Varieties of clustering and capability development in the Indian IT industry

Abstract

Introduction Despite the stagnant world economy, the Indian information technology (IT) industry sustains a high growth rate; in 2011, while exports of the IT and business process outsourcing (BPO) industry, excluding hardware, grew by 16.3 percent, its sales in the domestic market grew by 16.7 percent1. As a consequence of the rising salary of engineers, it should have become increasingly dif cult for Indian IT rms to sustain their growth merely as labor-intensive, cheap-cost IT services providers. In other words, some form of upgrading of their business should have been inevitable, including any forms of innovation. Furthermore, as the Asian economies are becoming the world’s center of economic gravity, it is easily expected that Indian IT industry transforms itself from an offshore development center for the remote foreign market to a development center close to the growing emerging market. As a consequence of such transformations, upgrading of regional innovation systems (Cooke 2001), as well as organizational capability of individual rms (Athreye 2005), will be needed. The purpose of this chapter is, based on original survey data, to examine how the IT clusters in Bangalore, Gurgaon, and Noida have structurally changed, arguing that although all of them are functionally coherent clusters, only Bangalore has evolved into a cluster that can support innovative efforts by individual rms.2