India Learns the Hard Way About the Fragility of Hi-tech

India and Israel, both of which succeeded in developing a large, successful software industry within a short time, now appear to be discovering its Achilles' heel: it can be destroyed in less than half a year.

"The software industry will stand firm even if a full-scare war breaks out, heaven forbid. It's too bad the Americans don't understand that and keep canceling visits to the region" - this is the lament being voiced lately by senior executives in the software industry of India.

Such statements have a very familiar ring to Israeli ears. Just about every entrepreneur, senior executive in industry and government official has expressed himself in similar fashion in the past two years. India and Israel, both of which succeeded in developing a large, successful software industry within a short time, now appear to be discovering its Achilles' heel: it can be destroyed in less than half a year.

The tension between India and Pakistan over Kashmir has preoccupied the international community in the last month. Fear of a possible nuclear war between the two countries is giving the world's leaders sleepless nights and has led them to exert all the pressure at their command to bring about calm in the subcontinent.

At this stage, their efforts appear to have been successful, and neither India nor Pakistan is itching for a fight. There are a good many reasons for these developments, though international pressure and fear of a slide into a nuclear conflict are undoubtedly the major reasons. However, on India's "for and against" chart, there is another reason as well: its magnificent software industry.

In 1991 the Indian government made a strategic decision to invest in the promotion of an Indian software industry that would make it possible for large numbers of the country's citizens to escape the cycle of poverty. The government initiated legislation, amended regulations and injected hundreds of millions of dollars in grants into development regions and into companies that hired new programmers. Another government decision brought about the creation of a ministry of technology, headed by a full-time cabinet minister, with the aim of marketing the Indian programmers worldwide.

The plan worked. India became the world's largest software contractor.If in 1994 the Indian software industry exported software worth $1.73 billion, in 2001 the country's software exports were worth $13.5 billion. Today many international high-tech firms maintain a presence in India, whether in the form of a factory, a research and development center or a local representation, projects that have brought new life to many areas of India. In this case, too, the parallel with Israel is not accidental: thanks to the encouragement that was given the Israeli software industry, export of software by Israel rose from $90 million in 1990 to $2.6 billion 10 years later. The growth in exports was accompanied by the growth of Herzliya Pituah, which had been the neglected center of automobile garages in the metropolitan Tel Aviv area, into one of the most important regions in the country and the jewel in the crown of Israeli publicity efforts abroad.

In recent weeks the Indians have come to grasp what the Israelis have already learned first-hand: the software industry is highly fragile. The world's software companies are not interested in the writers of codes but in the codes themselves, as computer programs know neither Hebrew nor Arabic, neither Bengali nor French. What they know are programming languages such as C++ or Visual Basic. Those languages are being studied everywhere in the world, so the relative advantage of establishing a software plant in Israel, say, or Britain, are rapidly diminishing. Anyone who thinks that the Chinese will go on planting rice forever is wrong. These days, everyone prefers to harvest the fruits of Silicon Valley.

Globalization, the Internet and jet planes have only abetted the software industries in India and Israel; but the American companies that landed in the region, launched factories and employed tens of thousands of people are perfectly capable of hightailing it out of the region for greener pastures as fast as they entered it. Initial indications of this tendency were apparent within hours of the deterioration in relations between India and Pakistan: senior executives in the United States announced that they would not visit the region, the plug was pulled on investments and projects were scrapped.

India's strategic future, as it was proclaimed in 1991, was in danger. The protestations of Indian officials to the effect that Bangalore is located 2,160 kilometers (four-and-a-half times the distance from Metulla to Eilat) from the area of tension were of no avail. The Indians know that their attractiveness stems from the low cost of their human resources. They also know that this is only a temporary advantage: today they are cheaper, but tomorrow it could be the Russians, and the next day the Chinese.

The only way to turn an international business presence into a true commitment is to develop concrete, distinctive technological skills and thereby transform the temporary advantage into a permanent one. A good example of this is in Israel is the center for research and development that was established by Intel in Haifa - today the laptop computer strategy of the microchip giant is based on a thousand Israeli engineers. That's why Intel did not pack up and leave, but stayed in Israel even after experiencing three wars. Nor have other foreign firms left Israel, despite the security situation. At present, there is one large difference between the two countries. More than 80 Israeli companies are listed on the Nasdaq technology index in New York. But only three Indian companies are on the Nasdaq. Both countries have reached the same conclusion: the need to cultivate the distinctive advantage.

Undermining education and higher education, canceling grants to entrepreneurs and driving off investors are a sure way to do away with the only reason that makes giant companies stay in Israel - its highly trained manpower. That is the true Israeli resource. A country that wants to remain at the cutting edge of the technology revolution has to do everything in its power to preserve that resource.