Indian IT, the Bangalore Cluster and Catching Up

India was a latecomer to industrialisation but has since become a major economic power, notably in the ICT-related service industry. This essay will be outlining how the Bangalore IT cluster developed and how this demonstrates that India can catch up with industrialised countries, but through its own methods. A cluster, in this sense, refers to an agglomeration of related firms and companies that form in a geographical area in order to take advantage of mutual interests and networks. This essay will find that the Bangalore IT cluster ultimately formed as a result of skilled labour, which emerged partly as a result of state action. The necessity of needing to secure a niche in the market pushed the Bangalore IT firms to focus on a particular style of IT services that is rare in other parts of the world.

The Bangalore IT cluster pursues a labour-intensive growth strategy, taking advantage of skilled and cheap labour.[1] India has a large population of relatively skilled individuals. As the next section will explain, state institutions were responsible for the diffusion of valuable IT skills through the creation of educational facilities. This created a high population of skilled workers who were willing to work for less than foreign workers.[2] As a result, multinational corporations (MNCs) started establishing themselves in the cluster, taking advantage of a skilled workforce that could speak English.[3] This brought in increased capital and helped diffuse technology and practices that other firms in the cluster could then utilise through the movement of labour.[4] The nature of work in the cluster put workers in the position where they had to be capable of keeping up with innovation.[5]

The state had a role in the formation of the cluster due to their creation and support of institutions and the establishment of the initial public firms that helped start the initial cluster. The cluster benefits from a wide network of other firms but also educational and research institutions that provide them with a steady supply of skilled labour.[6] Urbanisation of Bangalore, since the early 20th century, has been primarily state-led, with the Indian Institute of Science being established here in 1909.[7] In the early 1950s to 1970s, the state established public sector firms specialising in telecommunications, aerospace, defence research and others. Small and medium firms started forming around these bigger firms in order to act as a support network and profit from the established business.[8] In this way, the state placed the foundations of the cluster. State initiatives to cut-back on public ventures resulted in surplus staff that were then able to enter into the private sector.[9]

The cluster represents how India will catch up with established global economies – through achieving a unique comparative advantage. IT uplifts an economy through the diffusion of efficient practices, but is fundamental to Indian development as it is cheap and easy to get ahead if one is willing to innovate.[10] Indian IT succeeds because it is fluid. It does not produce set products based on perceived market demand – it shapes itself directly around what its customers desire. Most of these firms cater to specific customer needs.[11] Foreign firms lack this sort of fluidity, leading countries like the United States to outsource much of their IT-related services to India.[12] The lack of software developers of this nature in the United States is an already apparent indicator that the Bangalore IT cluster has secured a niche in the global market. It will be able to catch up quickly due to the fact that it lacks any substantive competition. Entry to the industry by non-Bangalore firms is also hard, as the established network drives innovation, possesses necessary infrastructure and benefits from agglomeration.[13] Because of this alliance of convenience, foreign firms which seek to oppose the Bangalore cluster will be opposing not individual firms but an entire network that aids each other.

It can be difficult for late industrialisers to grow when market share is dominated by already established economies. India is a good example of how it is possible to develop, if one finds one’s own niche. This essay has shown how skilled and cheap labour contributed to the establishment of the Bangalore IT cluster, how the state helped establish this skilled labour and the foundations of the cluster through educational institutions and public sector firms and how, ultimately, this all helped India succeed as they established market share in a niche industry where there was demand but little supply.


  • Vijayabaskar, M and Girija Krishnaswamy. “Understanding growth dynamism and its constraints in high technology clusters in developing countries: a study of Bangalore, southern India.” In Innovation, Learning, and Technological Dynamism of Developing Countries, edited by Sunil Mani and Henny Romijin, 178-201.Tokyo: United Nations University press, 2004.


[1] M Vijayabaskar and Girija Krishnaswamy, “Understanding growth dynamism and its constraints in high technology clusters in developing countries: a study of Bangalore, southern India,” in Innovation, Learning, and Technological Dynamism of Developing Countries, ed. Sunil Mani and Henny Romijin (Tokyo: United Nations University press, 2004), 186.

[2] Ibid., 179.

[3] Ibid., 183.

[4] Ibid., 184. Cluster firms benefitted from employees moving from firm to firm. Firms benefitted from the diffusion of skills and practices that these ‘travelling’ employees spread.

[5] Ibid., 182.

[6] Ibid., 179.

[7] Ibid., 183.

[8] Ibid., 183.

[9] Ibid., 184.

[10] Ibid., 178.

[11] Ibid., 185.

[12] Ibid., 190.

[13] Ibid., 180.