The internet might have had its genesis in the US military projects and later in the high physics labs like CERN, it became public in 1993. Its rise in the next three decades has been meteoric. Not even its most ardent advocates would have believed in its rise. The rise has been so swift that many are unable to keep pace with the trend. As with any technology there would be a hype following an innovation trigger. The hype would result in terms of inflated expectations, a peak of what it hits before collapsing to the troughs of disillusionment. Out of this trough emerges the slope to maturity before the technology becomes mainstream. This of course is the essence of Gartner Hype Curve but beyond the same there would new spillovers that would transform business.
As with any other technology, internet too saw inflated expectations. By the mid 1990s, it was being perceived that internet would become the foundation of business. There were many who believed business would migrate towards internet. Scholars like Porter among others argued that internet would create a new distribution mechanism rather a transformation of production. It was in this era, that the rise of e-commerce firms came on the horizon. Amazon might have been one of the early birds and perhaps the most successful, yet there were many who claimed to transform the way people procure and consume things. It was believed that people would no longer go for shopping and instead would order from home sitting in front of their personal computer (PC). There were many startups that emerged to take advantage of this. One such firm pets.com came around offering pet food to be ordered online. India too did not remain off firmament and there were firms entering to capture the Indian market.
The rise of e-commerce would inevitably mean the need for greater connectivity and thus the connectivity infrastructure has to be arranged. This needed a transformation from the data cables that existed in those days towards an optical fiber infrastructure. In the US, there were firms that emerged to offer the infrastructure required for the internet to function. This meant the optical fiber cables had to be laid across the country and across countries. This also meant that the cables if they were to connect across continents had to be laid beneath the oceans. The mammoth task was undertaken and soon the world was connected through the transcontinental, transoceanic underground, underwater optical fiber cables to facilitate this coming boom of e-commerce. Numerous firms tied with these optical fiber companies to ensure the data passed smoothly.
Yet there was something amiss and that was the unrealistic expectations about the consumer preferences. Not that the firms were wrong, but they rather were ahead of times. The euphoria aside, very few consumers would opt for online purchases with many preferring to wait till the technology achieved certain traction. Moreover, the adoption happens in cycles and there is a discrete time gap in order to jump those ‘Moore Chasm’. This implied that the sales were far beneath expectations. The people perhaps were simply not ready to accept the new changes in distribution and consumption model. The lack of revenues implied the firms begin to wind up their operations. The boom was soon followed by the bust. It seemed one of those Ponzi schemes that seem to be operation now and then. The optical fiber cables now were laid waste since there was no one who wanted to use their services. They had anticipated a certain demand patterns and perhaps they expected these demand patterns to rise with time. Yet what happened was precisely the opposite. The demand crashed and thus with it the prices.
The prices collapsed to almost zero. There was excess supply relative to demand. As the Say’s law goes, supply creates its own demand. The American firms were contemplating moving their operations abroad. The cost arbitrage would determine the location of production. Through the 1960s and 1970s, the American production had relocated itself to South East Asia or to Latin America. They now found that they could reduce the costs if they could relocate their backend services. Moreover, if they could outsource the same, they might be able to reduce the costs further. From near variable costs, they might turn into fixed operational costs with certainty in costs. This needed the firms in other places to do the work for the American firms and later the European firms. The Indian employment landscape was dominated with talent with perhaps underutilization of the same. This meant that the Indian companies would offer these services for very low prices, a fraction of what it would cost in the United States. The firms in the West began to explore outsourcing their backend operations, low end in the initial stages towards India. Bangalore had become an attractive destination for the same. Furthermore, at this stage, the data connectivity costs had reduced as mentioned above. Therefore, there were incentives too many for the American firms to respond to and move their operations to India by the means of outsourcing. It was the low end areas like medical or legal transcription that moved in first. This was followed by mortgage processing and insurance processing among other things. As the world began to recover from the economic slowdown, the outsourcing business in India began to takeoff. It was the industry that was seeing the sunrise and employment opportunities were rising fast. The salaries were relatively higher given the demand supply mismatch. Many of the voice based activities too moved to India. The fresh graduates began getting good money attracting more into the industry. This was the one which led to the consumption boom starting from the early 2000s.
The boom which began in the early 2000s expanded into new domains like knowledge process outsourcing among others. With passage of time, it was felt that the outsourcing could be beneficial in terms of reduced costs. The cost arbitrage ensured that Indian firms were placed in a strategic advantage. Aside of it, the knowledge of English along with the abundant labour pool ensured the Indian firms bag lucrative contracts. It might have been the Udupi hotel model but nevertheless created an industry of its own. The phenomenon interestingly began as an unintended consequence but now entrenched firmly in the global economic horizon.
Thoughts on Theory and Practice 