An example of a cross-border US / India company – Stratify

There’s been an overwhelming amount of “news” in the past year about the growth of India’s technology sector. Much of the focus has been on the significant trend of US companies outsourcing jobs to India – starting with call center and data processing type jobs but accelerating in the past year to higher-end software development, engineering, and design jobs.

As the outsourcing of jobs to India has increased, there’s been the expected political backlash. Since it’s an election year, both Bush and Kerry are taking strong positions on this issue.

Independent of my views on Bush or Kerry, I believe the resistance (or opposition) to outsourcing is a simple case of protectionism. There are endless debates on this, but I’ve always felt that protectionism was a bad idea and violated the simple American concept of “land of the free and the home of the brave” (recognize that line?).

As a venture firm, we’ve spent a lot of time thinking about this issue. About a third of our software-related companies have some sort of “activity” in India. We’ve concluded that one of the highest leverage issues we will continue to and need to be facile with is the notion of a cross-border US / India company where some of the activity of the business is based in the US and some is based in India. One of our companies – Stratify – recently had a nice article published about it titled Stratify woos Indian BPO market.. Stratify is a US (California) based company, is run by a very smart and accomplished Indian named Ramana Venkata (BS from IIT Chennai, MS from Stanford) and has a mixed US / Indian management team. Stratify has been very effective at developing part of the engineering team in India and is now directly addressing the Indian market (as well as the US market).

This is a hard problem to optimize as the natural reaction of venture firms would be to “hop on the trend”. This is dumb – a deeper, more thoughtful approach is required that is based on both a real understanding of the issues as well as experience. Entrepreneurs like Ramana help us understand this better.

  • I am glad Brad brought up outsourcing. For many months now, I have been observing the hype, the reality and the reactions with amusement, growing interest and consternation.

    Hype: Compared to the previous rounds in manufacturing & consumer goods, this latest round of outsourcing has been more stridently hyped. I can think of the following causes: 24-hour news channels on cable and the web hungry for something to say, timing – election-year at the end of a recession, Lou Dobbs v. Tom Friedman, media appeal of the educated, suburban victims of this job mugging… After the initial intense flare-up, there are a few recent reports that seem to suggest that the reality is probably a little different. Like most things, the truth is probably somewhere in the middle.

    Reality: In any capitalist economy, local or global, jobs and competencies constantly optimize in the direction of efficiency. We have gained immensely from free trade, as developing countries discovered new appetites for US products, commercial and intellectual. Even Stratify, in its own small measure, has sold software in the “developing country” of Brazil for not-insignificant dollars. We have dedicated federal agencies promoting an open-market policy, and monitoring protectionist tendencies elsewhere. Every CEO faces legitimate pressure from the Board to steadily improve efficiency. Consumers eagerly heed the siren song of “Always Low Prices!”, regardless of its implications on their community’s jobs or health benefits. Even developing countries, after opening their economies to globalization, have improved the lot of their citizenry on the whole.

    So, at a macro-economic level, we all profoundly believe in the beneficence, nay, munificence of this social philosophy. But, it is easy to forget this when an individual is personally effected in a negative manner. This is indeed human, and that individual deserves only help and support. For the society?s policy-makers to turn protectionist in response is however, shortsighted and stupid. They have to drive policy towards the greater good for the greater number. We have already seen the ineffectiveness of the Bush administration’s recent attempt at protecting the steel industry by raising tariffs and earning the ire of the steel-consuming industries, who claim to have lost more jobs than were saved by the tariffs. Protectionism or isolationism never worked and never will, only giving rise to expanding pockets of inefficiency, poverty, or worse, evil.

    Reactions: While I am a passionate Democrat, the knee-jerk reaction of Kerry & co. to this crisis has been disappointing. I was hoping for a renewed debate on how to better equip us to overcome this crisis. I was hoping for a powerful consensus on a new Marshall Plan for the US itself, with dramatic investments and improvements in our education, infrastructure, and knowledge economy. Instead, we see both parties pandering to the worst instincts in search of instant gratification.

    During my life at Intel and now at Stratify, I have had the fortune of working with brilliant and passionate folks from all over the world, driven by the exhilaration of successful innovation. If we continue to become more insular, fearful, shortsighted and selfish, I fear for the US’ ability to attract the best, or manufacture the best out of its own, to keep the fires lit under our knowledge economy.

    Bottom line: One’s ability to garner attention and tax-breaks from the government should not be metered to their contributions to the PACs and to the candidates’ war chests.

    The need-of-the-moment is not more tax-cuts disproportionately targeted at the wealthy, but a debate and an effort to ensure we will still have some wealthy folks to award tax-cuts to in the future.


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