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to Kentucky； where there was a GE mainframe computer we were working with； and then
from Kentucky to Whitefield。 We used our own fiber…optic lease line that ran across
the ocean…but
the one across town required a bribe。〃
India didn't benefit only from the dot…com boom； it benefited even more from the
dot…com bust！ That is the real irony。 The boom laid the cable that connected India
to the world； and the bust made the cost of using it virtually free and also vastly
increased the number of American companies that would want to use that fiber…optic
cable to outsource knowledge work to India。
Y2K led to this mad rush for Indian brainpower to get the programming work done。 The
Indian companies were good and cheap； but price wasn't first on customers'
minds…getting the work done was； and India was the only place with the volume of
workers to do it。 Then the dot…com boom comes along right in the wake of Y2K； and
India is one of the few places where you can find surplus English…speaking engineers；
at any price； because all of those in America have been scooped up by e…commerce
companies。 Then the dot…com bubble bursts； the stock market tanks； and the pool of
investment capital dries up。 American IT companies that survived the boom and venture
capital firms that still wanted to fund start…ups had much less cash to spend。 Now
they needed those Indian
Ill
engineers not just because there were a lot of them； but precisely because they were
low…cost。 So the relationship between India and the American business community
intensified another notch。
One of the great mistakes made by many analysts in the early 2000s was conflating
the dot…com boom with globalization； suggesting that both were just fads and hot air。
When the dot…com bust came along； these same wrongheaded analysts assumed that
globalization was over as well。 Exactly the opposite was true。 The dot…com bubble
was only one aspect of globalization； and when it imploded； rather than imploding
globalization； it actually turbocharged it。
Promod Haque； an Indian…American and one of the most prominent venture capitalists
in Silicon Valley with his firm Norwest Venture Partners； was in the middle of this
transition。 〃When the bust took place； a lot of these Indian engineers in the U。S。
＇on temporary work visas＇ got laid off； so they went back to India；〃 explained Haque。
But as a result of the bust； the IT budgets of virtually every major U。S。 firm got
slashed。 〃Every IT manager was told to get the same amount of work or more done with
less money。 So guess what he does？ He says； 'You remember Vijay from India who used
to work here during the boom and then went back home？ Let me call him over in Bangalore
and see if he will do the work for us for less money than what we would pay an engineer
here in the U。S。'〃 And thanks to all that fiber cable laid during the boom； it was
easy to find Vijay and put him to work。
The Y2K computer readjustment work was done largely by low…skilled Indian programmers
right out of tech schools； said Haque； 〃but the guys onvisas who were coming toAmerica
were not trade school guys。 They were guys with advanced engineering degrees。 So a
lot of our companies saw that these guys were good at Java and C＋＋ and architectural
design work for computers； and then they got laid off and went back home； and the
IT manager back here who is told； 1 don't care how you get the job done； just get
it done for less money；' calls Vijay。〃 Once America and India were dating； the
burgeoning Indian IT companies in Bangalore started coming up with their own proposals。
The Y2K work had allowed them to interact with some pretty large companies in the
United States； and as a result they began to understand the pain points and how to
do
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business…process implementation and improvement。 So the Indians； who were doing a
lot of very specific custom code maintenance to higher…value…add companies； started
to develop their own products and transform themselves from maintenance to product
companies； offering a range of software services and consulting。 This took Indian
companies much deeper inside American ones； and business…process outsourcing…
letting Indians run your back room…went to a whole new level。 〃I have an accounts
payable department and I could move this whole thing to India under Wipro or Infosys
and cut my costs in half；〃 said Haque。 All across America； CEOs were saying； 〃'Make
it work for less；'〃 said Haque。 〃And the Indian companies were saying； 'I have taken
a look under your hood and I will provide you with a total solution for the lowest
price。'〃 In other words； the Indian outsourcing companies said； 〃Do you remember how
I fixed your tires and your pistons during Y2K？ Well； I could actually give you a
whole lube job if you like。 And now that you know me and trust me； you know I can
do it。〃 To their credit； the Indians were not just cheap； they were also hungry and
ready to learn anything。
The scarcity of capital after the dot…com bust made venture capital firms see to it
that the companies they were investing in were finding the most efficient；
high…quality； low…price way to innovate。 In the boom times； said Haque； it was not
uncommon for a 50 million investment in a start…up to return 500 million once the
company went public。 After the bust； that same company's public offering might bring
in only 100 million。 Therefore； venture firms wanted to risk only 20 million to
get that company from start…up to IPO。
〃For venture firms；〃 said Haque； 〃the big question became； How do I get my
entrepreneurs and their new companies to a point where they were breaking even or
profitable sooner； so they can stop being a draw on my capital and be sold so our
firm can generate good liquidity and returns？ The answer many firms came up with was：
I better start outsourcing as many functions as I can from the beginning。 I have to
make money for my investors faster； so what can be outsourced must be outsourced。〃
Henry Schacht； who； as noted； was heading Lucent during part of this period； saw the
whole process from the side of corporate management。
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The business economics； he told me；became 〃very ugly〃 for everyone。 Everyone found
prices flat to declining and markets stagnant； yet they were still spending huge
amounts of money running the backroom operations of their companies； which they could
no longer afford。 〃Cost pressures were enormous；〃 he recalled； 〃and the flat world
was available； ＇so＇ economics were forcing people to do things they never thought
they would do or could do 。。。 Globalization got supercharged〃…for both knowledge work
and manufacturing。 Companies found that they could go to MIT and find four incredibly
smart Chinese engineers who were ready to go back to China and work for them from
there for the same amount that it would cost them to hire one engineer in America。
Bell Labs had a research facility at Tsingdao that could connect to Lucent's computers
in America。 〃They would use our computers overnight；〃 said Schacht。 〃Not only was
the incremental computing cost close to zero； but so too was the transmission cost；
and the computer was idle ＇at night＇。〃
For all these reasons I believe that Y2K should be a national holiday in India； a
second Indian Independence Day； in addition to August 15。 As Johns Hopkins foreign
policy expert Michael Mandelbaum； who spent part of his youth in India； put it； 〃Y2K
should be called Indian Inter…depedence Day；〃 because it was India's ability to
collaborate with Western companies； thanks to the interdependence created by
fiber…optic networks； that really vaulted it forward and gave more Indians than ever
some real freedom of choice in how； for whom； and where they worked。
To put it another way； August 15 commemorates freedom at midnight。 Y2K made possible
employment at midnight…but not any employment； employment for India's best knowledge
workers。 August 15 gave independence to India。 But Y2K gave independence to Indians…
not all； by any stretch of the imagination； but a lot more than fifty years ago； and
many of them from the most productive segment of the population。 In that sense； yes；
India was lucky； but it also reaped what it had sowed through hard work and education
and the wisdom of its elders who built all those IITs。
Louis Pasteur said it a long time ago： 〃Fortune favors the prepared mind。〃
Flattener #6
Offshoring
Running with Gazelles； Eating with Lions
On December 11； 2001； China formally joined the World Trade Organization； which meant
Beijing agreed tofollow the same global rules governing imports； exports； andforeign
investments that most countries in the world were following。 It meant China was
agreeing； in principle； to make its own competitive playing field as level as the
rest of the world。 A few days later； the American…trained Chinese manager of a fuel
pump factory in Beijing； which was owned by a friend of mine； Jack Perkowski； the
chairman andCEO of ASIMCO Technologies； an American auto parts manufacturer in China；
posted the following African proverb； translated into Mandarin；