The rise of IT services clusters in India: A case of growth by replication

Abstract

The Indian IT services sector has grown from small beginnings at the bottom of value creation to a major player in the global information and communications technology (ICT) industry. It commands a 55% share in the global market for IT services. India's IT sector value proposition in terms of low cost with large supply of high quality talent is compelling. As a result, India has become the premier choice not only for outsourcing IT services by the developed-world's multinational corporations (MNCs) but also for locating their own Global In-house Centers (GICs), which simultaneously compete and partner with local firms. This gave rise to six additional clusters beyond the earliest, largest and robust cluster, Bangalore. The paper provides a review of relevant literature; develops a conceptual framework for evaluation of clusters; and presents data and analysis with respect to relative size, growth, specialization, MNC presence and connectivity to local firms through expatriates and returning Indians, ,innovation; and discusses adequacy of ICT infrastructure for future growth. Although there are clear signs that the Indian IT sector has been moving towards a regime of providing high-end value added services, the sector's value proposition – lower cost combined with a large supply of high quality talent – remains the single most compelling reason for the rise and growth of multiple export clusters. Thus the sector's growth appears to be a case of growth by replication rather than innovation. The paper concludes that the Indian IT sector's value proposition in terms of lower cost combined with large supply of high quality talent remains the single most compelling reason for the rise and growth of multiple IT services export clusters. While the old adage, “people follow jobs” still holds for large part of the labor force, there is little doubt that the sprawling IT services clusters in India - with more to come from Tier II and Tier III cities – indicate, in fact, that “jobs follow talent." Both local firms and the MNCs, through their GICs, are pushing the boundaries of location farther and farther to continue to leverage cost advantage and available pools of talent.