ing, emerged mostly in the software industry, principally in India. As a context for the discussion of offshoring in specific industries in Chapter 3, we briefly review the historical development of services offshoring and India’s role in that development.
From the time of India’s independence until the early 1990s, the Indian economy was highly regulated and controlled by the government (Dossani and Kenney, this volume). Indian international trade and investment were based on a protectionist, import-substitution philosophy. At the same time, a focus of public policy in India was investing in science and engineering research and higher education, which included the founding and expansion of Indian institutes of technology (IITs) (Murali, 2003). However, the IITs served a relatively small portion of the population, and many graduates continued to go overseas for graduate training. When the Japanese, South Korean, and other Asian economies underwent rapid economic growth fueled by manufacturing for the global market, India was largely cut off from the global economy. Nevertheless, its pool of skilled, English-speaking workers continued to grow.
During the 1970s and 1980s, India developed a small software industry focused on its domestic market (Aspray et al., 2006). The international Indian software industry began with Tata Consultancy Services, a pioneering firm that provided Indian programmers to work at customer sites in the United States. As this kind of activity increased during the 1980s, the Indian government became aware of the value of the software industry and adopted several preferential policies (e.g., exempting export revenue from taxation) that encouraged growth and kept the industry focused on the international market. Cultural, technological, and business factors came together during the late 1980s and 1990s to accelerate the growth of India’s software industry.
Cultural factors included the tendency of educated Indians to become proficient in English. Because of this, India, along with Israel and Ireland, became a destination for the early offshoring of software work for U.S. multinational companies. All three countries offered low labor costs and skilled, English-speaking programmers. Another cultural factor was the presence of Indian-born engineers who had been educated and had worked in the United States (Saxenian, 2006). More than one-quarter of U.S. engineering and technology firms launched between 1995 and 2005 had at least one key founder who was foreign-born, with the largest number from India (Wadhwa et al., 2007).
As India’s software industry grew and its global orientation became more prominent, Indian expatriates actively contributed to the development of new Indian-based companies and the operations of U.S.-based IT companies in India. As a result, the Indian government adopted policies to support the software industry, such as raising the standards for physical infrastructure and opening the economy to global trade. Indian expatriates have increasingly focused their efforts on developing entrepreneurial ventures that combine U.S.-based financing and market acumen with India-based engineering implementation.
Technological factors were also important to offshoring of IT-related work to India. The widespread adoption by the computer industry of the Unix workstation standard and the C programming language in the 1980s enabled the modularization of programming. This made it possible for independent software vendors to use standardized tools to develop programs for a wide range of operating systems and applications. During the 1990s, PCs with X86 microprocessors and Windows operating systems replaced RISC/Unix workstations in programming, and the Internet “provided a platform for networked development of software and software installation, hosting, and maintenance” (Dossani and Kenney, this volume). The availability of widely used word processing, spreadsheets, computer-aided design, and drafting software combined with the Internet to enable remote, distributed approaches to technical work. The point is not that these changes gave India unique advantages, but that technological advances made it possible to undertake a wide range of IT-related work in widely dispersed locations at the same time that the development of India’s institutions and human-resource base made it an attractive location.
Business factors, which have led to the development of new business models in global service industries, also contributed to the offshoring of engineering and other services work to India. For example, Indian companies and the Indian affiliates of multinational corporations were well positioned to undertake much of the necessary software coding and maintenance work in response to the Y2K crisis in the late 1990s (Sturgeon, 2006). This led to the upgrading and expansion of the business infrastructure, which, in turn, led to the expansion of IT-related business-process offshoring.
The contracting of outside firms to manage data-processing functions has a long history. Large multinational consulting companies prominent in this line of business, such as Accenture, EDS, and IBM Global Services, had also been doing Y2K-related work. Many business-process operations required custom-software development, which overlapped with the skills offered by Indian organizations and individual programmers.
As the costs of telecommunications fell and the demand for skilled IT labor in the United States rose during the dotcom boom, India-based activities serving markets in developed countries increased in scale and in scope. Call centers, accounting, finance, human resources, and other business functions became targets for reengineering and offshoring. Indeed, importing services from India has been a key element in the IT-enabled restructuring of services work that some analysts predict will fuel U.S. productivity growth in the coming years (Mann, 2003).
The prospects for growth and development in this type of offshoring are explored in later chapters. For now, it is important to note that “engineering-services outsourcing” is considered by the Indian IT industry as an area for signifi-