that model. Landes shows that historical and socio-cultural can be a big factor that makes a nation more competitive than others. In India’s example, its ancient civilization has provided foundation of knowledge in society that creates the Indian intellectual capital plus its ‘advantage’ being familiar with English language after occupied by British Empire for hundred years.

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India now has become synonymous with Information Technology (IT). Its software developers and IT products/services are only the second after the United States. In fact, more and more IT jobs are outsourced from the United States to India that makes IT job markets in the United States are suffered. What are the secrets that make India can emerge as a leading IT country among other countries especially in Asia? Using the Porter’s Diamond Model, the answer of that question will be discussed in this paper. We will see whether Porter’s Diamond Model can explain the primary causes of India’s competitive advantages in the information technology sector.

Porter’s Diamond Model explains that there are four determinants of national competitive advantage. Those components are: Factor Conditions, Demand Conditions, Related/Supporting Industries, and Firm/Industry Structure/Strategy. [1] One important point of Porter’s model is that the interaction among all those factors is very critical. However, does India have all those determinants work and interact each other to create this huge IT power?

To answer that question, we need to analytically discuss what makes India so powerful in IT. Firstly, we all know that India is one of the largest pools of the best engineers and highly educated people. India has a long history in producing smart and bright engineers from its education system. India’s strong emphasize in math in its basic education has leads Indian to be very competent in engineering field especially in information and computer field. In addition, most universities are highly focused on quantitative skill and engineering is considered the best field, no wonder if India has produced the best engineers among other nations. This intellectual capital is the Factor Condition in the Porter’s Diamond Model, specifically, the advance factor. India can provide world class intellectual capital with very low cost. The intellectual capital is the biggest determinant of India’s success in IT. Combined with its high population, India can provide lower cost- only 40 to 50% of the cost spent by the US companies with the same or even higher quality. [2]

What about the Demand Condition? Unlike Porter’s Model, the India great leap in IT has not begun with great home demand. In contrary it began with the demand of some US companies such as American Express and General Electric. [3] It was when some of . US companies began its Business Process Outsource (BPO) plan. The global competition made global company looked for other alternative to cut cost and stay competitive in global market. The alternative was found; they had to find other parties that could provide same products/services with lower cost. Then, India came up as the place of alternative for outsource given its intellectual capital. By that explanation, it does not mean that there are no demand of IT related product and services in India. Computer hardware and software must be really needed in India due to combination of high enthusiasm in technology and its high population. But it is clear that the India’s success came not from home demand but from US demand. Indian engineers have been for years working for US companies, especially in IT sector. With the growth of IT industry, there has been developed a sort of strong “Indian connection” in Silicon Valley. According to Anna Lee Saxenian, an associate professor at the University of California at Berkeley whose research is a study about Silicon Valley’s immigrant, that “of an estimated 2,000 startups in Silicon Valley 40% are Indian-spawned.” [4] The Indian connection in Silicon Valley, the intellectual capital in India and the trend of outsourcing in current global competition altogether bring India a great competitive advantage.

Looking at the other two determinants of the diamond (Related/Supporting Industries, and Firm/Industry Structure/Strategy) it is not really convincing that those are the determinants of India’s success. Electricity, road, and communication in India are not good enough for supporting India in global competition. Rivalry and Indian’s firm structure are also not a determinant. Again, just like the Demand Condition it does not want to say that these other two determinants do not exist in India; they exist, but simply do not the primary causes of India’s success. If there are a lot of improvements in current infrastructures or Indian companies’ management, those are just helping India stay competitive not the primary reasons of India’s lead in IT.

From all those description, it can be concluded that India’s success secrets are its Factor Condition (i.e. the intellectual capital and Indian connection in Silicon Valley) and the trend of outsourcing (Chance). It seems it does not fit with Porter’s Diamond Model as Porter explains that “Competitive advantage based on only one or two determinants is possible in natural resource-dependent industries or industries involving little sophisticated technology or skills. Such advantage usually proves unsustainable”. [5] Does it mean that India’s success in IT will not be sustainable? Or, does it mean that Porter’s model is not always right looking at India’s success?

For more discussion, it is interesting to see from another perspective. We can compare India with another nation that also has a great pool of bright engineers and educated people: China. The advantage that supports India dominance in IT is its familiarity with English language given it occupied by the British Empire for hundred years. This is supported by Landes’ writing. He discusses some differences in countries development from historical point of view; especially the differences between South America, North America and China. [6] From the reading it can be concluded that there are important influences from the historical and socio-cultural of a particular country to its development. Religion, belief and ancient civilization can be determinants of nation competitive advantage. India has an old history of civilization that creates Hinduism and Buddhism which people always pay high appreciation for “Vidya” (Sanskrit language for knowledge). This is a strong foundation for the creation of Indian intellectual capital.

In conclusion, India’s success secrets are its Factor Condition (the intellectual capital and Indian connection in Silicon Valley) and the outsourcing trend in global competition (Chance). The India’s success in IT does not entirely fit with Porter’s Diamond Model that can be predicted as Indian’s success will not be sustainable or it is Porter’s Model that need revision. It may necessary since Porter does not put high attention in historical and socio-cultural perspective.As shown in Landes’ explanation the historical and socio-cultural background of a nation can shape and create the basis of a nation competitive advantage.

 

Works Cited

“Anatomy of India Success Story.” CNET News 7 June 2003. Accessed 1 September 2003 from < http://news.com.com/2009-1086-1013842.html>.

Kripalani, Manjeet, Pete Engardio and Leah Nathan Spiro. “India’s Whiz Kids.” BusinessWeek 12 July 1998. Accessed 1 September 2003 from <http://www.businessweek.com/1998/49/b3607011.htm>.

Landes, David S. “ The South American Way” and “Celestial Empire: Stasis and Retreat.” The Wealth and Poverty of Nations 1998: 311-349. Rpt. in Readings for Issues in Global Competition. Ed. Professor James B. Burnham. Fall 2002.

Porter, Michael. “Determinants of National Competitive Advantage.”  The Competitive Advantage of Nations 1990:69-130.Rpt. in Readings for Issues in Global Competition. Ed. Professor James B. Burnham. Fall 2002.