The Business of Outsourcing

Education System

A major factor responsible for the software outsourcing movement to India is the sheer quantity of educated human capital. In 1951, India’s first Prime Minister Jawaharlal Nehru, set up the first of seven Indian Institutes of Technology in Kharagpur, West Bengal. The others are located in Mumbai, Chennai, Kanpur, Delhi, Guwahati and Roorkee. These institutes were and continue to be the epitome of academic rigor, with hundreds of thousands of students competing each year for the roughly 5000 available spots. This intense competition produces some of the most talented students based solely on academic merit. However, despite producing some of the finest engineers and computer scientists in the world, India did not reap the benefits of this system until the 1990s. This was due in no small part to Nehru’s socialist economic policies. Nehru was heavily influenced by Soviet system characterized by heavy government involvement. Further, Nehru held strict reservations about foreign investment and stressed the need for regularization of foreign investment and executive control in key financial sectors.

Despite the problems, which plagued India, a few companies recognized its latent potential and braved the unfriendly government policies. For example, Texas Instruments set up its first facility for chip design in Bangalore in 1985 followed by GE and Intel soon after. These were some of the earliest pioneers in the outsourcing industry.

As a direct result of Nehru’s policies, India’s brightest graduates elected to utilize their talent by leaving the country and settling in either the US or western European nations. Approximately twenty-five thousand of the most highly educated graduates were part of this mass emigration, greatly enriching America’s pool of knowledge workers, while leaving India to languish and suffer with its continued problems of poor infrastructure and a corrupt bureaucracy. This phenomenon was known as the “Brain Drain”, with Indian educated students contributing to the economies of foreign nations.