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 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 on visas who were coming to America 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, I 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 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.