第 18 页

to the side of the road, and I could just hear them saying to themselves, 'This is

the place we're going to get software from?'"

Fortunately for India, the GE team was not discouraged by the poor quality of Indian

cars. GE decided to sink roots, starting a joint development project with Wipro. Other

companies were trying different models. But this was still pre-fiber-optic days.

Simon & Schuster, the book publisher, for instance, would ship its books over to India

and pay Indians $50 a month (compared to $1,000 a month in the United States) to type

them by hand into computers, converting the books into digitized

electronic files that could be edited or amended easily in the future -particularly

dictionaries, which constantly need updating. In 1991, Manmohan Singh, then India's

finance minister, began opening the Indian economy for foreign investment and

introducing competition into the Indian telecom industry to bring down prices. To

attract more foreign investment, Singh made it much easier for companies to set up

satellite downlink stations in Bangalore, so they could skip over the Indian phone

system and connect with their home bases in America, Europe, or Asia. Before then,

only Texas Instruments had been willing to brave the Indian bureaucracy, becoming

the first multinational to establish a circuit design and development center in India

in 1985. TI's center in Bangalore had its own satellite downlink but had to suffer

through having an Indian government official to oversee it-with the right to examine

any piece of data going in or out. Singh loosened all those reins post-1991. A short

time later, in 1994, HealthScribe India, a company originally funded in part by

Indian-American doctors, was set up in Bangalore to do outsourced medical

transcription for American doctors and hospitals. Those doctors at the time were

taking handwritten notes and then dictating them into a Dictaphone for a secretary

or someone else to transcribe, which would usually take days or weeks. HealthScribe

set up a system that turned a doctor's touch-tone phone into a dictation machine.

The doctor would punch in a number and simply dictate his notes to a PC with a voice

card in it, which would digitize his voice. He could be sitting anywhere when he did

it. Thanks to the satellite, a housewife or student in Bangalore could go into a

computer anddownloadthat doctor's digitized voice and transcribe it-not in two weeks

but in two hours. Then this person would zip it right back by satellite as a text

file that could be put into the hospital's computer system and become part of the

billing file. Because of the twelve-hour time difference with India, Indians could

do the transcription while the American doctors were sleeping, and the file would

be ready and waiting the next morning. This was an important breakthrough for

companies, because if you could safely, legally, and securely transcribe from

Bangalore medical records, lab reports, and doctors' diagnoses-in one of the most

litigious

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industries in the world-a lot of other industries could think about sending some of

their backroom work to be done in India as well. And they did. But it remained limited

by what could be handled by satellite, where there was a voice delay. (Ironically,

said Gurujot Singh Khalsa, one of the founders of HealthScribe, they initially

explored having Indians in Maine-that is, American Indians-do this work, using some

of the federal money earmarked for the tribes to get started, but they could never

get them interested enough to put the deal together.) The cost of doing the

transcription in India was about one-fifth the cost per line of doing it the United

States, a difference that got a lot of people's attention.

By the late 1990s, though, Lady Luck was starting to shine on India from two directions:

The fiber-optic bubble was starting to inflate, linking India with the United States,

and the Y2K computer crisis-the so-called millennium bug-started gathering on the

horizon. As you'll remember, the Y2K bug was a result of the fact that when computers

were built,they came with internalclocks. In order tosave memory space, these clocks

rendered dates with just six digits-two for the day, two for the month, and, you

guessed it, two for the year. That meant they could go up to only 12/31/99. So when

the calendar hit January 1, 2000, many older computers were poised to register that

not as 01/01/2000 but as 01/01/00, and they would think it was 1900 all over again.

It meant that a huge number of existing computers (newer ones were being made with

better clocks) needed to have their internal clocks and related systems adjusted;

otherwise, it was feared, they would shut down, creating a global crisis, given how

many different management systems-from water to air traffic control-were

computerized.

This computer remediation work was a huge, tedious job. Who in the world had enough

software engineers to do it all? Answer: India, with all the techies from all those

IITs and private technical colleges and computer schools.

And so with Y2K bearing down on us, America and India started dating, and that

relationship became a huge flattener, because it demonstrated to so many different

businesses that the combination of the PC, the Internet, and fiber-optic cable had

created the possibility of a whole new form of collaboration and horizontal value

creation: outsourcing.

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Any service, call center, business support operation, or knowledge work that could

be digitized could be sourced globally to the cheapest, smartest, or most efficient

provider. Using fiber-optic cable-connected workstations, Indian techies could get

under the hood of your company's computers and do all the adjustments, even though

they were located halfway around the world.

"[Y2K upgrading] was tedious work that was not going to give them an enormous

competitive advantage," said Vivek Paul, the Wipro executive whose company did some

outsourced Y2K drudge work. "So all these Western companies were incredibly

challenged to find someone else who would do it and do it for as little money as

possible. They said, 'We just want to get past the damn year 2000!' So they started

to work with Indian [technology] companies who they might not have worked with

otherwise."

To use my parlance, they were ready to go on a blind date with India. They were ready

to get "fixed up." Added Jerry Rao, 'Y2K means different things to different people.

For Indian industry, it represented the biggest opportunity. India was considered

as a place of backward people. Y2K suddenly required that every single computer in

the world needed to be reviewed. And the sheer number of people needed to review

line-by-line code existed in India. The Indian IT industry got its footprint across

the globe because of Y2K. Y2K became our engine of growth, our engine of being known

around the world. We never looked back after Y2K."

By early 2000, the Y2K work started to wind down, but then a whole new driver of

business emerged-e-commerce. The dot-com bubble had not yetburst, engineering talent

was scarce, and demand from dotcoms was enormous. Said Paul, "People wanted what they

felt were mission-critical applications, key to their very existence, to be done and

they could go nowhere else. So they turned to the Indian companies, and as they turned

to the Indian companies they found that they were getting delivery of complex systems,

with great quality, sometimes better than what they were getting from others. That

created an enormous respect for Indian IT providersf.] And if [Y2K work] was the

acquaintanceship process, this was the falling-in-love process."

Outsourcing from America to India, as a new form of collaboration,

exploded. By just stringing a fiber-optic line from a workstation in Bangalore to

my company's mainframe, I could have Indian IT firms like Wipro, Infosys, and Tata

Consulting Services managing my e-commerce and mainframe applications.

"Once we're in the mainframe business and once we're in e-commerce-now we're married,"

said Paul. But again, India was lucky that it could exploit all that undersea

fiber-optic cable. "Ihad an office very close to the Leela Palace hotel in Bangalore,"

Paul added. "I was working with a factory located in the information technology park

in Whitefield, a suburb of Bangalore, and I could not get a local telephone line

between our office and the factory. Unless you paid a bribe, you could not get a line,

and we wouldn't pay. So my phone call to Whitefield would go from myoffice in Bangalore

to Kentucky, where there was a GE mainframe computer we were working with, and then

from Kentucky to Whitefield. We used our own fiber-optic lease line that ran across

the ocean-but

the one across town required a bribe."

India didn't benefit only from the dot-com boom; it benefited even more from the

dot-com bust! That is the real irony. The boom laid the cable that connected India

to the world, and the bust made the cost of using it virtually free and also vastly

increased the number of American companies that would want to use that fiber-optic

cable to outsource knowledge work to India.

Y2K led to this mad rush for Indian brainpower to get the programming work done. The

Indian companies were good and cheap, but price wasn't first on customers'

minds-getting the work done was, and India was the only place with the volume of

workers to do it. Then the dot-com boom comes along right in the wake of Y2K, and

India is one of the few places where you can find surplus English-speaking engineers,

at any price, because all of those in America have been scooped up by e-commerce

companies. Then the dot-com bubble bursts, the stock market tanks, and the pool of

investment capital dries up. American IT companies that survived the boom and venture

capital firms that still wanted to fund start-ups had much less cash to spend. Now

they needed those Indian

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engineers not just because there were a lot of them, but precisely because they were

low-cost. So the relationship between India and the American business community

intensified another notch.

One of the great mistakes made by many analysts in the early 2000s was conflating

the dot-com boom with globalization, suggesting that both were just fads and hot air.

When the dot-com bust came along, these same wrongheaded analysts assumed that

globalization was over as well. Exactly the opposite was true. The dot-com bubble

was only one aspect of globalization, and when it imploded, rather than imploding

globalization, it actually turbocharged it.

Promod Haque, an Indian-American and one of the most prominent venture capitalists

in Silicon Valley with his firm Norwest Venture Partners, was in the middle of this

transition. "When the bust took place, a lot of these Indian engineers in the U.S.

[on temporary work visas] got laid off, so they went back to India," explained Haque.

But as a result of the bust, the IT budgets of virtually every major U.S. firm got

slashed. "Every IT manager was told to get the same amount of work or more done with

less money. So guess what he does? He says, 'You remember Vijay from India who used

to work here during the boom and then went back home? Let me call him over in Bangalore

and see if he will do the work for us for less money than what we would pay an engineer

here in the U.S.'" And thanks to all that fiber cable laid during the boom, it was

easy to find Vijay and put him to work.

The Y2K computer readjustment work was done largely by low-skilled Indian programmers

right out of tech schools, said Haque, "but the guys onvisas who were coming toAmerica

were not trade school guys. They were guys with advanced engineering degrees. So a

lot of our companies saw that these guys were good at Java and C++ and architectural

design work for computers, and then they got laid off and went back home, and the

IT manager back here who is told, 1 don't care how you get the job done, just get

it done for less money,' calls Vijay." Once America and India were dating, the

burgeoning Indian IT companies in Bangalore started coming up with their own proposals.

The Y2K work had allowed them to interact with some pretty large companies in the

United States, and as a result they began to understand the pain points and how to

do

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business-process implementation and improvement. So the Indians, who were doing a

lot of very specific custom code maintenance to higher-value-add companies, started

to develop their own products and transform themselves from maintenance to product

companies, offering a range of software services and consulting. This took Indian

companies much deeper inside American ones, and business-process outsourcing-

letting Indians run your back room-went to a whole new level. "I have an accounts

payable department and I could move this whole thing to India under Wipro or Infosys

and cut my costs in half," said Haque. All across America, CEOs were saying, "'Make

it work for less,'" said Haque. "And the Indian companies were saying, 'I have taken

a look under your hood and I will provide you with a total solution for the lowest

price.'" In other words, the Indian outsourcing companies said, "Do you remember how

I fixed your tires and your pistons during Y2K? Well, I could actually give you a

whole lube job if you like. And now that you know me and trust me, you know I can

do it." To their credit, the Indians were not just cheap, they were also hungry and

ready to learn anything.

The scarcity of capital after the dot-com bust made venture capital firms see to it

that the companies they were investing in were finding the most efficient,

high-quality, low-price way to innovate. In the boom times, said Haque, it was not

uncommon for a $50 million investment in a start-up to return $500 million once the