Bangalore is the city of dreams. It is the city where failure is a stranger, and expectations climb as high as the booming Indian stock market. Bangalore today accounts for a large slice of India's revenues in outsourced services and offers a model that cities around the world are emulating. Many American companies view it as an place to pursue innovation, while American knowledge workers see it as a threat to jobs.
It's also a city where the clock is ticking.
The ugly truth is that, while this southern Indian city of 7 million may be a global center of information technology and other services, business in Bangalore is essentially a "me, too" activity with little true innovation. Multinational corporations come to reduce their costs, and the Indian companies set up shop to offer services to whomever wants to reduce risk as well as cost.
A WINNING PLACE.
It's a comfortable and, so far, highly profitable arrangement. But it's not what India needs in the long run. The growth rate for such services as information technology and business-process outsourcing cannot be sustained. The cost pressures on outsourcing and offshore providers from a booming local economy, combined with competitive price pressures from rivals in many parts of the world, will slow the expansion.
The first reaction to slower growth will be to lower prices, but the pressure on margins will demand more creative solutions. How can Bangalore sustain its strong position beyond 2007, and what is the right model for other regions and cities aspiring to a winning place in the race towards the globalization of innovation?
The answer lies in vigorous, robust, and innovative tech companies that can develop new products for the world. These companies will be a new breed, with the ability and nerve to generate ideas and then use science, technology, and engineering to produce high-value results. Most -- perhaps 90% -- of all such attempts will fail, but the successes will sustain the regeneration of the economy.
Silicon Valley is the benchmark example for this concept of serial innovation. The micro economy running from San Jose, Calif., to San Francisco has given birth to generations of risk takers who have taken technology to market and, in the process, changed the world. The globally recognized names of Hewlett and Packard, Wozniak and Jobs, Page and Brin, are representative of the many individuals at smaller companies who engage in innovation risk as a way of life.
Bangalore must build such an environment if it is to prosper. India has done it before -- the space program is an example -- but it has never done it on a sustained basis. The key component of "serial" has been missing from innovation. Until it reaches such a level, Bangalore cannot be said to have a truly innovative technology sector and will continue to rely on cost arbitrage-based information technology and other outsourced services.
How will such a climate of innovation come about? Despite the success of India's space and defense initiatives, serial innovation cannot be dictated by government. Nor can it be created by multinationals, which are too risk-averse for such adventures on a sustained basis. It will happen when enough entrepreneurs and venture capitalists enter the field, and when failure is accepted as part and parcel of success.
NO RISKY BUSINESS.
The instances of serial innovation in Bangalore are few, indeed almost nonexistent. Bangalore has a number of wonderful technology service companies that meet and beat their clients' expectations on a regular basis, but are they really driving and building a culture of innovation? I think not -- everything is just a bit too easy.
In a recent interview with Knowledge@Wharton, Vivek Paul, late of Wipro (WIT), said: "India lends itself to lower risk and more processed activities, rather than taking a gamble...if you look at that service business as leading to innovation and product outcomes, the answer is absolutely not."
Bangalore is full of bright engineers and businesspeople. There is ambition and there is expectation. There's cash in the pockets of professionals and in the coffers of the successful companies, but there's no compulsion to take big risks.
Today, unlike in California, there are no tectonic plates to disturb the Bangalore serenity, no fault lines that can spur individuals to take a chance with something outside their comfort zone. These exist as a natural phenomenon in Silicon Valley, where upheaval occurs constantly and there is continuous regeneration of ideas. Bangalore wants to be compared with "The Valley," but first must come the earthquake.
This earthquake could be caused by a severe downturn in the economy, or by some spectacular business failures, or by major mergers or acquisitions. It could even be the result of an organic movement among the professionals who today are driving the Bangalore miracle from the inside.
Any of these events would bring bright and resourceful individuals onto the street in sufficient numbers that a new ecosystem of innovation would emerge. Many would fail, but there would be enough successes. These would inspire more attempts, and the failures would provide the learning ground that is vital for serial innovation.
The impact of such a revolution would be felt around the world. Businesses in the developed world would see new reasons to invest in India and to take more risks in product innovation. Engineers and entrepreneurs in developing countries would be encouraged to follow the Bangalore examples, with resultant step increases in global innovation.
Bangalore has a surfeit of great talent. There is plenty of money to fuel innovation, there is ambition, and ideas are plentiful. What's needed now are the right conditions. Old and new money has to be extracted from safe havens such as real estate and put in the hands of people willing to take risks.
This, in turn, will lead to a steady stream of new products and innovations. The change may be painful, but it will also be a release. Bangalore will then begin to realize its true potential as a global center for serial technological innovation -- and break away from the bonds of an outsource services model that is rapidly becoming a global commodity.