Friday, July 3, 2009

Why Has Globalization Led to Bigger Cities? Software Factories

During this long-weekend surfing through blogsphere, I came across an interesting post by Prof. Edward L. Glaeser on NYT blogs titled "Why Has Globalization Led to Bigger Cities?"

Prof. Glaeser makes an interesting observation of how the Cities continue to grow larger in spite of the flattening world (and possibly because of globalization). Taking Bangalore as a case-in-point he builds an interesting argument. While Prof. Glaeser’s observation, especially of Bangalore’s astronomical growth is right on target, the reasons he quotes are a bit sketchy.

Prof. Glaeser over-simplifies his argument by saying that a programmer might as well live in "Vale of Kashmir"or elsewhere in India and not necessarily in Bangalore. This is like arguing how Bill Joy, co-founder of Sun Microsystems can continued to live the life of a recluse in Aspen while his brainchild thrived in the Silicon . Well, this misses the simple point that most IT workers are not Bill Joy. Much of the work in the IT industry does not involve innovation but sustenance or incremental development.

The fact is that even with all the networking in the world, an engineering graduate, just out of school in India, or for that matter even most of the experienced programmers cannot hope to make a decent (and steady) living just being wired to the internet. You could argue that some of the innovations come from individuals working in the proverbial garage or parent’s basement, but those are too far between and few. The market for software talent in India continues to be concentrated in Bangalore, and increasingly in Hyderabad (a.k.a Cyberabad), Pune and even the National Capital Region and suburbs of Delhi: Noida, Ghaziabad and Gurgaon

Think Software Factories

Most of us in the business of software and services realize that the flattening of the IT world that Thomas Friedman eulogized in his book is more about shift of jobs from software factories, mega-IT-shops of Fortune 500/Global 2000 companies in the west to similar software factories in India and elsewhere.

Look at it this way: Years ago, American Express had the majority of its IT operations in Phoenix, Arizona. Quest had an army of programmers in Denver, Colorado and World Bank had a concentration of its operations in Washington DC and Geneva; British Telecom in London, Deutsche Bank in Anytown Germany. Each IT shop probably had upwards of 5-10,000 people working in one or two locations. The "flattening" has meant that Indian Software firms including Infosys, Wipro, TCS, (Mahindra Satyam) and their western counterparts IBM, Accenture, Deloitte et al have outsourced some of the projects, maintenance of systems (and jobs) from their clients to their IT centers in Bangalore, Hyderabad, Pune and Shanghai.

Bottomline: The past decade-and-half has seen the movement of “software factories” and development centers from the west to a few key cities in the east primarily in India but increasingly to a few cities in China. While located in the west, these large operational centers were spread across metros in the US, UK, Europe and elsewhere but have now got concentrated into a few cities in India.
Could this be the explanation for Prof. Glaeser’s observation "Why Has Globalization Led to Bigger Cities?" It is certainly is one (though major) factor.

ps: I realize that even I am over-simplifying the concept of software factories or IT centers moving and being outsourced.