India is more than an emerging economy. Mumbai and Bangalore, together, may be the world's next alternative to Silicon Valley.
Not just a richer class, a smarter class
The data is striking. According to a recent survey by India's Tata Consultancy Services, 71% of students in the country's metropolitan areas already use PCs, and 66% of those in Bangalore -- home to tech outsourcing giants such as Mahindra Satyam (NYSE: SAY ) -- actively blog and use social media. These are the up-and-comers Microsoft founder Bill Gates was referring to in a speech at the annual NASSCOM conference in New Delhi in July.
"At first, some of the IT boom was built on low-cost labor. And, of course, as time goes on, you don't want to have that as the only differentiator and it's not a sustainable thing, because others can come along with that as well," Gates told the CEOs in attendance.
Gates said instead that Indian officials hoping to see the subcontinent host the next Microsoft should emphasize research and development (as Singapore and China have) and encourage students to pursue Ph.D. degrees.
He's right. Silicon Valley isn't just home to successful college dropouts such as Apple's Steve Jobs. Intel co-founder Gordon Moore earned his Ph.D. from Caltech. Advanced education has long played a role in the development of the tech industry on our shores. Why not in India, too?
The ABCs of a great tech market
That's what one well-known Indian entrepreneur appears to be asking. Shiv Nadar, founder and Chairman of HCL Technologies, is spearheading an effort to help poor, rural Indian children receive a free education via a program called VidyaGyan.
"We wanted to build leadership skills in students who come from rural areas, the lower income groups, those disadvantaged because of medium of instruction ... We feel intelligence is not privy to the people who speak a particular language," Nadar said in an interview with UTVi.
Notice the language Nadar uses. "Leadership skills," coming from the founder of a company that produced 102 billion rupees in revenue over the trailing 12 months, sounds a lot like "entrepreneurial skills." At the very least, Nadar seems intent on raising up a new intelligentsia in India, one capable of expanding the nation's industry and influence.
If so, he's picked a good time. Among the world's emerging nations, India is one of the most youthful; 32% of the population is under 15 years of age. Contrast that with the U.S., where 20% of the population is under 15. China is even worse off: The sub-15 crowd makes up just 19% of the people.
India is where youth and innovation are converging. Tata Consultancy employs 48,000 people, 95% of whom are 25 years old or younger. These are the subcontinent's future tech leaders.
An immigration opportunity
In years past, they might have come to the U.S. But two forces are combining to keep them home: First is the greater interest and influence of trade groups such as NASSCOM and grassroots organizations such as Nadar's VidyaGyan. Second is the political climate here.
There's wide debate over the H-1B visa program that allows skilled workers -- many from India -- to work in the U.S. for years at a time. Yahoo! (Nasdaq: YHOO ) is among the many companies known to have recruited and hired H-1B immigrants.
Prominent members of President Obama's transition team have argued in support of easing H-1B restrictions. They have a point; Indians have long played key roles in America's technology industry.
The Indus Entrepreneurs, commonly known as TiE, is a networking organization for business owners with more than 11,000 members worldwide, many of which have connections to the subcontinent. You'll find employees of Symantec (Nasdaq: SYMC ) and SAP (NYSE: SAP ) among its rolls. Applied Materials (Nasdaq: AMAT ) , First Solar (Nasdaq: FSLR ) , and Hewlett-Packard (NYSE: HPQ ) all are members of the U.S.-India Business Council.
Candidate Obama had also expressed support for the H-1B program, but only in lieu of comprehensive immigration reform. His stated goal is to see Americans earn more advanced degrees and fill positions that would otherwise go to foreign talent.
He may get his wish. For as technically engaged as India's youth are, they also aren't relying on us; 49% of respondents said they would prefer to work in India. And why not? For a smart, well-educated young person, India is still what techies like to call a "green field" opportunity -- one where barriers have yet to be built up.
How to profit from this tech boom
For now, the best way to invest in a rising tech class in India is through IBM, already one of the region's largest consultants and employers. But that should change over time. Privately held software companies are already making headway. Persistent Systems, based in Pune, is a 19-year-old contract software developer that has attracted big-name venture capital investors, such as Norwest Venture Partners and Intel Capital.
As more of these sorts of companies emerge, they'll create an IPO pipeline from India -- and opportunities to invest. For this reason and more, our Motley Fool Global Gains investment team is keeping a close watch on India's business climate.
And I do mean close. The team has traveled to Asia in each of the past three years to scout for new ideas and meet with the management of companies that pique their interest, reporting back their findings to members each time. There's also a private discussion area where the team and members together discuss stock ideas from the subcontinent. To see all these prior reports, as well as their full list of recommendations, and to get access to the private discussion area, click here. A 30-day guest pass is free.
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This article was first published on Aug. 25, 2009. It has been updated.
Fool contributor Tim Beyers had stock and options positions in Apple and a stock position in IBM at the time of publication. Intel and Microsoft are Motley Fool Inside Value picks. Motley Fool Options has recommended a covered call on Microsoft. Apple is a Stock Advisor selection. First Solar is a Rule Breakers recommendation. The Motley Fool has a disclosure policy.