evolution of the bangalore ict cluster_manimala_26sep

8/8/2019 Evolution of the Bangalore ICT Cluster_Manimala_26SEP

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EVOLUTION OF THE BANGALORE ICT CLUSTER:

A STAGE THEORY BASED ON CRYSTAL GROWTHMODEL

Mathew J ManimalaIndian Institute of Management

Bannerghatta Road

Bangalore-560076: India.Email: [email protected]

Paper for presentation at the International Entrepreneurship Forum 2006 (IEF) 6th InternationalConference on "New Venture Creation and the Creative Trajectory: Entrepreneurship, Innovation and

Creativity in Business, Riga, Latvia: 31 August to 2 September 2006.


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A natural phenomenon Marshall (1890) : The secrets of the

industry are in the air

Social capital ?

CLUSTERING OF INDUSTRY


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CLUSTERING OF INDUSTRY

Physical infrastructure Business services

Financial infrastructure Talent pool

Social capital

[Limitations of studies conducted afterthe event]


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THE INNOVATION ECOSYSTEM FOR CLUSTERDEVELOPMENT: INGREDIENTS IDENTIFIED

Geographical proximity of firms Sectoral specialization

Close interaction among firms

Technology sources and support Access to investment funds and financial services

Infrastructural facilities

Favourable government policies Business support services

Social capital


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CLUSTER DEVELOPMENT: SOME ISSUES

Stages of cluster development

Differential requirements of each stage

Ecosystem: Causes or Consequences

Influence of the dominant factor


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BANGALORE ICT CLUSTER: FACT FILE

Silicon Valley of India More than 1200 software companies (2003)

Combined turnover: USD 3 billion (2003) Turnover doubling every two years Type of software:

- System (16%)- Application (28%)- Communication (11%)- Services (29%)

- Integrated circuit design (4%)- General (12%)


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THE BANGALORE ICT CLUSTER: THE EVOLUTION

1984: Texas Instruments sets up an offshore developmentfacility in Bangalore.

1984: Government of India announces changes in itscomputer and software policy, recognizing software as anindustry, reducing import duties on hardware and softwarefrom 135% to 60%, and at the same time reducing the

corporate income tax exemption on net software exportsincome from 100% to 50%. 1985: Government of Karnataka sets up KEONICS(Karnataka State Electronics Development Corporation

Limited) to develop IT and telecom infrastructure and toprovide consultancy and training in IT.


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THE BANGALORE ICT CLUSTER: THE EVOLUTION

(Contd.) 1986: Department of Electronics (DoE), Government of India,

announces a new software policy, liberalizing imports ofhardware and software and increasing the export obligations ofhardware importers.

1989: VSNL (the Government of India owned telecomcompany) commissions a direct 64-kbps satellite link to the USwith a new gateway switching system that operated through

Intelsat. 1991: Software Technology Parks of India (STPI) scheme was

launched by the Ministry of Information Technology (formerlyDoE), Government of India, with whom 100% export-oriented

software units could be located/registered so that they could gettax/duty exemptions; Bangalore had one of the first STPIs,which subsequently had the fastest growth in membership andwas the first park (and also the city) in India to be connected by

the Internet.


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THE BANGALORE ICT CLUSTER: THE EVOLUTION(Contd.)

1992: Government of India sets up exclusive satelliteinternational gateway for software exporters. 1993: Government of India launches the Electronic Hardware

Technology Park (EHTP) scheme (similar to the STPI scheme),

allowing tax and duty exemptions to 100% export oriented unitsregistered with them. 1997: Government of Karnataka becomes the first state in India

to announce its IT policy. 1999: Government of Karnataka establishes Indian Institute of

Information Technology (IIIT-B) in collaboration with the ITindustry for conducting advanced and industry-oriented coursesin IT related subjects.


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THE BANGALORE ICT CLUSTER: THE EVOLUTION(Contd.)

1999: KITVEN Fund (Karnataka Information TechnologyVenture Capital Fund) is established jointly by the Karnataka

State Industrial Investment Development Corporation(KSIIDC), Karnataka State Financial Corporation (KSFC), andSmall Industries Development Bank of India (SIDBI).

2001: NASDAQ opens its office in Bangalore. 2003: The number of software units registered with STPI in

Bangalore grows to 1154 (with an export turnover of US$ 2.67billion), while those registered with EHTP in Bangalore grows

only to 31 (with an export turnover of US$ 0.30 billion).

Source: Compiled fromwww.bangaloreit.com, Basant 2006, andthe websites of specific schemes and agencies mentioned above.


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THE TRIGGERING EVENT: TEXAS INSTRUMENTS (1984)

Shortage and cost of S/W professionals in

Europe and the U.S. Real estate costs and militant movements in

Mumbai and Delhi

IISc alumnus connection of a high-rankingTI employee

Low cost talent pool and low real estate

prices in Bangalore The climate!


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CULTURAL OPENNESS & LABOUR FORCE DIVERSITY

Bangalore: a border city

High-tech public sector organizations(Defence, Space, Aerospace, Telecom,Machine tools, Electricals & Electronics)

Post-Independence political scenario The weather factor

Indian Institute of Science


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THE DOMINANT FACTOR THEORY

The entrepreneurs/entrepreneurial organizations

experience of the external world stimulated by oneor a few factors within the region is the trigger forcluster formation (Crystallization)

(Examples: Manchester, Ahmedabad,Jamshedpur)

Dominant factor(s) are different for each stage ofcluster development


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STAGES OF CLUSTER DEVELOPMENT

1. Incubation

2. Nucleation

3. Agglomeration

4. Attrition


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INCUBATION Battles for the city (1809The British, the local kings,

people from the bordering regions): Diversity of people

Diversity of Industry- British side: Weaponries, Breweries, Tanneries, Tobacco- Local side: Garments

Cultural diversity: Acceptable for Europeans also(German MNC: BOSCH-MICO 1951)

Technology culture and labour diversity- Research & manufacturing organisations in the

public sector: Aeronautics, Space, HeavyElectricals, Electronics, Machine tools, Telecom etc;

Employment (1980s): 300, 000


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INCUBATION (Contd.)

Gender diversity in labour force:

- Garment Industry (Employment: 80,000)

- Impact on IT/BPO sector: 21% female employees in 1997- Steadily increasing government changing the

law on employment of women at night

Popular hypothesis (Institutions causing enterprises)not supported; It is the other way!

(Example of Bangalore: The accommodative struggle

by different groups to control the city leading to thecreation of different institutions and enterprises, whichfurther operate on a mutual causation mode.)


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INCUBATION (Contd.)

Productive nature of moderate levels of conflict(Peace of the graveyard is absolutely unproductive)

IISc cited as an illustration of the popular hypothesis:But IISc itself is a product of an enterprisingindividuals interaction with other systems.

(J N Tata, his exposure to various cultures and hiscollaboration with the British and the Maharaja of Mysorein setting up IISc).

Essential features of the Incubation process:

Developing the general capabilities of the people/region, especially through openness to other culturesand newer ideas.


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NUCLEATION

Dynamic development in the external environmentacting upon a prepared ground.(Fortune favours a prepared mind - Pasteur)

External developments favouring Bangalore:- Shortage and high cost of software professionals inEurope and America.

- Indian cities with better connectivity (Mumbai,Delhi) had higher cost of real estate.

- Militant nationalist movements in some Indian cities. Failure of cluster initiatives on unprepared grounds:

(Eg: Bangalores EHTP with only 31 units in 10 years,compared to STPI with 1154 units in 12 yearson account of Level of investment, Sophistication inmanufacturing, Physical infrastructure, etc).


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AGGLOMERATION

Includes growth of the initial unit Three patterns of growth and agglomeration:

1. Agglomeration after unit growth

2. Both simultaneous

3. Agglomeration to a grown-up unit

(Bangalore had this pattern) Attraction for other units to move to the same location

- Competition for similar benefits

- Use of common resources- Supplier/customer chains

- Reduced risk perception in the company ofothers in a new place


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AGGLOMERATION (Contd.)

Two types of agglomeration:

(Based on competition and collaboration)

1. Horizontal

(Similar firms competing with one another)

2. Vertical

(Firms in the supplier/customer chain)


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ATTRITION

Natural like the Decline stage in

Life-cycle theory Lessons from history

(Eg: Manchester)

Seeds of attrition in the processof agglomeration itself

Causes internal to the cluster:Legitimation and competitionissues


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ATTRITION (Contd.)

With increasing agglomeration,

legitimacy for new entrant decreasesleading to high legitimation costs;

and competition increases the cost ofresources


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External causes: Increasing attractiveness ofother places

Actual and Virtual attrition

- Actual: Existing firms moving away

- Virtual: New firms choosing other locations

Signs of attrition in Bangalore:

- Apple closing shop in Bangalore

(except for sales and services)- Fab-City going to Hyderabad

- Dubai Internet City considering Hyderabad,

Kolkatta and Kochi

ATTRITION (Contd.)


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Signs of attrition in Bangalore (contd.):- Periodic complaints about physical infrastructure,

transport and power

- Increasing cost of professionals

(Yet India remains the lowest in manpower costsamong outsourcing destinations)

- Karnataka pushed to the 8th position in terms of

percentage growth in software exports (34% asagainst Andhras 51%)

- But in absolute terms Karnataka is far higher than its

nearest competitor (INR 3700m against Maharashtras

INR 1550m) Attrition can be delayed, but not prevented. But the

knowledge, skills and resources generated by a cluster canbe recycled (Flexible recycling of firms)

ATTRITION (Contd.)


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CONCLUSION

Need for an evolutionary perspective oncluster formation (Clustering as a processversus cluster as a state)

Four identifiable stages in the evolution of acluster:

1. Incubation2. Nucleation

3. Agglomeration

4. Attrition The requirements of each stage are different


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Policy makers generally fail to recognise theinevitability of the first and last stages; Hence:

- The nucleation efforts without proper incubation

(E.g. Industrial Estates in India)- Unnecessary and futile resource support fordeclining (dying) clusters(E.g. The National Textile Corporation NTC

in India to support the dying textile clusters;European Unions support for reviving the textile

cluster in Manchester)

Dominance of a single factor (or a few factors)facilitating the process in each stage(Dominant Factor Theory)

The influence of such factors are relative and context-

specific, and therefore cannot be easily replicated

CONCLUSION (Contd.)


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The four stages can be reorganised into two phases:1. Phase I (Incubation and Nucleation)

2. Phase II (Agglomeration and Attrition)

Requirements for Phase I :- General capability building through

infrastructure development and openness to

new ideas, people and culture(proactively open policies)

Requirements for Phase II :

- Industry specific infrastructure, institutions andpolicy support

(sensitively supportive policies)

CONCLUSION (Contd.)


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In the early phase, Enterprises cause Institutions

In the later phase, Institutionscause

Enterprises(though mutual causation is not excluded ineither phase)

Attrition stage: Delay the attrition and facilitate

recycling of resources generated by the cluster.

CONCLUSION (Contd.)


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CONCLUSION (Contd.)

A generalised model of Entrepreneurship Development,applicable to cluster development as well:

TASK ENVIRONMENTUniversities & collegesTechnology/R&D institutionsIndustrial estatesPromotional/training agencies (Govt. &NGO)Financial institutionsIndustrial & commercial organizations

TASK ENVIRONMENTUniversities & collegesTechnology/R&D institutionsIndustrial estates

Promotional/training agencies (Govt. &NGO)Financial institutionsIndustrial & commercial organizations

GENERAL ENVIRONMENTSocial norms and cultureFamily influences & socialization

Early stage educationLegal-political systemEconomic ideology/environmentTransport & communication infrastructure

GENERAL ENVIRONMENTSocial norms and cultureFamily influences & socialization

Early stage educationLegal-political systemEconomic ideology/environmentTransport & communication infrastructure

Entrepreneurial traits,motives and attitudes

Entrepreneurial traits,motives and attitudes

SuccessfulEntrepreneurs

SuccessfulEntrepreneurs

Technical &Managerial Skills

Technical &Managerial Skills


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THANK YOU

evolution of the bangalore ict cluster_manimala_26sep

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