What India’s hi-tech capital can learn from China

Since the start of the summer, psychologists in Bangalore have been particularly busy due to a swarm of the city’s IT professionals turning to them for advice.

The huge demand from anxious white-collar Indian workers even saw a boom in start-ups providing online counselling services.

Many Indian engineers have been caught off guard by the sweeping layoffs at the heart of India’s Silicon Valley this year – the IT industry not only supports the local economy but is central to the dream many young Indians have of transforming their lives.

According to India’s Frontline magazine, anecdotal evidence from Chennai, Hyderabad, Bangalore, Pune and other cities suggests that a number of large IT service companies are shedding thousands of jobs as artificial intelligence, automation and deep learning technologies replace humans.

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India, and Bangalore in particular, has previously benefited from IT outsourcing by US and other foreign companies because it can draw on a vast pool of skilled, English-speaking employees.

But it is now commonly accepted that this industry is at a transitional point as its momentum has faded in recent years.

After 15 years of development, Bangalore, the home base of outsourcing giants such as Infosys and Wipro, is experiencing growing pains and many internet companies are leaving the city for other parts of India such as Pune and Hyderabad.

Last month I was travelling across China, visiting both first-tier cities like Beijing and Shenzhen and second-tier ones like Hangzhou and Wuhan, both of which are rising tech hubs.

During a series of meetings with professionals from leading internet firms I could not help comparing Bangalore and these Chinese tech hubs.

A recent article by The Economist credited Chinese start-ups for improving their performance, saying: “A few years ago, Chinese innovation meant copycats and counterfeits. The driving force is now an audacious, talented and globally minded generation of entrepreneurs. “

Chinese start-ups used to largely depend on innovations that came from Silicon Valley, but now young entrepreneurs are have been driven to find their own solutions to consumers’ needs.

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This shift could prove a tipping point for Bangalore. Its previous dependence on the global outsourcing industry meant it was putting all its eggs in that one basket.

Its export-oriented economy should be adjusted to focus on domestic demands and finding ways to meet its own citizens’ requirements.

Moreover, it needs to improve its infrastructure if the economy is to remain vibrant.

A rush-hour drive on the Hosur Road, one of the city’s main highways, illustrates the problem. It can take up to an hour to travel 10 kilometres in a city that has become much more crowded over the past decade, which saw at least three million more people moving into the city.

The town’s public transport system is just not ready for that, and house rents have also rocketed, making the place less attractive for young professionals.

To be sure, it is still a far cry to describe Bangalore as a city in decline.

In the first half of this year, start-ups in the city have raised US$2.56 billion from 129 deals, including a US$71 million investment in the Bangalore-based online retailer Flipkart by the media conglomerate Naspers in June.

Other major deals come out of the city included the US$484 million that cab aggregator Ola raised in three separate deals.

Although the software outsourcing industry is in decline, Bangalore’s role as India’s main start-up hub should not be overlooked.

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This June I interviewed Bala Parthasarathy at his office in the outskirt of Bangalore. Parthasarathy is the chief executive and co-founder of MoneyTap, India’s first app-based credit line.

He used to work at Silicon Valley for 17 years, but happily headed back to Bangalore a few years ago.

When asked what had prompted him to return to the city he replied: “There are more opportunities here than in Silicon Valley.”

Two weeks after our conversation, it was announced that his fintech start-ups had raised more US$12 million.

Parthasarathy’s case is not unique. I have met a number of start-up entrepreneurs and angel investors in Bangalore who have Silicon Valley backgrounds.

The same scenario has played out in China for years.

The booming internet industry has attracted many people with Chinese origins to work in Beijing, Shanghai and Hangzhou.

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But Bangalore’s appeal is not confined to people of Indian origin and it also attracts young Chinese entrepreneurs.

Wan Hong, a former engineer with Huawei, founded Krazybee with his Indian partner in Bangalore early last year and the business has now become the leading fintech start-up focusing on student microfinance.

Nearly every week in Bangalore, I am invited to business meetings with Chinese visitors – most of whom work in Hangzhou’s e-commerce sector.

The Chinese city is the home of Alibaba and the e-commence giant – which also owns the South China Morning Post – has generated considerable momentum for start-ups which eye cross-border deals as well as domestic one.

A report last year by Vision Plus Capital claimed that Hangzhou might overtake its peers to cement its status as China’s new Silicon Valley.

The report explained that the number of new start-ups in Hangzhou surged 107 per cent year-on-year in the second half of 2014 due in no small parts to the boost from Alibaba’s IPO.

But while Bangalore can learn from Hangzhou it still has an advantage over its Chinese counterparts.

Hangzhou has only one major e-commerce firm, Alibaba, and a similar situation applies in Shenzhen, the home of Tencent.

But both of India’s biggest e-commerce businesses – Flipkart and Amazon India – are based in Bangalore.