Abstract
The information technology (IT) cluster in Bangalore, India has developed substantially since the liberalisation reforms introduced in 1991. This development has been underpinned by government support and a labour arbitrage strategy that seeks to carve out a share of the large IT services markets in Europe and the USA. More recently, however, these costs have been rising in India opening up opportunities for foreign IT service rivals in places such as Eastern Europe and China. With the labour arbitrage strategy waning, we believe the Bangalore IT cluster needs to realign its strategy towards higher-value exports and the growing domestic market. In order for such a strategy to work, a number of critical reforms are needed to allow the domestic IT services industry to adjust. Most, if not all, of these reforms require public sector support and it is here where the most intractable changes are necessary.
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