The Changing Role of India and Indians in the U.S.High Tech Sector

August 11, 2004

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As readers of Directions Magazine no doubt are aware, the topic of outsourcing GIS and information technology jobs to India is at the center of a brewing political storm this election year.(Indeed the July 17 2004 issue carried an article on this topic.) Outsourcing is seen by some as the root cause of the high unemployment rate of information technology workers over the past few years.Others maintain that outsourcing work to India will allow American firms to remain productive and competitive given the shortfall in labor as baby boomers retire and American students choose not to pursue careers in engineering and technology.Regardless of which side one is on, what is uncontroversial is the fact that Indians - whether living in India or the United States - have assumed a prominent position at the core of the U.S.information technology (IT) sector.

From the perspective of a geographer, the central question of interest is how and why it was Indians, rather than citizens of another country, that became such important players in the U.S.high tech industry.Not only was India on the opposite side of the globe, but also for many decades after its independence from the Britain, the country - although officially nonaligned - maintained close official ties with the Soviet Union rather than the United States.In this feature article, I discuss the fascinating confluence of industry restructuring, change and reform in U.S.immigration policy, and growing liberalization of the Indian economy that collectively brought Indians to center stage in the U.S.high tech sector.Four distinct periods can be identified.

1.The 1950s and 1960s: Early growth and presence
The early development of high technology industries can be traced to the years following World War II.The war stimulated the development and production of electronic components for use in the defense and aerospace industries, and the U.S.government directed substantial funding to universities for research and development of this equipment.As the scope of the research projects widened beyond the fields of interest to the military, the relationship ultimately led to the formation of the National Science Foundation and the National Institutes of Health.Funded by these agencies, academic research led to the creation of a knowledge base on which the high technology industry was based.

Most Indians involved in this initial phase of high-tech development were graduate students.U.S. immigration laws at this time were governed by a strict national quotas system, and immigration quotas for countries in the "Asia Pacific Triangle" in which India was grouped was miniscule.There was, however, less restriction on the entry of Indians for education, and in the years following Indian independence in 1947 there was a rapid increase in the number of students coming to the United States.Since the Indian government had stringent rules prohibiting the release of foreign exchange for overseas education unless it was in fields viewed as potentially beneficial for Indian development, a disproportionately high share of the Indian students came to study in engineering and technology-related disciplines.The initial link between Indian engineers and the American high-tech sector was thus forged.

2.The 1970s and 1980s: Rapid growth and permanent settlement
By the late 1960s and early 1970s, military applications and demand began to give way to computer and industrial markets.A major development was the invention of the microprocessor in 1971 which allowed the fledgling semiconductor industry in Northern California to take off.On the East coast, a host of new technology companies clustered around Route 128.Even as the traditional industries located in the U.S.manufacturing belt suffered a sharp economic decline during the 1970s and 1980s, high technology industries posted extraordinarily high growth rates.A stable group of IT companies emerged - IBM, Texas Instruments, Intel, Hewlett-Packard and others - which had the time and incentive to serve as the training ground for technical workers.

As high-tech industries grew, universities expanded their curricular offerings to meet industry demands. University of California - Berkeley, Stanford, and Massachusetts Institute of Technology expanded existing programs and initiated new ones in the area of engineering and semiconductor technology.The ability of educational institutions to provide an increasing supply of trained workers into the high-tech workforce provided another impetus to the employment growth in high-tech.And, because of a far-reaching change in immigration policy in 1965, large shares of these new jobs were filled by skilled immigrants from India and other parts of Asia.

The Immigration Act of 1965, also known as the Hart-Cellar Act, repealed both the national origins quota system and the "Asia Pacific Triangle" provision.Instead, immigration was now governed by the possession of desirable skills and family ties to American citizens and permanent residents.Many Indian students already in the United States immediately applied to adjust their status from temporary to permanent immigrants under the skilled worker provision.Applications of Indian students to American universities also increased sharply as many saw longer term prospects open up.The growth of the industry and the changes in U.S.immigration laws, therefore, resulted in Indians broadening their sphere of involvement from the university setting to the high technology industry itself.

Many of the Indian computer scientists who settled in the this time went on to establish their own companies and contribute to the Silicon Valley boom in the early 1990s. The role of Indian entrepreneurs in Silicon Valley was documented in a report by Anna Lee Saxenian entitled Silicon Valley's New Immigrant Entrepreneurs and was also extensively covered by articles in the popular press including Fortune ("The Indians of Silicon Valley," May 15, 2000), The Wall Street Journal ("South Asian 'Angels' Reap Riches, Spread Wealth in Silicon Valley," May 2, 2000), Electronic Business ("Asia's Best and Brightest Flock to Silicon Valley," August 1999), and The Standard ("The Curry Network" January 14, 2000). Clearly, Indians had made a mark in the U.S.high tech industry.

3.The 1990s: Restructuring and the rise of temporary workers
The 1990s brought about an era of restructuring in the information technology industry.Firms began to downsize, streamline and outsource their operations.The need to restructure was driven by two fundamental changes in the business environment.First was a shift to time-based competition.In the formative years of the high-technology industry, product life cycles were measured in years.As the industry matured, product life cycles began to be measured in months, and deadlines became shorter and shorter.Since IT products earn their greatest revenue in the first year on the market, there also became an urgent need to be the first entrant into the market.A second change was a proliferation of new software products and services as companies shifted from mainframes to desktop systems. Unlike production of hardware, which is highly capital intensive, software production has fewer barriers to entry.As a consequence the market spawned many competitors with an array of products, and this in turn triggered price wars that cut into profits.

The combination of time-sensitive competitive pressures on firms and the growth in the variety and complexity of IT products had major implications for the IT workforce.First, the knowledge, skills, and experience necessary to be hired varied significantly from one job to another.Second, at any given time there is a high and usually unmet demand for persons with a particular skill set related to the prevailing "hot" product.This skill set that was in high demand could change rapidly as new innovations replaced the old.The short product life cycle meant that there was little or no time for in-house training of employees. Employers increasingly looked for workers that already had an exact set of skills and experience.A direct consequence of the new "spot" demand for workers with specific computer skills and experience was the replacement of full-time workers by temporary employees who were hired for project-specific tasks.

The restructuring of the IT industry was facilitated by an important change in immigration law. The Immigration Act of 1990 authorized the creation of the H-1B visa program that allowed American companies to recruit foreign "specialty workers" to work in the United States for three years renewable to a maximum of six years.The rationale behind the H-1B program was to allow the controlled entry of skilled immigrants in response to what the U.S.government and industry contended was a critical shortage of skilled labor especially in the technology fields.Although the proscribed specialty occupations were diverse and included, for example, nurses and entertainers, almost 60 percent of visas issued in late 1999 were for professionals in core IT fields.Initially, 65,000 H-1B visas were made available annually.However a huge industry demand for H-1B workers especially in the mid-1990s resulted in the Congress's increasing the H-1B quota to 115,000 in 1998, and then again to 195,000 in 2000.Figure 1 shows the dramatic rise in the demand for specialty workers between 1989 and 2001.However, in October 2003, the quota was reduced by Congress back to its 65,000 level. The resulting drop in H-1B visas issued is clearly seen in the figure.

Figure 1

The specialty worker visa created a new wave of Indians - temporary IT workers - entering the United States.In contrast to their counterparts who had arrived in earlier decades, these workers did not need to have the broad training in computer science or information technology.Instead, they needed very specific and narrowly defined skills, usually in the area of programming, which could be attained over a shorter period of time.As a result, hundreds of computer training schools mushroomed in the major Indian cities to service the demand for programmers in the United States (and, increasingly in India as well). By 2001, almost 50 percent of all H-1B visa recipients were Indians (Figure 2).

Figure 2

4.2000 to the Present: The rise of offshore outsourcing
The past few years have seen a dramatic slowdown in the number of Indian H-1B workers entering the United States. Not all of this can be explained by the drop in the number of visas issued, because the share of Indian workers went down as well. A number of factors no doubt contributed to the decline. First was the bursting of the "tech bubble" which resulted in numerous hi tech firms going out of business and many people losing their jobs. Not surprisingly, the demand for new programmers and systems analysts from overseas declined precipitously. Further contributing to this slowdown was the dramatically altered security environment following 9/11. Issuance of visas and permits became subject to much more stringent regulations, and there was a dampening effect on immigration in general

The decline in Indian specialty workers was also fueled by a more fundamental restructuring of the industry that had already been underway for some years, a restructuring profoundly affected by the improvements in the Internet and communications technology. What had begun as domestic outsourcing of work in the 1990s, was now able to mature to offshoring as work could be efficiently and quickly sent to India with its low skilled labor costs.In the wake of over 10 years of economic liberalization, India's own high technology sector had taken off, and new high tech clusters mushroomed in cities such as Bangalore and Hyderabad. These cities offered infrastructure including broadband access and a skilled labor pool that make them desirable locations for offshore outsourcing.

The February 2004 issue of Wired captures the many dimensions of the debates on outsourcing to India.From all indications, this issue will be a political hot potato in this year's presidential election.Yet one wonders how offshore outsourcing can be regulated in a technological environment which allows managers to quickly and temporarily assemble "virtual teams" made up of uniquely qualified individuals living across the globe to work on specific jobs.Who is hired and from which country greatly depends on the nature of previous professional relationships, and the deep links forged between India and the United States over the past half century are likely to be perpetuated.

Finally, we are now seeing the emergence of a new generation of high tech entrepreneurs made up of the American-born children of Indian immigrants.They are equally familiar with the cultures of both countries and operate in a transnational context: living and working both in the United States and in India.Given this, we may see an increasingly seamless high tech industry that spans the virtual space between India and the United States.


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