A significantly large number of start-up company founding fathers, Chief Technical Officers, engineers and venture capitalists in California's Silicon Valley today, can be found to trace their roots to India. Because, for a long period of time, India's best-trained engineers were lured by bigger, fatter paychecks for doing the same job in USA or other western nations. Then too, it could also be due to information technology off-shoring / outsourcing, as IT professionals in India were way too busy providing services to well-paying overseas clients, leaving them no time out for their own innovative product development for American and Indian markets.



But, the impact of off-shoring / outsourcing on indigenous innovation is not as clear cut, going by the experiences of Infosys Technologies and Ittiam, two very different Indian companies. Providing off-shoring / outsourcing services on a large scale left little opportunity for Infosys to dabble in innovative in product development. Yet, by establishing their presence as competent off-shoring / outsourcing service providers, they opened the door of opportunity for other Indian service providers, many of who argue that off-shoring / outsourcing is a training ground for teaching India's next generation on how to become tech entrepreneurs.

Founded in 1981, to design, develop and maintain software for American banking, telecommunications and manufacturing corporate clients, Infosys Technologies has become India's third largest IT services company. In the 1980's, when business became slow, Infosys created proprietary banking software, still in use by 70% of Indian banks, even today. It wasn't until 1991 when the Indian economic market was liberalised that the Indian software services industry took off, and it was around this time that Infosys decided to give up product development not wanting to conflict with clients. A strategy that has proved highly successful for the company with revenues climbing to 30 to 40%, and most of the intellectual property generated going back to clients.

The other side of the coin, Ittiam Systems, the indirect outcome of off-shoring / outsourcing. From service providing Texas Instruments (TI), led by Srini Rajam, the crew of TI set up their start-up company in 2001 to make cheaper and better digital signal processing systems. Securing a $11.5-million in venture capital financing, by 2004 Ittiam began to earn $1-million in profits annually. Srini Rajam, CEO Ittiam, a former employee of Indian off-shoring / outsourcing firm Wipro Technologies, and then Texas Instruments India division, sees himself and his company as the indirect benefit of the off-shoring / outsourcing phenomenon. According to Rajam:

“Outsourcing will help innovation, it gives people confidence and experience.” in addition to high salaries that give them the freedom to risk taking on new ventures.

And, Ittiam is not the only example, as alumni of off-shoring / outsourcing companies such as Wipro, Infosys launch dozens of start-ups in India funded by JumpStartUP, a venture capital firm based in Bangalore and Santa Clara, California. S. Anandaram, co-founder JumpStartUP andformer Wipro employee offers an explanation for the trend. He believes as India's economy booms, an equivalent lifestyle, pay check and homesickness is enticing talented, skilled and experienced Indians to return home from USA and other western countries to don the mantle of leadership. Another reason could be that people serving multinational clients have gained the confidence and critical experience necessary to manage global operations.

Most importantly, the trend has evolved with a cultural shift in attitudes to entrepreneurs who were formerly regarded as people unable to retain regular jobs, and failed businesses were equated with personal failure.

These days, Rajam says: “a startup is no longer viewed as a no-no. It is in fact viewed very positively.” He is substantiated by Ashish Arora, a professor of economics and public policy at Carnegie Mellon University: “At least some of this change can be credited to outsourcing. If India has any kind of successful product development, it will be because of the success of the software services sector.”