Article by: Lillian Kazmierczak - Finance Writer for Toarc United
It's never been more evident that the US is dependent on China for manufactured goods; the shortage of everyday goods on US shelves and the urgency to get the containers off the boats and to their intended destination is affecting American lives daily. Yet, while we are concerned with the manufacturing in China, we have somehow missed that the United State's increasing dependence on India for Information Technology.
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The Beginning of Our Dependence
Over 1,000 leading American companies have moved to India in the last two decades ( a repeat of the migration of US companies to China two decades before this); they employ over one million Indian workers. This in itself ticks me off, that the US has 1,000 companies creating good jobs in another country while people here at home are struggling to find well-paying jobs. What irritates me more is that you and I have allowed this to go on for twenty years and haven't done anything of significance to try and stop this… we'll get into this a bit more later.
Our growing dependence on IT from India has grown in a parallel with our manufacturing independence in China. While the two are politically and economically different, they are also very similar; India views China as a military and political rival. Therefore, the possibility that India could become a manufacturing hub for the US in the future can't be overlooked.
The American companies currently set up in India rely heavily on India-based IT assistance. India itself fears becoming dependent on large US companies such as Google, Facebook(Meta), Microsoft, and Amazon. India currently faces fears similar to the US in dependency, opportunities, and political tensions with China.
The interaction between India, China, and the US will change global competition and technological innovation for decades to come.
India Shadows China
While China has outperformed India in just about every market, India is working towards catching up. Its current generation of brilliant self-starters, highly educated and are driven to change all of this for India. While I should bristle at this fact, I am in awe of a generation that understands the importance of education and how it can be used to change the future of a nation. With all the advantages US generations have had in education and opportunities, I don't feel we have used these resources to their full potential. Part of our solution to the US of its IT dependency will need to be better and earlier education in STEM in US schools, a component that is generally lacking now.
Since 1970, China's productivity has risen 67%; India can easily catch up with its productivity level because it is so much lower. While I'm not using exact numbers, we can look at the Gross Domestic Product of both countries and see that China's is four times larger than India. But, if India was to increase by 8% steadily and China remained at 4% growth, India could increase its GDP by 1% yearly. While 1% doesn't sound like much, it is significant in terms of billions of dollars. If we factor in an ambitious, well-educated, and highly technical millennial population, India could see phenomenal growth in all markets.
I have said it before, and I will continue to say this…millennials will change the global economy in many and very innovative ways. They are out-of-the-box thinkers, and that will be their huge advantage.
India's IT Rise
For decades, India has been self-dependent on IT, using their self-isolation to motivate their most talented IT and engineering professionals to leave India for better opportunities.
India's IT services working to assist US companies in India have increased and strengthened India's hold on IT growth. As a result, while US companies were growing in India, India had their own IT growth and started its global emergence.
They have taken what the US has offered and are building better IT opportunities with global expansion. Picture working for your dad in his company, learning from him, adding your tech abilities, and thinking out of the box to create your own competing company only stronger. That is precisely what India has done.
This was China's downfall as they shut out the US-based tech companies and created their own versions of Google and Facebook. However, the US IT presence is seen in the over 300 million users of Google and Whatsapp in India. The CEO of Google was born in India.
Amazon and Flipkart(Walmart) own 75% of e-commerce in India, with India creating Reliance and Tata, whose membership has been increasing steadily. Finally, someone in India was paying attention to US growth and is cashing in on India's newfound love of American online shopping.
Microsoft and Amazon make up most of India's services, with Windows setting record numbers of PC sales in India last year. Other well-established US companies with a strong presence in India are Twitter, Netflix, and Uber. Combined, this gives the US a more solid position in India's tech culture than China has. Good to know US company growth is strong somewhere!
India is in a high-growth period and hasn't even started to capitalize on its healthcare, agriculture, and education services. That leaves these areas open for future India-based company growth. If India develops their cloud system, mobile technology, and e-commerce platforms, it could push US-based companies out of India. Will this happen in the next ten years? Probably not, but know it will happen, and I have no doubt the millennials will be the driving force!
One thing is for sure, as India grows in the global markets, especially pharmaceuticals where India is the US biggest competitor(yeah, no one saw that coming!), the US is going to need bigger bargaining chips to maintain their position in India's growing market.
According to ITIF(Information Technology and Innovative Foundation), the only US sectors that don't depend on India's IT are Defense and Education. How does this even happen? With all the technology we have and have shared with the world, a country as large as the US is reliant on India for IT! I hope you understand the harm in this: why the US depends on foreign nations for IT and manufacturing, one of the nations being a political and economic threat to the US.
Corporate greed tops that list; cheap labor(much cheaper) labor force and tax breaks are big motivators. BUT in doing so(with the help of the US government), large corporations have created this mess, and if they don't start fixing it, the US will lose its global position.
As a nation, we need to bring them home, base it all in the US, then distribute our services globally. It's not a complex concept, but against corporate greed, it's gonna be hard to achieve! My thinking, based on history…when the US was the richest and strongest nation during the 50s and 60s when US manufacturing was based in the US. Corporations love to blame the unions for their need to move, but the truth is they would rather pay someone $2 to make a shirt than pay you $12 to make the same shirt.
While I understand the financial business part of this, losing all these jobs has only weakened the US economy and shifted our global position. While I, as one person, can't change this, we as a group can put pressure on the politician; let them know that we want our US-based companies to remain in the US. They are working for us, something we tend to forget. The laws need to be changed, and these companies need to return to the US.
How India Has Become the Hub for Tech
India has managed to diminish poverty and improve the quality of their lives through the jobs the tech service industry is creating; it has increased their growth and increased access to multiple resources.
India is second only to China in internet connectivity. However, their expansion of the internet, especially to rural areas, has increased mobile phone and PCs usage. They have set records in consumer spending by increasing internet access, increasing employment opportunities, wages increased connectivity, making it all the more convenient for the population.
India houses some of the world's youngest entrepreneurs, with the average age being twenty-eight. However, these entrepreneurs are creating startups that do very well at an impressive rate. This has led to the increase of high-quality entrepreneurs, investors, and mentors with lots of experience to shape and build future India-based businesses.
Many of them are modeled after foreign businesses' and adapted to the local needs to become successful. This growth will only increase as these tech companies continue to adapt to India's needs. In addition, the contribution of overseas investors and increasing acquisitions mergers of tech companies have increased their expansion.
India's Government Realizes its Power
There will be periods of ups and downs amongst all this growth. But, if India continues its present growth rate, it can become a global competitor as strong as, if not stronger than China.
The thing slowing India's tech progress down is government regulation that supports tech innovation. Their need to train new tech talent and give companies a reason to stay in India. That sounds incredibly familiar and seems to be a global issue!
They also need to attract more foreign investors in their technology; India could become the new Silicone Valley once this is achieved. Their ability to adapt the foreign business model for local use has served them well.
India has become the stereotypical "IT guy" fixing IT problems for other countries; if they can change to innovative technology, they could dominate the tech market.
In fact, India is considered a potential superpower; while it has multiple factors to overcome before achieving this, it has been quickly expanding its military and economy. Thus putting themselves on the track to be a superpower in the next several decades.
Our over-reliance on Indian IT could be a real problem for the US if a significant disagreement should occur. But, on the other hand, let's not discount an alliance between India and China in the future. So the US put itself in a precarious position! When India reaches its potential in growth, will it remain an ally?
India has started to realize their upper hand in IT in recent years, especially with the US. In 2018 they used their 750 million internet users as bargaining chips, successfully forcing global payment companies to store their information in India's cloud service. Followed in 2019 by the Indian government quickly changing foreign e-commerce investment rules. A year later, they established a new digital tax for online businesses and foreign internet platforms. US companies have accepted this and continue to invest billions in the Indian market!
The only saving grace in all of this is India's understanding that getting rid of US tech companies completely would create economic devastation for them and have a severe effect on their relationship with the US.
Now I don't know about you, but I am at a loss for why these US companies put all their IT eggs in one basket. They don't invest all the IT money in one company, so why are they not diversifying IT in more than one country? Better yet, WHY are they not doing this in the US?
Change Needs to Happen
They are willing to pay India taxes for e-commerce platform use and local cloud services to do the exact thing in the US. They've become so focused on the profits to be made in India that they are willing to forfeit all the potential that comes with doing business in your own country?
If they're happy to pay taxes to India, then let's increase the taxes when they import their services back to the US. Increase the taxes on their incoming goods and services. Make them pay more if they choose to move to another country! If they want to eliminate the tax, they can come back to the US and do business. Make it expensive and difficult, and they will eventually come back. Will it possibly cost us a bit more if we choose to use their services here? Maybe it will. But I am willing to give my business to alternate companies to ensure they will eventually come back.
As I see it, one of two things will need to happen. A, we need to maintain a strong relationship with India, or B, we need to take a page from India's playbook and start replicating the services India provides right here at home.
I'm not saying we make an enemy out of India; I believe an alliance with them would be great for both parties. I do not doubt that when India reaches its goal of growing its businesses and economy, they will be kicking out foreign companies to make room for the Indian-based companies to grow with them. So it only makes sense for India to invest in itself and allow its population to do the same. It is a natural progression and one we should be following here in the US.
All this money these US companies are paying to India and other foreign countries could also be used in the US. They need to be here in the US, spending their money in the country that supported them until they moved to India
The kind of money they spend in India could change a lot of lives in the US. So instead of accepting the Indian government's taxation, negotiate a better tax deal with the US government and come home. So many US citizens could benefit from the jobs this will create and the taxes this will generate.
The taxes these companies pay could help pay off the trillions of dollars in US debt. We, as individuals, are striving for financial independence. Wouldn't it be great to have the US government be the lead on this as they use the revenue these companies would bring back to the US to rid ourselves of the debt?
We need to contact or representatives, congressmen and women, and governors and start reminding them That we want our companies to come back home. Your vote is a very powerful thing; it has to potential to change many things!
Bring these companies and their jobs back to the US where they belong, so we can start building the It jobs in the US that will serve us for decades to come. We can start now before India reaches their potential, or we can scramble to do it when it happens. I'm thinking proactive is the way we need to go with IT!
If you're looking for more Thoughts of a Random Citizen, head to the podcast section. I think you'll find some fascinating podcasts to listen to.