The Coalition Of Competitors: The Story Of Nasscom And The IT Industry

By Kiran Karnik

A MANTRA FOR OUR TIMES -  'COMPETE BUT COOPERATE' A small event in 1987 - a meeting of entrepreneurs with big ideas in Delhi - went on to change the face of the Indian software industry. For, at the meeting, attended, among others, by N.R. Narayana Murthy and Nandan Nilekani, it was decided that an independent association was needed to represent the interests of the IT software and services industry, and thus Nasscom (Nat ional Association of Software and Services Companies) was born. As India's economic reforms began in 1991, the existence of Nasscom - and its ability to present the industry's unified view - aided the take-off of the IT sector. From evangelizing to brand building, from crisis management to foreign diplomacy, from being an adversarial proponent of a viewpoint to being a partner of the government, from a supporting to a stellar role - Nasscom has, over the years, played many parts. The result: it has been instrumental in the spectacular growth of India's IT software exports from around USD 400 million in 1991 to over USD 60 billion today. In this wonderfully lucid book, Kiran Karnik, who headed Nasscom from 2001 to 2008, explores the competition and cooperation in the IT sector, and the role that Nasscom played in this. At the end of the day, he concludes, it was the 'compete but cooperate' mantra that was the secret of the IT industry's - and Nasscom's - success. Many countries, as well as other industrial sectors in India, have expressed an interest in adopting the Nasscom model and, here, Karnik examines whether it can be replicated. In a time of global competition, this is a must-read for anyone in the fields of IT, business and industry.     'I recall taking a senior and important foreign visitor, a very big customer of the IT-BPO industry, on a visit to a BPO company ... Spotting some large pieces of 'industrial' equipment ... he asked: 'And what is this?' 'A diesel generator,' said our host ... 'What for?' 'Well, it serves as a standby for the electric supply from the utility.' 'How much backup does it provide?' 'Hundred per cent backup, sir.' 'Wow, 100 per cent! You guys sure plan for all contingencies,' said the visitor, visibly impressed. A few minutes later, on seeing more equipment and now recognizing it as another similar generator, the visitor enquired, 'So what is this generator for?' 'This, sir, is a backup to the backup,' said our host proudly, expecting a pat on the back for even deeper contingency planning. Our visitor, though, was aghast: the expression on his face had changed from 'wow' to 'oh-my-God'.

• Language: English
• Publisher: HarperCollins
• Release date: Mar 5, 2012
• ISBN: 9789350294703

Kiran Karnik

Kiran Karnik, who was president of Nasscom from 2001 to 2008, is widely recognized for his work in the IT sector - including his role in putting Satyam Computers back on track as chairman of its government-appointed board, after the company suffered the biggest corporate fraud in India's history. During his tenure at Nasscom, exports grew nearly eight times, nearing the USD 50 billion mark, and Nasscom itself became a globally known and respected brand. Currently, Karnik is a member of several high-level national committees, including the Scientific Advisory Council to the Prime Minister. He has been conferred many awards, including the Padma Shri.

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ONE

GENESIS

The Nasscom ‘Effect’

Christmas to New Year—the last week of December and the first couple of days in January—is traditionally holiday time for the Indian IT industry. Geared to the schedule of its customers in the West, who form an overwhelming proportion of its business, most IT companies in India take a break from their usual 24x7 schedule at this time of the year. Like any other year, in 2009 too, companies were getting back into their routine in early January. Employees were settling in to their hectic work schedule, and exchanging yet fresh memories from well-deserved holidays.

But, unlike past years, the early January transition from ‘chilling out’ to hard work was not smooth. On 7 January, at the start of a pleasant day in Hyderabad and a cold, wintry morning in Delhi, a thunderbolt from the blue hit corporate India, sending shock waves through the whole country. In a letter to his board of directors (copied to the stock exchanges), Ramalinga Raju, chairman of Satyam Computer Services, confessed to perpetrating a massive fraud in the company, involving over Rs 7,000 crore (close to USD 2 billion). A respected and much feted entrepreneur, Raju had done exceptional work in the social sphere and made large philanthropic donations. Both he and Satyam had won much acclaim, including awards for corporate governance. Based on the then known figures, Satyam was the fourth largest Indian IT company. A fraud of this magnitude in one of the most highly regarded companies could have repercussions which extended way beyond the particular company. It could affect the reputation of the Indian IT industry and impact business. Questions about the quality of corporate governance could, at a stretch, negatively impact foreign investment in India. Of course, the more immediate and very serious danger was the distinct possibility of the company going under and leaving some 50,000 employees without a job.

The situation presented a different and unprecedented challenge—one that was life-threatening for Satyam and posed a clear and present danger to the whole IT industry. Quickly recognizing the gravity of the situation, Nasscom stepped in. On the very day of Raju's bombshell, Som Mittal, president of Nasscom, travelled to Hyderabad to meet the senior management of Satyam and appraise the situation. Later, he and others had informal discussions with key government officials, and—in the space of a few days—the government took a number of major steps, including replacing the board of Satyam.

Meanwhile, Nasscom convened an emergency (telephonic) meeting of its executive council, which includes CEOs of major IT companies. The key outcome was an informal agreement that all companies would refrain from active poaching of Satyam staff. This was critical for Satyam to have any chance of survival, for in IT, as in any knowledge-based industry, employees are the key asset; an exodus of employees would trigger an exit by customers, and jeopardize the very survival of the company. In an environment where there was intense competition for attracting human resources, such an understanding (to refrain from poaching) was truly extraordinary—an understanding that was more or less honoured, especially in the initial crucial weeks. This initiative—and the quick action taken by Nasscom—was an important factor in helping to stabilize the situation.

This exemplifies the role of Nasscom as an industry association: its ability to respond to unexpected events; to take the initiative, quickly and unobtrusively; its capability to lead its members to a consensus; and, very importantly, to be regarded as a trusted partner by the government. The Satyam episode also illustrates the ‘coalition of competitors’—the willingness of diverse companies to arrive at a common decision for the greater good.

Over the next few months, Nasscom continued to work—almost completely behind the scenes—to help the government-appointed board put Satyam back on track. Many individuals and a few organizations contributed to the success of saving Satyam, but the role of Nasscom, particularly in the first few crucial days, was of vital importance. India's capacity to successfully handle such a crisis was soon as big a story as the scam itself—but the Satyam saga is a tale for another time.

On many occasions in earlier years too, the Indian IT industry had come together, often sacrificing short-term gains (to individual companies) in favour of larger long-term gains that would benefit all. What is noteworthy is that this perspective is the very foundation, the underlying philosophy, on which Nasscom was created and operates. I recall a conversation with an industry stalwart, soon after joining Nasscom in 2001. ‘This industry,’ he said, ‘has been very successful. It is seen by leaders in this country and abroad as an outstanding example of a successful, new India. One fallout of this is that our IT CEOs are all—quite rightly—superstars; but like all prima donnas, they have massive egos.’ (Of course, he failed to mention his own ego!) He then advised: ‘One of your biggest challenges will be pandering to their egos without compromising on the goals.’ Sounds difficult, I thought to myself. However, his next words gave me hope: ‘There is, though, one tremendous advantage on which you can capitalize. These very same individuals will sacrifice almost anything for the overall growth and good of the industry.’ At that time, this seemed an opening, holding out some promise of positive possibilities. Over the years, I found it to be completely true. In fact, this is the driving force and the inspiration for the work that Nasscom does.

Why would a set of successful, possibly egoistic individuals, running companies that competed intensely with each other, be willing to cooperate, and that, too, not just during a crisis but on a regular basis? To search for an answer to this conundrum, one has to go back and look at the history of Nasscom in the context of the then nascent IT industry. In fact, it is necessary to begin with the birth of the IT industry, since this provides the backdrop to the concept and birth of Nasscom.

The ‘Prenatal’ Stage

Success, as the saying goes, has many fathers, while failure is an orphan. The Indian IT industry, with its near miraculous growth, genuinely has many fathers. The credit for its growth is due to a number of people—and, possibly, to timing, context and circumstance. Amongst its pioneering visionaries was Dr Vikram Sarabhai. His legendary foresight was one of the early catalysts for the growth of IT in India. Sarabhai had taken over the reins in the department of atomic energy (DAE) after the sudden demise of Dr Homi Bhabha in a plane accident near Mont Blanc in the Alps in 1966, while on his way to a meeting of the International Atomic Energy Agency (IAEA). In those days, DAE served as the incubator for many new and nascent areas of science, one of which was space science. This evolved, over time, from a committee that oversaw space research to a full-fledged, independent department of the government, guided by a powerful Space Commission (modelled along the lines of the Atomic Energy Commission, AEC), with an executive arm, Indian Space Research Organization (ISRO).

With his knowledge of the early studies of satellite systems and actual experience in space science experiments, as also in developing and launching sounding rockets for space research, Dr Sarabhai recognized the immense potential of electronics, over and above the already visible needs of the nuclear programme. However, his vision of the role of electronics extended way beyond its applications in strategic sectors like nuclear, space and defence technologies. As early as in 1968, while interviewing me for a position at the AEC, he painted a big picture of the scope of electronics and told me, ‘This is the industry of the future. We will nucleate and seed it in atomic energy, but ultimately it will be commercial, with millions of customers.’ With this in mind, he suggested the creation of a separate department of electronics, to pursue the development and manufacturing of electronics within the country.

The department of electronics (DoE) was set up in 1970 and this undoubtedly created conducive conditions for the growth of electronics. Of course, some people feel that this was just one more—and unnecessary—addition to the bureaucratic jungle in Delhi. However, it can equally be argued, with reasonable justification, that DoE has played a facilitative and positive role, particularly in the early years. Its arms and spin-offs, like the National Informatics Centre (NIC), Computer Maintenance Corporation (CMC), National Centre for Software Technology (NCST) and, later, Centre for the Development of Advanced Computing (C-DAC), all played a critical part in creating capability and human resources, besides spurring the development of software and applications of IT. This laid the foundation for the growth of the IT software and services industry in India.

NIC was established in 1976 to provide e-government and e-governance solutions, integrated services and global solutions in the government sector. It was deeply involved in the computerization of government—at Central, state and district levels. It developed many vital applications and was, for many years, the repository of a vast pool of software talent and capability. C-DAC was set up in 1988 to build supercomputers in the context of an embargo by the US on the export of supercomputers to India. In the process, a great deal of expertise was developed in software too. It also took on tasks related to developing software in Indian languages, as did NCST. CMC began as an organization that would maintain IBM computers (after the exit of IBM from India). Today, after its privatization, it is owned by the Tata group.

In course of time, DoE was converted into the department of information technology. This, along with the departments of telecommunications and postal services, now forms the ministry of communications and information technology.

Alongside this evolution of electronics and IT within the government, the industry matured as well. An important starting point, the seed of the Indian IT industry, was the setting up of TCS in 1968. Beginning in a small way, the organization has now grown to 198,000 people with revenues of over USD 8 billion (2010–11). It is now an internationally recognized and respected brand, with operations in many nations and delivery centres in countries ranging from Australia to Chile. TCS, both as a pioneer and a source of talent (with its superbly honed system of recruiting, training and developing human resources), was another important ingredient in the growth of India's IT industry. Its founder, F.C. Kohli, is considered a father figure of the Indian IT industry—a legend who, even today, possesses the same enthusiasm and passion that he exhibited in the early years of the industry.

While the entry of the Tata group—through TCS—marks a milestone in the history of the Indian IT industry, ironically it was the exit of a major multinational computer company that provided another significant stimulus. IBM, then a name synonymous with computers and a dominant player in the Indian—as in the global—market, commenced business in India in the 1930s and set up manufacturing in 1951. It was forced to wind up operations in India (or chose to do so) in 1978 as a result of the government's insistence that it dilute its equity holding in the Indian arm. The government that made this policy decision was a hotchpotch of political parties, cobbled together after the defeat of Indira Gandhi's Congress in the elections that followed the lifting of the Emergency declared by her in 1975. The hastily-formed coalition brought together radical socialists and right-wing parties. Amongst the former was George Fernandes who, as minister for industries, was instrumental in crafting the policy that led to the exit of IBM. While the government was short-lived, and Mrs Gandhi was soon back in power, IBM returned to India only in 1992, through a joint venture with the Tata group.

IBM's departure in the late 1970s could have been an unmitigated disaster for the small but growing number of computer users in the country. To handle the situation and to ensure the maintenance of the IBM systems, CMC was created. Very soon, the professionals in CMC developed considerable expertise in maintaining computer hardware as well as software. In years to come, this paid off through India's capability to handle ‘legacy’ systems around the world. Thus, the exit of IBM, which led to the creation of CMC and development of increasing expertise, did, in fact, serve as another major boost to India's IT industry.

The 1980s saw a phenomenon that was very new to India: the emergence of the middle-class entrepreneur. Until then, starting an ‘industry’ meant a large investment. Since angel funding or venture capital was practically non-existent, and banks needed substantial collateral even for part-funding a project, only those with family wealth could begin such startups. Even non-manufacturing businesses needed capital as the biggest input. Also, starting any new business required a host of permissions and approvals, and often licences too—much of which was inevitably linked to under-the-table payments. The middle class was neither comfortable nor adept at any of this (the context is further detailed in Chapter Six). Above all, the educated, urban middle class favoured the risk-free assurance of permanent employment, with a strong preference for the stability and predictability of a government job. The ups and downs and uncertainties of business, especially of an entrepreneurial start-up, were clearly not for them. Therefore, the emergence of middle-class entrepreneurs was truly revolutionary, both sociologically and from an economic viewpoint.

It is likely that a number of sociological and cultural factors contributed to this radical change. However, it was also facilitated by the new opportunity that emerged with the growth of IT: of starting a business mainly with intellectual, rather than financial, capital. Also, this industry required far fewer permissions or licences and clearances, making for minimal interface with the government. This made it easier—and more comfortable—for the middle class to get into entrepreneurship. With the rise of IT, a new breed of entrepreneurs emerged, not linked to business families and not even from the traditional business communities. They came from communities long considered conservative and risk-averse, and conventionally confined to the employee category. This change led many bright young people into techno-entrepreneurship. It also brought in positive middle-class values and made the IT industry a leader in integrity, transparency and good governance. Over the last two decades and more, aberrations have been so few that these exceptions have only proved the rule. In a positive reinforcement cycle, the reputation of the industry has served to attract more upright entrepreneurs. As a result, thanks mainly to the IT industry (and, of course, changing societal values), business and business persons have a new and positive standing in society.

Vikram Sarabhai and DoE (and its various arms); F.C. Kohli and TCS; CMC (and, indirectly, IBM); N.R. Narayana Murthy and the other techno-entrepreneurs—all can, therefore, be credited as being the sparks that ignited the take-off of India's IT industry. Yet, in many ways, the real foundation goes back even further. One has to acknowledge the role of Jawaharlal Nehru, the first prime minister of India, who, through his emphasis on higher education and on science and technology, helped to create the talent factory on which this industry feeds. It was Nehru who, in the 1950s, created the first Indian Institutes of Technology (IITs) and constantly spoke of the importance of a ‘Scientific temper’. The Nehruvian era might, therefore, be rightly considered the genesis of the Indian IT industry.

The strong foundation and the many sparks undoubtedly lit the fire, but it was only in the late 1980s that the IT industry began to take the form it now has, with exports from (and offshored work to) India being its mainstay. There are many events that can lay claim to being the spark that catalysed this take-off. In all probability, multiple ‘sparks’, at different points in time, acted as igniters firing up different stages of growth. Amongst these is certainly an event involving General Electric (GE). Its significance is all the greater given the very size of GE and the fact that this behemoth has always been considered a trendsetter.

It was 1989 and GE, with its usual foresight, undoubtedly saw that India, charged with a new vision and dynamism under the leadership of Rajiv Gandhi—at forty years, India's youngest ever prime minister—would soon be a large and important market for the products of the conglomerate. The legendary Jack Welch, its then CEO, was visiting India and sought an appointment with the prime minister. Since this could not be fitted into the prime minister's schedule, he suggested that Welch meet Sam Pitroda, a close confidante of Rajiv Gandhi and his technology adviser. Pitroda, considered a technological wizard with many patents to his credit, had given up lucrative assignments in the US to come and work on critical development ‘missions’ in India. The water mission was one of his charges, though he is far more famous for initiating the telecom revolution in India—a