Bangalore: economic success and challenges ID Anastasia Ivanenko

Presentation plan 1. Bangalore’s basic geographic facts 2. Bangalore as an IT hub 3. The city’s history of economic development (including factors ensuring Bangalore’s IT success) 4. Benefits that Bangalore enjoys and challenges the city faces today 5. Important lessons from Bangalore 6. Sources

Having Problems with Your Credit Card? The problem with the machine’s new software can be fixed overnight by experts in Bangalore, India. The problem with the machine’s new software can be fixed overnight by experts in Bangalore, India. Many international companies (Reebok, IBM, AT&T/NCR, Hewlett- Packard, Compaq) depend on computer software developed and maintained in Bangalore Many international companies (Reebok, IBM, AT&T/NCR, Hewlett- Packard, Compaq) depend on computer software developed and maintained in Bangalore

Bangalore’s geographic facts Located in the state of Karnataka in the southeast of India Located in the state of Karnataka in the southeast of India Population: 7 – 10 million Population: 7 – 10 million Official language: Kannada. Other spoken languages are English, Hindi, Tamil and Telugu Official language: Kannada. Other spoken languages are English, Hindi, Tamil and Telugu The city enjoys salubrious climate throughout the year The city enjoys salubrious climate throughout the year Bangalore was renamed into Bengaluru in 2006 Bangalore was renamed into Bengaluru in 2006

Bangalore is known as the “Silicon Valley” of India (IT cluster) Bangalore is known as the “Silicon Valley” of India (IT cluster) It is No.2 tech hotspot in the world (2008) It is No.2 tech hotspot in the world (2008) About one quarter of all Indian software firms (Wipro, Infosys, etc.) are located in the city (50% of all software exports) About one quarter of all Indian software firms (Wipro, Infosys, etc.) are located in the city (50% of all software exports) Bangalore is home to more than 1500 international IT and business process outsourcing companies Bangalore is home to more than 1500 international IT and business process outsourcing companies According to the World Bank, Bangalore is one of the fastest growing cities in the world According to the World Bank, Bangalore is one of the fastest growing cities in the world The city’s economy is estimated at US$ 47.2 billion, and since 2001 it has attracted the third largest share of FDI in India The city’s economy is estimated at US$ 47.2 billion, and since 2001 it has attracted the third largest share of FDI in India

Bangalore in retrospective

From the Garden City to the IT hotbed Due to its specific geographic location, Bangalore has developed a rich tradition of trading and commerce Due to its specific geographic location, Bangalore has developed a rich tradition of trading and commerce Today’s Bangalore reflects decisions made by post-independence governments in New Delhi Today’s Bangalore reflects decisions made by post-independence governments in New Delhi A special vision: Bangalore as an education center (Jawaharlal Nehru) A special vision: Bangalore as an education center (Jawaharlal Nehru) Since the 1960s the central government has heavily invested into the city’s civilian science and technology infrastructure as well as the nation’s most advanced military and space research facilities Since the 1960s the central government has heavily invested into the city’s civilian science and technology infrastructure as well as the nation’s most advanced military and space research facilities

What were the factors determining Bangalore’s economic success? 1. The important role of policy makers: a) Central government - India economic liberalization policy (started in the 1970s, but they began in earnest only 1991) b) Local government – the active pursuit of foreign investment 2. The important role of education and research institutions – Bangalore has the highest number of engineering colleges in India ensuring a continuous supply of fresh graduates for the thriving sector (3 universities, 14 engineering colleges, 47 polytechnic schools, industrial training institutes, a high-tech “village”)

Other factors contributing to Bangalore’s success: 3. Large low-cost technical human resource brains. In the software industry, those characteristics have placed India among the top-ranked locations for software development outsourcing. 4. Availability of venture capital (both domestic and international) 5. Generation of backward and forward linkages 6. Improvement of telecommunications technologies 7. Changes in firm strategies in the industrial countries: the increased demand for software development and the decision to outsource certain software activities. 8. British legacy – an excellent system of higher education with emphasis on mathematics, the reliable system of commercial law, the English language 9. Connections with non-resident Indians in Silicon Valley

Bangalore’s plan of economic development: 1. “We want to go to Silicon Valley”/Bodyshopping phase – 1980s- 1990s 2. “We want to be like Silicon Valley” phase – remote software development for MNCs, with MNCs and by MNCs 3. “We will go beyond Silicon Valley” phase – offshoring of services (BPO) in the 1990s and beyond 4. “Innovation hub”: IT and other areas (healthcare, life sciences, biotechnology, wireless protocol stacks) - after 2000

Today’s Thriving Bangalore (Infosys HQ)

Today’s Thriving Bangalore (Brigade Road, a popular commercial district)

Today’s Thriving Bangalore

How has Bangalore benefited from its rapid economic growth? Creation of a large number of jobs in certain sectors Creation of a large number of jobs in certain sectors Purchasing power has increased dramatically over the last decade Purchasing power has increased dramatically over the last decade Investment has increased as well Investment has increased as well Various development projects have been undertaken by the local government (mega-projects like public stadia and infrastructure) Various development projects have been undertaken by the local government (mega-projects like public stadia and infrastructure) International market access and vital contacts in world markets International market access and vital contacts in world markets

What challenges does Bangalore face? a) Economic challenges a) Economic challenges b) Social challenges b) Social challenges c) Environmental challenges c) Environmental challenges

Economic challenges Serious disparities in income distribution - the educated middle class is basking in the bliss of competitive salaries and newfound freedom, whereas the poor get more suppressed with no chance for a better living (middle class comprises around 13% of the city population, poor people – 45%) Serious disparities in income distribution - the educated middle class is basking in the bliss of competitive salaries and newfound freedom, whereas the poor get more suppressed with no chance for a better living (middle class comprises around 13% of the city population, poor people – 45%) A large number of new jobs offered refer to very specific areas – people of other professions (including teachers, engineers and doctors) often have to seek jobs in the BPO area to make a decent living A large number of new jobs offered refer to very specific areas – people of other professions (including teachers, engineers and doctors) often have to seek jobs in the BPO area to make a decent living Cost of living in Bangalore has more than doubled in the last decade Cost of living in Bangalore has more than doubled in the last decade The major issue for Bangalore is sustainability of its software industry – with rising salaries and land prices a lot of firms are moving to other cities and even abroad (Pune, Hyderabad, Malaysia, the Philippines) The major issue for Bangalore is sustainability of its software industry – with rising salaries and land prices a lot of firms are moving to other cities and even abroad (Pune, Hyderabad, Malaysia, the Philippines) So far, competition rather than a mix of competition and cooperation has been the norm running Bangalore software firms (unlike other internationally successful specialized clusters) So far, competition rather than a mix of competition and cooperation has been the norm running Bangalore software firms (unlike other internationally successful specialized clusters)

Social challenges The city’s cosmopolitan culture is coming under pressure in the wake of growing militancy of outfits claiming to represent the interests of the local Kannadiga population (attacks on MNCs’ offices, the reason – local culture is endangered and disrespected) The city’s cosmopolitan culture is coming under pressure in the wake of growing militancy of outfits claiming to represent the interests of the local Kannadiga population (attacks on MNCs’ offices, the reason – local culture is endangered and disrespected) English has become the major language of communication to the detriment of other languages (Hindi and Kannada) English has become the major language of communication to the detriment of other languages (Hindi and Kannada) A new “Americanized” lifestyle of younger generations causes a negative reaction in Indian conservative society with its deep- rooted values like arranged marriage and cast system A new “Americanized” lifestyle of younger generations causes a negative reaction in Indian conservative society with its deep- rooted values like arranged marriage and cast system Educational problems – primary education is lacking, particularly for rural residents. About 40% of Indian adults are illiterate Educational problems – primary education is lacking, particularly for rural residents. About 40% of Indian adults are illiterate There still exist strong restrictions to freedom of thought and religion There still exist strong restrictions to freedom of thought and religion Many Bangalore’s poor live in slums where they lack adequate access to clean water, proper shelter, food and sanitation Many Bangalore’s poor live in slums where they lack adequate access to clean water, proper shelter, food and sanitation The number of suicides caused by extreme poverty has risen (between 2000 and 2003 nearly 3000 farmers took their lives due to the loss of their agricultural land) The number of suicides caused by extreme poverty has risen (between 2000 and 2003 nearly 3000 farmers took their lives due to the loss of their agricultural land)

Environmental challenges Pollution – the significant rise in traffic congestion has increased levels of both noise and air pollution Pollution – the significant rise in traffic congestion has increased levels of both noise and air pollution Rapid urban sprawl occurs in reaction to the needs of companies and a burgeoning middle class rather than as part of an integrated long-term city plan (encroachment on important agricultural lands and vital green spaces) Rapid urban sprawl occurs in reaction to the needs of companies and a burgeoning middle class rather than as part of an integrated long-term city plan (encroachment on important agricultural lands and vital green spaces) Managing the waste that Bangalore is increasingly producing is also impacting the environment (a large part of waste is dumped into open spaces in the city or left on roadsides outside the city) Managing the waste that Bangalore is increasingly producing is also impacting the environment (a large part of waste is dumped into open spaces in the city or left on roadsides outside the city) Uncontrolled land development has contributed to a reduction of open and public spaces (e.g.lakes have been drained to make more room for new construction) Uncontrolled land development has contributed to a reduction of open and public spaces (e.g.lakes have been drained to make more room for new construction)

Traffic in Bangalore

Lessons from Bangalore (what needs to be done to ensure further prosperity and sustainable development) 1. Provision of a wider range of activities by Bangalore firms in the face of rising land prices and wages ( focusing on the development of banking and financial software, educational software, pursuing different areas of research, e.g. in video-conferencing software) 2. Provision of more sophisticated services (outsourcing the lower-valued added or specialized tasks and taking on the more complex projects and clients, including higher value-added ones) 3. Less competition, more cooperation between firms 4. Opening up of the domestic market - India is currently in the interesting position of having a thriving software export business without having a strong domestic market for software 5. Improvement of infrastructure and telecommunications systems 6. Broadening of the focus, creation of jobs in other sectors, not only in the IT sphere ( around 60% of Indians depend on agriculture for their livelihoods) 7. Improvement of education system, raising the literacy level among the population 8. Better-planned urban development, tackling the problems of air pollution and noise, as well as traffic problems

Sources A Bumpy Road toward Modernity in Bangalore. Global Envison. A Bumpy Road toward Modernity in Bangalore. Global Envison. Bangalamerica. Documentary. Bangalamerica. Documentary. Bangalore. UN Urban Management Program Regional Office for Asia and the Pacific. Bangalore. UN Urban Management Program Regional Office for Asia and the Pacific. Bangalore: India’s Silicon City. Bnet business network. Bangalore: India’s Silicon City. Bnet business network. Bangalore: third richest city in the country. The Times of India. Bangalore: third richest city in the country. The Times of India. Impressions on Bangalore. Eurac Research. htm Impressions on Bangalore. Eurac Research. htm htm htm Local Pride Buffets Bangalore business. Asia Times online. Local Pride Buffets Bangalore business. Asia Times online. Solomon Benjamin. Governance, Economic Settings and Poverty in Bangalore. unpan1.un.org/intradoc/groups/public/documents/apcity/unpan pd f Solomon Benjamin. Governance, Economic Settings and Poverty in Bangalore. unpan1.un.org/intradoc/groups/public/documents/apcity/unpan pd f The Essential Ingredients of Bangalore’s Success: Some Lessons from the Cluster. International Trade Center. The Essential Ingredients of Bangalore’s Success: Some Lessons from the Cluster. International Trade Center.