India is evolving from its role as the world's back office into a knowledge and innovation hub, despite the limitations imposed by the country's weak infrastructure and antiquated education system. Indian outsourcers have also evolved into world-class research and development (R&D) centers. As a result, the call centre operators in India can now found to be helping enhance patient care for US hospitals, optimize financial transactions for Australian banks and streamline parts management for European engineering firms. Similarly, the Indian IT companies can be found developing mission- critical avionics systems, next-generation telecom technologies and complex medical devices. This is bound to benefit not just India but the global economy as well. This is a far story from about a decade ago, when prominent Indian IT companies such as Infosys Technologies Ltd, Tata Consultancy Services Ltd (TCS) and Wipro Ltd were bidding for small contracts to help Western companies fix the Y2K bug in their computer systems. Despite severe hesitations, Western companies sent their mission-critical systems to India for repair as they did not have the manpower or skill to fix the time ticking bomb. This opportunity was used by Indian outsourcers to expand operations, build new skills and, most importantly, get to know their customers. However, it was not easy as the Indian industry had to hire hundreds of thousands of engineers at a time when the output of its engineering colleges was severely limited. In 1999, India graduated only 76,000 engineers, and most did not receive high-quality education. The Indian Institutes of Technology (IITs), no doubt, produce world-class engineers but they graduate less than 5,000 engineers in all every year. To make matters worse, the advanced types of engineering jobs Indian companies were bidding for required engineers with Master's and Ph.D. - level degrees. Anyway, the Indian companies met the challenge head- on and the Y2K catastrophe was averted. This benefited both sides. Indian firms used this as a launching pad for bigger projects and entry into more strategic ventures. This, in turn, increased the demand for engineers and by 2004 India doubled the number of graduating engineers it produced in 1999. However, this gave rise to another problem the number of Ph.D.s was not even enough o staff its growing universities. In 2004, India graduated only 17,000 Master's and 900 Ph.D.s in engineering. This resulted in fierce competition for experienced talent and caused huge increases in salaries and attrition rates. For a while, it looked like the Indian outsourcing industry would implode, like it had just been a flash in the pan. But it was not so. By 2006, India started graduating at around 222,000 engineers. In 2007 itself, India's top five IT companies TCS, Infosys, Wipro, Mahindra Satyam and HCL added around 120,000 engineers. Accenture and IBM India Pvt. Ltd added 14,000 each. Thousands of other smaller companies also expanded and recruited. That is to say, such a huge number of engineers were absorbed which indicates the extent of growth of IT companies in India. It became possible due to the ability of Indian entrepreneurs to overcome all the hurdles that are thrown at them by the government and the society. Just as they were figuring out about installing their own power generators to deal with supply problems and purification plants to provide clean water, they had to figure out how to build their own surrogate education system. And it is here that the Indian companies have made their greatest innovation, i.e., they have developed the ability to take the output of a weak education system and turn these workers into R&D specialists who can compete in the global arena. In the process, the Indian industry changed the way it recruited, trained, developed and retained its workforce. It not only adapted the best practices of companies that were outsourcing R&D to India, but even started improving on these techniques and methods; refining and integrating them into a unified system. It was not an easy task in light of the fact the Indian industry was faced with severe talent shortages, escalating salaries and a lagging education system. The Indian industry, however, made some changes. They started hiring for competence rather than skill, i.e. ability and aptitude was given preferred rather than only specialized technical skills. They invested substantial time, money and effort in providing employee training to bridge skill gaps. Leading companies mandated that employees receive between one and three weeks of training every year in areas where they are weak. Many companies tied salary increases and promotions to the completion of such training modules. Most companies also offered extensive management training, internally and externally, especially through MBA-type programmes, to meet shortages in managerial talent by building pools of potential managers internally. Companies like HCL introduced performance management system which included parameters like performance, strategic vision, ability to communicate, problem-solving skills and responsiveness. All these changes led to the Indian IT firms witnessing one of the lowest attrition rates in the industry. It also explains how firms in India are able to hire bright but largely inexperienced talent to successfully engage in R&D and other innovation. Even during the economic slowdown, Indian talent supply has been able to catch up with demand. This has led the Western companies, which are more desperate than ever to cut costs, to consider outsourcing option to India. Considering the fact that outsourcing to India can offer them 30 to 40 per cent cost savings, they are now outsourcing their most strategic internal systems. In addition, due to a combination of the recession in the US and that country's flawed immigration policies, a flood of highly educated and skilled talent is returning home to India. Those who see more opportunity in India than abroad, and want to be near family and friends, are returning with the latest skills and an understanding of foreign markets. Thus, the Indian outsourcing industry is gaining a second wind. If the process continues, it will not take more than a decade for India to become the world's second-largest R&D centre after the US. A new India, symbolized by information technology and its possibilities, can also be seen evolving in other sectors such as automobiles, chemicals and telecom. Indeed, innovation has rapidly acquired a status of a business concept, which is not only allowing previously timorous Indian firms to go global, but also persuading previously imperious global firms to move into India. The journey of India's new approach to innovation has just begun. People and companies are silently giving India a steely new cutting edge with its laboratories, offices and minds working to achieve its ever-expanding ambitions to the personal dreams of those who make it happen.
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