TECH HUB ASPIRES TO MATCH VALLEY IN INNOVATION

BANGALORE BOOM
TECH HUB ASPIRES TO MATCH VALLEY IN INNOVATION

By John Boudreau

Mercury News

BANGALORE, India - Drive along Hosur Road -- Bangalore's version of Highway 101 -- even at 1:30 a.m. and you'll see sparks from welders working on new buildings to house software companies. Pick up any newspaper and read ads from tech companies seeking -- imploring -- engineers to come work for them. Experience the Silicon Valley-style, masters-of-the-digital-universe attitude permeating Bangalore, from its impossibly jammed roads to the new dot-com-like offices.

``We think we will overtake Silicon Valley,'' said Vineet Shrivastava, bid manager at the Bangalore campus of Dutch tech services and wireless company LogicaCMG. ``You can see it for yourself.''

Bangalore, the tech center of India, is booming as the Bay Area once did, becoming a world-class hub for tech jobs, economic activity and, increasingly, innovation. While Silicon Valley still retains a hold on high-end tech jobs, countless lower-level positions, particularly in software -- and now some sophisticated research and development work -- are shifting to this city of 6.5 million in southern India. The emergence of Bangalore -- and of India -- as a tech power signals a new world economic order that is both opportunity and threat to Silicon Valley.

A new challenge

The opportunity comes from the ability of U.S. companies to tap India's abundant technical brainpower and its fast-growing market for tech products and services. The threat is immediately obvious: Jobs involving a range of engineering and technical abilities, once plentiful in the valley, have migrated to India. The long-term prospect is that India could some day compete with Silicon Valley as a center for innovation.

``Silicon Valley should be concerned,'' said Rafiq Dossani, senior research scholar at Stanford University and an expert on India's tech explosion.

Bangalore, he said, could ``start to look like Silicon Valley five to 10 years down the road.''

For now, ``second-level'' engineering work that is not at the top of the innovation ladder is increasingly being done in India, Dossani said. These include customer service, software quality control and general programming. ``All of that is moving out. And that will just continue,'' he said.

Silicon Valley has always thrived when faced with challenges, and most observers believe that will continue to be true. This region is the epicenter of the venture-capital industry, a constant funding source for new ideas, world-class universities and a network of companies and technology brains unmatched anywhere, observed Ash Lilani, head of Silicon Valley Bank's global division.

``In many ways, the success of Bangalore is in part due to the fact people in Silicon Valley are willing to work with them,'' said Christopher Thornberg, senior economist of the UCLA Anderson Forecast.

Last year, companies operating in Bangalore exported $6.3 billion in software and services, more than 35 percent of the total $17.3 billion in software and services exported from India. Such exports from the country are expected to jump by as much as 35 percent this year, said B.V. Naidu, director of government-run Software Technology Parks of India. This year, India's overall tech industry is expected to have revenues of more than $28 billion -- more than triple the amount five years earlier.

Multinational companies have played major roles in the tech revolution. As many as two-thirds of all Fortune 500 companies are estimated to have outsourced operations to contractors in India.

Silicon Valley `magic'

They also have shaped the tech industry by setting up large campuses. Oracle has a staff of 7,000 engineers and other professionals in India; German software maker SAP invested $1 billion in India in 2004 alone and has nearly 2,000 employees in the country, most doing research and development. Intel employs about 2,800 tech workers in Bangalore. Cisco recently announced it was investing $1.1 billion and tripling its staff in India, from about 1,400 today to more than 4,000 within three years, to develop products for the Indian market.

In the early 1990s, less than $100 million a year in foreign investment flowed into India; today, it's about $5 billion, said Narendra Jadhav, head of economic research for the Reserve Bank of India.

And Silicon Valley companies -- from start-ups to giants like Oracle -- are helping drive the change, scrambling to hire ever more engineers and putting up gleaming new buildings. They are trying to import the Silicon Valley ``magic,'' infusing the new cubicle culture with the risk-taking spirit of innovation and creating colorful offices with recreation rooms for pingpong and yoga.

``Once the Silicon Valley companies came in and introduced stylish offices, Indian companies couldn't be left behind,'' said architect Jessy Jacob, whose business has exploded since the Americans started arriving en masse in recent years. She's been hired to create offices outfitted with polka-dot walls, beanbag chairs and basketball hoops.

Nightclubs are packed with techies: See the young engineers with iPod earbuds dangling from their ears, the young call-center women in low-hugging designer jeans, the recruiters working the scene to snag new talent for their American employers.

To be a young and talented tech worker in India is, well, to have been a young and talented tech worker in the valley in the late 1990s. They are showered with double-digit pay raises and multiple job offers, and encounter headhunters devising ever-more-creative ways to track them down, such as randomly calling extensions at software companies.

``A lot of employers don't want to be located in the technology parks,'' said Rishi Das with CareerNet Consulting, a headhunter firm in Bangalore. ``They can't take the risk of recruiters meeting their employees in the lift every day. Companies are skeptical about putting the names of their employees on their Web sites because they are afraid people will contact them about a job change.''

By valley standards, where most engineers typically earn between $79,000 and $125,000 a year, workers in India are still a bargain, though escalating salaries could eventually reduce that advantage. Salaries range from about $7,000 a year for the most entry-level engineers -- known as ``freshers'' -- to $25,000 to $30,000 for experienced engineers.

Bangalore has become a critical part of many tech companies' strategies to tap into a large pool of inexpensive workers to compete globally, and mine new markets. India's superb higher-education system, including the prestigious Indian Institutes of Technology, produces more than 100,000 technology workers every year, according to the National Association of Software and Service Companies in India.

Excitement in the air

In the global economy, tech companies, large and small, must have a presence overseas if they hope to sell into different cultures.

``It is, and it will become, a much more competitive world,'' said Bryan Stolle, chief executive of San Jose-based Agile Software, which has operations around the globe, including Suzhou, China, and Bangalore. ``That genie is out of the bottle. Nothing is going to change that.''

In late September, Silicon Valley Bank, whose Bangalore operation is dubbed ``Sand Hill Road East,'' sponsored an event for valley venture capitalists. More than 50 showed up. Some were even willing to make the 30-hour trip to Bangalore, whose small and dilapidated airport limits daily flights, in coach rather than first or business class.

``People do whatever they can to get here,'' Silicon Valley Bank's Lilani said. ``There is so much energy here. There is excitement in the air.''

Lilani often has to pull strings at Bangalore's posh Oberoi hotel to get rooms for VCs flying in to pursue deals; they meet for power breakfasts at the Oberoi's restaurant, an upscale version of the valley's Buck's restaurant in Woodside.

A Bangalore strategy enables companies to grow quickly.

Take NetDevices, a Sunnyvale-based networking company started by three former Cisco engineers. The company, which has created a new type of networking device that combines disparate communications services, does the bulk of its product development in Bangalore. With 125 employees in India, including 100 in Bangalore, NetDevices has been able to hire more employees than it could in Silicon Valley. That has helped the company ship its first product in 18 months.

If most of the jobs were based in the valley, the company would have had a smaller staff and would have needed three to four years to ship the first product, said Vice President Uday Birje.

``The India factor plays a key role in NetD, and not just engineering, but also marketing and services,'' he said.

Smaller companies, in particular, hope to use Bangalore as a base for innovation.

Access to new markets

``The R&D is done here. The development is done here,'' said Nav Bhullar, president of San Jose-based Wyse Technology's India operations. Wyse is creating the software code for a new generation of low-cost, handheld computing devices in its elegant Bangalore complex that houses a staff of 161, including 71 engineers. The Bangalore team is expected to double within a year.

In just three years, Palo Alto-based Symphony Services has grown to a company with more than 2,600 employees worldwide, with 95 percent of them based in India, mostly Bangalore. The company provides software services to U.S. corporate customers, including sophisticated data analysis and modeling.

``This is all leading-edge work,'' said Ajay Kela, president of Symphony Services India, who returned to Bangalore from Silicon Valley two years ago. ``This is innovation. We are moving up the value chain.''

Bangalore also gives companies instant access to new markets.

Santa Clara start-up July Systems provides the software that allows companies to sell content, from ring tones to games, for mobile phones. July Systems develops its product completely in Bangalore, where all its engineers are located. Being in Bangalore is key to understanding the exploding Asian cell phone market, said Guruprasad Krishnamurthy, director of product management.

``We get input from Asia about where the markets are headed,'' he said.

The global economy is bringing new wealth to a historically poor country.

Upscale shopping malls are going up. Housing prices are exploding; in the elite Palm Meadows residential enclave of Bangalore, a California suburban-style home that originally sold for $120,000 in 2001 now can go for $600,000.

``The market will sustain the appreciation,'' said developer B.M. Jayeshankar, chairman and managing director of the Adarsh Group, which developed Palm Meadows, and president of the local builders association. He expects revenue for the Adarsh Group to triple, from $25 million in 2004 to $75 million in 2005. ``The appreciation might slow down slightly, but the demand will continue.''

Tech money is seen in more modest measures, as well: On the streets of Bangalore, new automobiles, from starter Korean cars to flashy SUVs, are crowding out the three-wheel auto rickshaw taxis. In 2003, Bangalore's Trident Hyundai, which sells cars for the Korean automaker, sold 32,000 vehicles. This year, it will sell 65,000, said Managing Director Samir Choudhry. A college degree and a new tech job is all a young engineer needs to be able to do what his father never could: buy a new car, he said.

``There are days when we deliver 100 cars, so we are open until 12 at night,'' Choudhry said. ``The system is stretched. Everyone is going crazy.''

But the new wealth is also creating problems.

Traffic is choking roads. A 10-mile journey can take well over an hour. Every day, hundreds of new cars are added to potholed streets packed with motorbikes, sport-utility vehicles, horse-drawn carts and cows. Hosur Road is an artery overflowing with tech-company buses delivering their workers to the massive Electronics City, one of Bangalore's most prominent tech parks and home to software services giant Infosys Technologies. The morning traffic report one fall day from Radio City Bangalore, a leading radio station: ``I think it will be chaos!''

The instant wealth in a nation with a literacy rate of about 60 percent, and where 25 percent of the population lives in poverty, has increased class resentments. Activists have protested outside the gates of Infosys to demand the company hire more locals rather than just the graduates of India's elite universities.

Skyrocketing housing costs have forced those not benefiting from the boom to move further away from jobs.

``It's the outsiders who work in IT,'' said Srinivas Bhat, a chauffeur for Wyse Technology. ``Fewer Bangaloreans work in IT. Bangaloreans can't afford the rent.''

Bhat, though, has seen his life improve significantly since Wyse hired him. The company is teaching him computer skills. And he can now afford to send his 6-year-old daughter to a much better school.

His dream for his daughter?

Bhat smiles. He hopes she will become an engineer.