While traveling through Bangalore, India, one cannot help but notice all of the large companies located there. The big glass buildings have now become synonymous with the city. The city’s tech parks have a perfect mixture of both indigenous and silicon valley based IT firms. This provides direct employment to thousands, with the addition of hundreds of thousands indirectly obtaining employment. How did these silicon valley based companies end up in South India?
For anyone who has lived or lives in India, this might seem to be a nonsensical question. After all, we pride ourselves on having the best engineers and software personnel in the world. Most CEOs of big firms including Microsoft and Google, formerly Twitter and Starbucks are all of Indian origin. The story of cooperation and linkage goes much beyond setting up an offshore headquarters in India.
Unlike China, India has a significantly larger English-speaking population than China. The country is also relatively freer when it comes to social media. Thus, large social media giants based in Silicon Valley operate in India. Google for example is the most commonly used search engine in India. India has the largest WhatsApp market worldwide and India has more than 25 million active users on Twitter. LinkedIn also has around 90 million users in India, second only to the US.
Other Bay area companies with significant hold in India include Cisco and Apple. Cisco has its second global headquarters in Bangalore while Apple is looking to expand its production and assembly in India so that it can shift out of China.
One way firms shift to India is through Foreign Direct Investments (FDI). After suffering a slump in 2020, FDIs in India are back. Excluding tax havens such as Mauritius and Singapore, the United States is the largest source of FDIs in India with FDIs from the Bay area being a major component of FDI flow. In 2021 alone, $875 million in FDI entered the Information and Communications Technology (ICT) and electronics sectors, with approximately 64.6% of it comprised of FDI from the Bay Area.
FDI in India from Bay Area Companies in 2021
Apart from ICT and electronics, investment has been flowing into finance, life sciences, industry, etc., most of which originate from FDI from the Bay area itself. This helps form strong ties between the regions.
Companies in the Bay area look beyond India as a nation and focus on individual states. Some states are more open to trade and business than others are. India is California’s ninth-largest export destination, with exports worth over $6 billion. These exports include manufactured goods, agriculture products, and electronics. In addition to the movement of goods and services, there is also a strong movement of people between these regions. The Bay Area has a huge Indian diaspora, thus further connecting these places. There are also academic exchanges between the regions. Schools in California, including CSU-Monterey Bay and San Francisco State University, offer and support joint degree programs with leading engineering schools in India, including the Indian Institute of Technology.
This relationship is not one way from the US to India though. Many Indian firms are currently investing in the US as well, providing jobs for skilled people in the US. Almost all of India’s leading ITC companies have headquarters or offices in the US. These include Infosys, Wipro, TCS, Cognizant, etc. They also have the opportunity to expand into the American market, which might arguably be the largest tech market in the world right now. They also cooperate and work with Silicon Valley-based companies to expand their business further. After the US and China, India now has the largest number of unicorns in the world, startup companies worth more than a billion dollars.
During the pandemic, there was an explosion in the number of EdTech companies worldwide. The lockdown meant that people were sitting at home, which provided the perfect opportunity for EdTech companies to expand their business. Unacademy, Upgrad, Vedantu, and, Eruditas became the new unicorns in the field, while Byju’s became a decacorn, worth more than $10 billion. Growth in this sector is now being closely observed by analysts, especially as the pandemic continues to wane
Apart from EdTech, fintech is another sector that is experiencing rapid sectoral growth, which is expected to handle assets worth $1 trillion by 2030. Other sectors experiencing growth due to the exchange between Bay Area and India include pharmaceuticals, healthcare, renewable energy, infrastructure, and electric vehicles.
There are still many challenges that may impact the connections and exchanges between the regions. Although not much is out in the open yet, tensions between India and the US remain due to China and Russia. The Russian aggression against Ukraine has further wedged a gap between the countries. So far, India has hesitated to openly condemn Russia. Trade between India and Russia has also more or less remained unaffected by the war. The US also needs India to be fully onboard to counter China, something New Delhi has hesitated to do, even though it has territorial disputes with Beijing.
In addition to Geopolitics, it is also the massive job losses in the IT sector that are dampening hopes as thousands of workers have been laid off by Facebook and Twitter, for example. Moreover, many Indian tech workers were also affected by the layoffs. This slowdown in hiring may dampen exchanges. A slowdown in the tech sector adversely affects India as it is one of the largest beneficiaries of Silicon Valley-based firms.
As we move into the age of AI, technology assumes an even greater role in our lives. It remains to be seen how India and the US can coordinate and better develop technologies which will benefit all of us
For more details, check out the report published by Bay Area Council Economic Institute which can be found here.
Adithyan Puthen Veettil holds a Bachelor’s in economics and is a student doing his master's in international studies at the Diplomatic Academy, Vienna. Adithyan was spring intern 2023 at the Austrian Economic center.
The AEC’s fundamental goal is to promote a free, responsible and prosperous society. Through education and improving public understanding of key economic questions, the AEC promotes the idea of a free market economy and the ideal of a free society.