Source | LinkedIn : By Raja Jamalamadaka
Starting off as a programmer in the technology industry twenty years ago and rising through the ranks to a board member and a corporate adviser now, I consider myself an industry insider. Along the way, I have dabbled in various lines like entrepreneurship, services and products, worked in various streams like technology, sales and strategy and various geographies like Asia, Europe and North America. This article is an outcome of my experiences coupled with my discussions with industry members (from veterans to fresh entrants) on the inside perspective of the India’s technology industry.
In existence for many decades, India’s technology industry actually flourished in the 1990’s. The huge need for technology professionals especially in the US coupled with the abundant supply of English speaking engineers in India led to the massive growth of this sector. The real differentiator wasn’t so much the technology prowess of Indian engineers: it was lower cost of Indian engineers- often by a factor of 10 compared to US engineers. For the limited work that necessitated US presence (coordination, relationship building etc), these companies chose to ship lower-cost engineers from India – than hire US locals at higher rates – using the now notorious H1B visas (The H1B visas were meant to get talent not available in the US, not replace local talent with lower cost imported resources). The result? Indian technology companies were the largest consumers of H1B visas from 1990’s till date.
The unique differentiator, the USP of the business model of the technology sector, didn’t have anything to do with technology or domain factors – instead, it was centered around the cost difference or labor arbitrage, between the US and Indian engineers. The entire operational model – processes, system, tools, and even organization culture – was designed to exploit this ONE factor to the maximum extent. Altering the elements of the operational value chain – bench ratios, onsite-offshore mix – was enough to generate high profits and dizzying valuations for the technology sector – until the late 2000’s.
There was nothing particularly unique or wrong with this business model except an understanding that technology companies should have used labor arbitrage as an excellent entry strategy to generate business and not as a sustaining strategyfor ongoing growth. Using labor arbitrage that relied on external factors as a sustaining strategy led to several challenges:
1. With no explicit technology differentiator (product, technology, unique solution), the technology organizations served the client’s operational rather than transformational or strategic business needs. Lower barriers to entry led to competition, quicker commoditization and falling margins. Imagine an automotive organization that has no key engineering or feature value and instead relies on low cost as its primary differentiator.
2. Without internal differentiators, meeting financial metrics depended on external factors like ability to recruit lower cost resources and send them to client locations in the US.
a. Recruitment required India’s notorious education system to generate enough quality engineers to keep the costs low. Without this, a short supply of engineers would raise salaries due to mismatched demand supply ratios eroding the profits. This is exactly what started happening post 2008 and took this benefit away.
b. Sending staff to US necessitated overlooking a compliance risk and depending heavily on a liberal US visa regime, outside the direct control of technology organizations. Enter Trump and even this benefit seems to be getting wiped out.
This should explain the huge uproar in India about H1B visas.