productive outflow of skills
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PRODUCTIVE OUTFLOW OF SKILLSXiang BiaoPublished online: 25 Jun 2008.
To cite this article: Xiang Biao (2007) PRODUCTIVE OUTFLOW OF SKILLS, Asian Population Studies,3:2, 115-133, DOI: 10.1080/17441730701499876
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PRODUCTIVE OUTFLOW OF SKILLS
What India and China can learn from
each other
Xiang Biao
Since the topic of ‘brain drain’ was introduced to the United Nations’ debates in the late 1960s,
policy thinking on skilled migration has shifted its focus from discouraging emigration in the
1970s to encouraging returns in the 1980s, and to facilitating ‘brain circulation’ since the 1990s.
This paper, based on a comparison between China and India in the Information Technology (IT)
industry, suggests that how the highly skilled leave the home country in the first place is equally
important as how they return or contribute back through transnational connections. IT
professionals’ migration from India with minimum government intervention may have more
sustainable developmental effects than aggressive government programmes in China aimed at
promoting return and transnational relations. This is because the migratory process of the Indian
IT professionals is built into the dynamics of the global high-tech industry. By comparison, many
programmes in China are dissociated from industry despite the heavy investment from the
government. But the Chinese programmes may be more conducive for the development of basic
research. In short, a proper mix of government policy and market mechanism seems a key to
achieving sustainable brain circulation.
KEYWORDS: skilled migration; India; China; ‘body shopping’; government policies; high-tech
industry
Since the topic ‘brain drain’ was introduced to the United Nations (UN) debates in
the late 1960s, there have been paradigmatic changes in academic research as well as
policy thinking on skilled migration. The earliest focus was to discourage brain drain and
to compensate migrant sending countries by means such as brain drain taxation
(Bhagwati 1976; Bhagwati & Wilson 1989). The second line of thinking was to encourage
return. A series of UN documents in the 1970s identified the return of skilled migrants as
an important strategy for development.1 Since the late 1990s, scholars have proposed
such notions as ‘brain circulation’, ‘scientific diaspora’ (Meyer & Brown 1999) and the
‘diaspora option’ (Lowell 2001), which is closely linked to the new academic interest in
transnationalism. The new thinking implies that a professional residing overseas may
contribute more to the home country than he/she would by returning permanently. This is
because by staying overseas, the professional could follow the latest developments in
science and technology and could thus transfer the knowledge back home through
transnational networks (e.g. Saxenian et al. 2002; Saxenian 2004). This transnational
approach has made noticeable impacts on policies. For example the International
Organization for Migration initiated a new programme ‘Migration for Development in
Asian Population Studies, Vol. 3, No. 2, July 2007ISSN 1744-1730 print/1744-1749 online/07/020115-19– 2007 Taylor & Francis DOI: 10.1080/17441730701499876
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Africa’ (MIDA, Migrations pour le Development en Afrique in French) in 2000 to replace the
earlier return programme. While the return programme regarded ‘reintegration’ of the
returnees to their home countries as a key objective and returnees’ ‘re-emigration’ as a
failure, MIDA encourages temporary and even ‘virtual’ returns (by means such as tele-
working and tele-teaching).
The general trend of the development in thinking is thus to minimize government
intervention in out-migration, and instead to focus more on encouraging emigrants to
contribute back to home countries after migration. Based on a comparison of China and
India, this paper argues that how the highly skilled migrate out in the first place is equally
important as how they return and how they are connected backward to the homeland. At
least in the Information Technology (IT) industry, brain circulation with minimum
government intervention in India seems more effective and sustainable than the heavily
invested government programmes in China aimed at promoting return and transnational
connections. This is because the Indian migratory process*how they leave* is built into
the dynamics of the global high-tech industry. Thus, my overall policy recommendation is,
in addition to attracting emigrants back and keeping in touch with them, governments
should also consider facilitating and even cultivating productive outflows through
industrial and human resource policies.
China and India are widely hailed as the paragons in tapping on diaspora resources
for development. An article in Foreign Policy goes so far as to suggest that the different
profiles of their diasporas have affected the development strategies at home: ‘[w]ith the
help of its diaspora, China has won the race to be the world’s factory. With the help of its
diaspora, India could become the world’s technology lab’ (Huang & Khanna 2003, p. 78).
The spectacular growth of India’s IT industry is often cited as a typical example of
diaspora’s developmental effect. But a closer examination suggests that the commonly
presumed causal relation between the existence of IT diaspora and development in India
may be questionable. The IT boom in India is in fact accompanied by large-scale outflow,
rather than return, of IT professionals. In 2002, 64,980 Indians were granted H-1B visas, the
special work permit of the United States for highly skilled temporary migrants, far
exceeding the second largest country of origin, China (18,841) (US Citizenship and
Immigration Services 2003, p. 153). More strikingly, 47,477 of the Indian H-1B visa holders
were computer-related professionals, making up 63 per cent of all computer-related H-1B
visa holders, while only 5357 Chinese H-1B visa holders were in the same occupations (US
Citizenship and Immigration Services 2003, p. 153). Across the Atlantic, Indians constituted
78 per cent of all the foreign IT professionals entering the UK in 2002 (Clarke & Salt 2003,
p. 572), and Chinese made up only about two per cent of all engineers and technologists,
within which IT professionals is only a part (Clarke & Salt 2003, pp. 570, 572). Moreover, the
majority of the Indian IT diaspora are very recent emigrants, who migrated only after the IT
industry in India took off. The return rate has been in fact low*the highly influential
Indian National Association of Software and Services Companies (Nasscom) estimated in
2002 that 3.7 per cent of the IT professionals working in India between 2002 and 2003
were returnees and the percentage would drop to 3.3 per cent in the 2004�2005 period
(cited in Chanda & Sreenivasan 2006, p. 228). The absolute number of returnees may
increase in the coming years, but evidently the return is induced by the fast developing IT
industry in India rather than its cause.
By comparison, the most noticeable development among the Chinese scientific
diaspora is exactly the opposite, namely the ‘reverse brain drain’ (Zweig 2006). The
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number of returnees fluctuated between 4000 and 10,000 per year in the second half of
the 1990s, unexpectedly jumped to 30,000 in 2000, and has remained at the level of above
10,000 since.2 According to the Chinese Ministry of Education, a total of 180,000 overseas
Chinese professionals with foreign degrees returned between 1978 and 2003 (Miao 2003).
Returnees have attracted so much attention that they have become a special social group,
‘sea turtles’ as they are called*a Chinese nickname whose pronunciation is the same as
the shorthand for ‘return from overseas’ in Chinese. Among these returnees, according to
an official estimate, 70 per cent are IT professionals, mostly graduates who had just
completed IT-related courses overseas.3 In contrast to the impressive return flows is the
moderate development in the IT industry. Software exports from China in 2005 were
projected to be merely US$ 3.5 billion (Chinese Ministry of Information Industry 2006),
compared to US$ 23.4 billion that India was expected to achieve in the fiscal year of 2006
(Nasscom 2006). How, then, do Indian IT professionals contribute to their homeland by
leaving, and why have their Chinese counterparts not made a comparable impact in spite
of returning?
This paper seeks to work out this puzzle by reviewing the historical evolution and
the political economy of the skilled migrations from China and India. Differing from most
existing literature on skilled migration that relies on documentary study and aggregate
data, this paper is primarily based on my firsthand field information accumulated over the
last five years. I had conducted fieldwork on the migration of Indian IT professionals in
Sydney (January 2000 to June 2001), Andhra Pradesh (mainly in the capital city Hyderabad,
from June to September 2001), and New Delhi (September to October 2001), and I have
been following the situation since. From the beginning of 2004, I have carried out field
research in Beijing and north-eastern China (Shenyang city of Liaoning province and
Changchun in Jilin) on the migration of the skilled and particularly on government
programmes aimed at encouraging cooperation between overseas professionals and
domestic institutions.4 As skilled migrants are heterogeneous and no all-encompassing
overview and comparison would be possible, this paper focuses on IT professionals.
Indian IT Professionals: ‘Body shopping’ and industrialdynamics
Immediately after independence, the Nehruvian development agenda resulted in a
large pool of professionals in India and attracted quite a few pre-eminent scientists back
from overseas (Krishna & Khadria 1997, pp. 353�358).5 In the late 1970s, the economic
situation was worsening and the politically promoted image of science and technology
started losing its shine. Compounded by the relaxation of immigration policies in major
Western countries, India started suffering from ‘brain drain’. Eighty-eight per cent of all
emigrants from India in the 1971�1975 period were professionals (Chakravartty 2000, p. 6).
The partial economic liberalization in the 1980s6 attracted a number of IT professionals
back from overseas to set up businesses (Lateef 1997); some emigrant professionals also
played a role in developing India’s incipient IT industry* for example by helping with the
establishment of the Citicorp Overseas Software Ltd, a Citibank owned branch, in Mumbai
in 1985, and the subsidiaries of Texas Instruments and Hewlett-Packard in Bangalore
in1986 and 1989 respectively (Lateef 1997). But these return flows and transnational
connections were largely peripheral for the development of the IT industry that was strictly
subjected to the economic planning and regulation of the Indian state. As a whole, the
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migration of Indian IT professionals and the development of the IT industry in India were
separate processes, a situation similar to that in China today.
The Indian IT industry started booming only in the late 1990s when a large number
of IT firms were set up to engage in global business. IT firms integrated themselves into
the global market not so much through diaspora networks, but mainly by sending IT
professionals to the West through a practice known in the industry as ‘body shopping’.
Body shopping originally meant the practice whereby a software service firm provides
labour to a client to implement a particular programme. The Indian IT industry started
body shopping as early as 1974 when Tata Consultancy Services (TCS) was set up as the
first export-oriented software service company. But the body-shopping business devel-
oped a new pattern and grew into a much larger scope in the late 1990s whereby firms
(which I will refer to as ‘body shopping consultancies’) recruited IT professionals in order to
farm them out, without forming any employment relation with the professionals. In the
United States, there were estimated to be hundreds of agents specializing in temporary
Indian IT workers in Northern California, and perhaps over a thousand across the country
at the turn of the century (Lubman 2000). Body shopping serves as the dominant channel
by which the new Indian IT diaspora is being formed.
There are both technical and institutional reasons for body shopping becoming the
dominant mode of mobility. The widening application of internet technologies in the late
1990s enabled corporations to decentralize their production and management to an
unprecedented extent, producing huge demands for IT workforce for installing and
maintaining the system. More importantly, since software packages had to be customized
for the specific needs of different projects, it became necessary for IT professionals to
move from one on-site project to another. The ‘financialization’ of the high-tech industry
in the late 1990s, whereby industry ups and downs were determined by stock market
impulses, made large-scale hiring and firing an everyday event. The IT industry had thus
needed not just a sufficient supply of skills but a mobile workforce so that it could respond
to market fluctuations with minimum time lag.
The specialized recruitment of Indian IT employees through body shopping also
operated against a deep-rooted institutional background. On the one hand, governments
in developed countries have been rationalizing policies to facilitate the immigration of IT
professionals since the early 1990s. But on the other hand, governments still impose
certain restrictions on companies in order to protect local labour and minimize any
possible burdens on the states’ welfare system. In Australia, for example, it is technically
illegal to sponsor the entry of foreign workers without confirmed job openings and for the
sponsors not to pay these workers even when they are not working. At the same time,
however, IT corporations require a completely smooth flow of immediately available short-
term skilled labour. Body shopping removed the friction caused by state regulation by
circumventing it: body-shopping consultancies in India and their associates in destination
countries work together to bring IT professionals as their own employees, put them on the
bench, and place them out immediately once job openings came out. Thus, unlike the
conventional recruitment agents who introduce employees to employers, body-shopping
consultancies manage employees for the employers. This enables corporations to select
and dispose of IT professionals anytime, yet without creating any burden to the host
society. Thus, the body shopping mobility is generated, shaped and conditioned by, and in
turn serves, the dynamics of the global IT industry.
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Body Shopping as a Launching Pad for Transnational Business
In order to appreciate further how Indian IT professionals’ migration is linked to
industrial dynamics, we should recognize the fact that body shopping is not only a
springboard to enter the global labour market, but also serves as a launching pad for
aspiring entrepreneur professionals to start businesses of their own on a transnational
scale. Forming a sharp contrast to the general image of Indian diaspora, young Indian IT
workers are highly entrepreneurial. One of my informants, who went to Sydney through
body shopping in 1999, told me that he had ‘something burning in the heart, a sort of
anger’ to run a business of his own. He had registered two companies by early 2001, one
of them for body shopping. That body shopping developed such a self-perpetuating
mechanism*those migrated through body shopping set up new body shopping
businesses to bring more IT professionals to the global market* is first of all due to its
low entry barrier that in turn has to do with the general pattern of the business. A key
feature of the body-shopping business is the ‘agent chain’ structure. Body-shopping
consultancies do not act individually, but are associated with a series of recruitment
agents of different sizes. In the chains, body-shopping consultancies focus on recruiting IT
professionals from India and managing them in Sydney, particularly when they are
unemployed (i.e. on the bench). Big agents accept the IT professionals provided by body-
shopping consultancies because it is highly cost effective compared to recruiting workers
from overseas themselves. Body-shopping consultancies have advantages in recruiting
and managing workers due to their widespread networks with India. This agent chain
structure makes it relatively easy for the Indian IT professionals to start body shopping*simply by tying themselves to bigger agents.
Apart from functioning as a launching pad for starting businesses, body shopping
also facilitates the growth of various IT businesses. In Australia, many Indian-run IT firms
ventured to body shopping in the 1990s not because they see great value in the business
per se, but because they hoped to use body shopping to sustain their other operations.
Most of the IT professionals had set up their business as software service firms*to design,
implement and maintain programs for clients*and had intended to eventually produce
software packages. But they soon faced the problem of marketing. Apart from the
considerable financial resources required*the outlay for successfully marketing a
software program being perhaps four times higher than for developing the program*penetrating to the mainstream market in Australia also necessitates strong local networks,
which the IT professionals often lacked. Thus, as an informant put it, since it is difficult to
develop branded software products, they moved to the business of ‘branded’ labour*a
brand that has been actively developed by IT companies in India, Indian-run IT firms
overseas, Indian IT professional associations, as well as the Indian government.
In Sydney, many firms are hybrids of a labour placement agent, a software services
provider, a software development house, and sometimes an IT training institute. (This
hybrid nature is part of the reason why the firms normally refer to themselves as
‘consultancies’.) There are important synergies between body shopping and other
businesses. For example, the Australian immigration authorities treat personnel who
could help increase local skills, such as technology instructors, much more favourably in
visa applications than normal employees, thus body shopping consultancies could
relatively easily apply to sponsor IT professionals under the guise of instructors while,
indeed, using them as instructors or in software development as they are waiting for
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placement. Body shopping also facilitates the entry into the market of other IT services and
products. One Indian veteran of body shopping in Sydney explained why he had quit his
well-paying job in a large software development corporation to set up his own body-
shopping consultancy:
Software development is a very responsible job. If a company outsources a task to you,
they must trust you a lot . . .How can you be sure about other people (when
outsourcing)? The first option is go for big names, like Lucent or Anderson. They are
very expensive. The second option is go for relationships. If we put a person in the
client’s company, we can talk to them regularly, then we can have relationships and they
can trust us. Even for very big Indian companies, placement still makes up 60 per cent of
their revenues. Why? Relationships! This is the best way for us [software companies] to
get into the market.
Body shopping seems a typical example of what Kuznetsov and Sabel (2003) call the
‘open migration chains’. ‘Open migration chains’ refers to the sequences of educational or
job opportunities which allow a migrant to move to progressively complex educational
and job tasks necessary to work in the global environment (Kuznetsov & Sabel 2003, p. 1).7
Body shopping not only enables Indian IT professionals to climb up the job ladder, but
also enables them to transform themselves from ‘techies’ to entrepreneurs.
However, not everything is as rosy as most recent media reports portray, and body
shopping entails costs for many. Body-shopping consultancies in India take commissions
from the overseas employers or larger placement agents, but they make the profit mainly
by charging the IT professionals whom they send overseas. The contribution from IT
professionals not only helps with capital accumulation, but also rescued IT consultancies
during the market slowdown starting in late 2000. An extreme but widespread practice
was that body-shopping consultancies diversified their business into training and software
development and then sold the jobs that they themselves created to unemployed IT
professionals. The professionals thus became ‘fee-paying employees’ by buying jobs. A six-
month position went for Rs.100,000 (US$ 2270) in Hyderabad. During this period, the
worker was paid a monthly stipend of Rs.2500�3000 (US$ 65), which means the net price
for the job was Rs.85,000�92,000 (US$ 2000) plus interest.8 After the six months, a worker
would either be ‘absorbed’ by the consultancy as an employee or have to go home. Body-
shopping consultancies benefited greatly from selling jobs for their own businesses. ACPT,
a consultancy in Hyderabad, was in crisis in early 2001 as it could not find any overseas job
opportunities or any software service projects from October 2000. The owner of ACPT
created and sold three four-month long positions for Rs.70,000 (US$ 1600) each in
February. Since the US economy at that time was predicted to recover in July 2001, the IT
professionals were hoping to be sent to the United States soon by buying the positions.
Two more positions were sold in April and another three in June. These employees not
only brought in a sufficiently large amount of cash to stave off closure, but, more
importantly, also enabled the firm to successfully venture into the business of software
program development. ACPT secured two software development projects from the
Andhra Pradesh state government and one from a local bank, because the clients were
charged very low prices and not asked for any payments until the projects were
completed*all made possible by the fee-paying labour. Furthermore, ACPT even
experimented with software package development, a breakthrough undertaking for any
IT company. But the owner was not worried about the costs at all because the labour he
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relied on paid for itself; as he blatantly put it: ‘If we can sell it [the package], it’s the best;
if we can’t, it is fine. We have nothing to lose . . .When I train them [the workers], when
I place them, when I give them the references, I can always charge them.’ Similarly, fee-
paying IT employees facilitated firms to enter the international market by enabling the
firms to offer to conduct projects for foreign companies at no cost. InfoGlobal Ltd., a
medium-sized company in Hyderabad, made the most out of job selling among all the
body-shopping consultancies that I had covered. Promising to send all workers to the USA
one day, the firm sold about 20 jobs in 2001. With these takings in hand, the manager
went to Australia and secured a deal with a Melbourne-based company. When these body-
shopping consultancies move up to become technology firms, new body-shopping
consultancies emerge and bring more workers to the global market.
The multiple connections between the body shopping mobility and the global IT
business enable the Indian emigrant IT professionals to play particularly effective roles in
the development of the industry in India. It is a common strategy of body-shopping
consultancies in India to ask the IT professionals whom they have sent overseas to seek
business deals for them from abroad. Syed, a Muslim who ran a consultancy in Hyderabad,
kept up regular contact with the more than 20 IT professionals he had sent overseas, while
some laid off abroad had turned to him again for help. IT professionals also introduced
their new friends overseas who wanted to change jobs or migrate to another country, and
Syed had collected 200 resumes in this way over a year and a half. He had started sending
workers to the United Kingdom in 2000 precisely because the friend of a professional he
had sent to the United States wanted to move there. Migrant IT professionals of course
also brought back other business leads in addition to body shopping. A survey conducted
by Commander et al. (2003) on 225 software firms in India reports that only 15 per cent of
the firms interviewed considered the large outflow of IT professionals as having imposed a
major cost on their firms over the previous three years. On the contrary, over 60 per cent
of firms thought that skilled migration had been beneficial, and over 10 per cent of
respondents reported that emigrants from their firms were now customers of their firm
(Commander et al. 2003). The well-known Saxenian (1999; see also Kapur & McHale 2002)
survey on India-born IT entrepreneurs in Silicon Valley in the late 1990s found very close
connections between the IT entrepreneurs and IT firms in India. Devesh Kapur (2001)
conceptualizes the role of scientific diaspora as ‘reputational intermediaries’ in helping
integrate home countries to the world economy. Reputational intermediaries can ‘put
their reputation on the line’ while searching for partners in India for Western clients, and
ensure each side lives up to its side of the deal (Kapur 2001; Kapur & McHale 2002). Not
every diaspora group can become reputational intermediaries. Indian IT diaspora can
assume the role particularly effectively because they are insiders to both West- and India-
based businesses, partly a result of the body-shopping system.
An ‘Indian System’ in the Global IT Industry
The foregoing part of the paper has clarified that Indian IT professionals’ mobility is
inherently embedded in the global IT industry at both the macro level (body shopping as a
manifestation of the institutionalized flexible labour market on a global scale) and micro
level (body shopping as a starting point of individual technoprenures’ transnational
business). What follows delineates how the body-shopping mobility is structurally built
into the IT industry in India. The Indian IT industry has three tiers. First, there is a high tier
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sector in India, represented by companies such as Infosys, Wipro and Satyam. Second,
there are IT businesses run by Indians overseas. In California in 2000, for example, there
were more than 7000 high-tech companies run by Indians, generating an estimated US$
60 billion in sales annually (Reuters 2001). Third, there is a low tier of IT sector in India of
which India-based body-shopping consultancies are the central component. These three
parts depend on and enhance each other, thus forming what I call an ‘Indian system’ in the
global IT industry.
The connection between the high tier in India and the Indian IT businesses overseas
is more or less straightforward. Providing professionals for overseas clients is still the major
revenue source for India-based IT firms and India-based firms normally establish
connections with the global market through Indian firms overseas. In the United States,
the majority of the Indian-run IT firms, for example Mastech (now IGate), Information
Management Resources (IMR), Syntel and CBSL, adopt essentially the same business model
as that of their counterparts in India, namely providing a large pool of relatively cheap but
skilled workforce to Western clients (Arora et al. 1999, p. 20). Initially body shopping was
the main collaborative activity between the high-tier sector in India and its overseas
counterpart, and recently business process outsourcing (BPO) became increasingly
important. Although the major part of the work of BOP is in-house development in India,
considerable mobility of IT professionals is still necessary for program installation and
testing and to facilitate communication with clients. Besides commercial connections, IT
firms in India and Indian IT firms overseas are linked through professional bodies such as
Nasscom, The IndUS Entrepreneurs (TiE); alumni organizations, particularly of the IIT
alumni; ethnic associations such as American Telugu Association and Telugu Association of
North America, and government or semi-government organizations such as the Software
Technology Parks India with their overseas chapters.
The central part of the ‘Indian system’, however, is the triangular connection
between the low tier IT sector in India, the high tier sector and the overseas part. In this
triangle, the low tier informal sector and the high tier in India were not linked directly, but
were connected through a transnational circuit: body-shopping consultancies accumu-
lated resources by sending labour overseas and then moved up into the high tier in India.
This was exactly how Satyam, a star IT company in Andhra Pradesh, has grown. Figure 1
demonstrates the connections between the three parts of the Indian system.9
The triangular connection in the Indian system highlights the importance of the
migration of IT professionals. The industry was estimated to be required to send about
200,000 professionals to the United States alone to sustain its 40�50 per cent growth rate
over the period 2000�2005 (Ramesh 1999). As of 31 March, 2004, India had a total of
656,000 IT professionals and 376,000 of them, more than half, were involved in exporting
IT software and services including 57,500 migrant professionals providing services in US,
UK and Canada (Pandey et al. 2006). The H-1B programme was so vital to Wipro’s
expansion plans that it listed the possibility that the visa programme might be curtailed as
a major risk factor in disclosures to the Securities and Exchange Commission when the
company floated an initial public offering on the New York Stock Exchange in 2000
(Thompson 2001). One of India’s priorities in WTO negotiations has been to persuade the
West to relax restrictions on the migration of professionals, as clearly evidenced by a
speech by then Indian prime minister Atal Bihari Vajpayee (2001). Nasscom has long
negotiated with the US governmental and non-governmental agencies for the same
purpose. In May 2005, under the ‘requests and offers’ mode of WTO negotiations that
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requires every member state to seek market access in specific areas from other countries,
the Indian government made a formal proposal demanding that the yearly quota of H-1B
visas for the US government be increased to 195,000 from 65,000. If the request is
accepted, India would favourably consider demand from the United States and the
European Union for greater market for industrial goods, and may also grant them better
market access in services and agriculture (Economic Times 2005). The Indian state is
certainly not completely absent from the migration of the Indian IT professionals; but
instead of direct intervention, the government has used trade negotiation as a policy tool,
which constitutes an interesting comparison to the Chinese case, to which I turn now.
Chinese Student Migration and Government-Initiated ReturnProgrammes
Migrant IT professionals from China are not only smaller in number compared to
their Indian counterparts, they also migrate in a very different manner. In the late 1990s
when the West faced acute IT labour shortage, foreign companies did approach labour
recruitment agents in China for IT professionals. For example, the New York City-based
Headway Corporate Resources, a leading human resources company, tasked the state-
owned Shanghai Foreign Services Company Ltd. in 2001 to recruit Chinese IT
professionals. Shanghai Foreign selected qualified candidates and forwarded their resumes
and evaluation results to Headway, and clients in the United States tapped into Headway’s
website and carried out video interviews with the candidates in China (Chepesiuk 2001).
This practice however did not prove successful. An Australian placement manager working
at a major IT service firm in Sydney explained why such formal and ‘professional’
recruitment process does not work:
Placement is a very ‘high touch’ business . . . In a high touch business, face-to-face
communication is very important. Otherwise you can’t have good judgments [about the
candidate]. When someone calls me to apply for a job, the only thing I say is ‘let’s meet
tomorrow morning’. Nothing else. Everything is done through direct communication.
Established TNCs(e.g. Microsoft, GE)
High tier companies in IndiaHigh tier companies run
by Indians overseas
Low tier companies runby Indians overseas
Low tier companies in India
FIGURE 1
The ‘‘Indian system’’ in the global IT industry.
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Indian body-shopping consultancies were successful in the business, according to
him, because of their personal networks. Similarly, one labour company in Beijing told me
that a company has to ‘mingle with the IT circle all day’ in order to recruit suitable IT
‘techies’ quickly. But in China, only a limited number of large state-owned enterprises
(SOEs) were allowed to recruit Chinese citizens for overseas employment until 2002. These
companies normally focus on trade and large contracting projects, particularly in
construction, and have little knowledge of IT. They thus have difficulties in identifying
suitable professionals, let alone reaching out to follow the global market impulses and to
train IT professionals in advance for forthcoming job opportunities overseas. China Dalian
International Cooperation (Group) Ltd., a conglomerate set up by the Chinese government
in 1984 with the special licence for international recruitment, was approached by a
placement agent in the United States in 1998 for 100 IT professionals. Never having done
similar business before, the company could not recruit enough people and subcontracted
part of the deal to other companies, including Shenyang International Economic and
Technology Cooperation Ltd., another large, fully state-owned company. The deputy head
of the labour division of Shenyang International, young and entrepreneurial, was keen
about this business and made special effort to find 30 people, making up more than half of
the total that the US-based agent finally selected. The deputy head, now running his own
labour recruitment company (the Chinese government changed its policy in 2002 to allow
non-state-owned enterprise to enter the sector), is still very interested in IT recruitment,
but was frustrated by the lack of stability in the business. The global market is volatile, the
connections with foreign partners, developed over a long time at high costs, are often cut
off after a single business deal, and seeking suitable candidates proved tedious*all of
which problems are solved in the Indian case through the overlapping between body
shopping and other IT operations.10
The Chinese government also requires professionals to sign contracts with the
government to promise timely return after working overseas. But this agreement to return
is basically nominal and can hardly be enforced, and what concerns labour placement
companies the most is not that the IT professionals may not return, but exactly the
opposite, namely few IT professionals are able to establish firm footholds in the West and
subsequently help bring more professionals overseas. As the Chinese intermediaries have
no organic connections with the IT industry, the professionals see no point in keeping in
contact with them. A private Shanghai-based recruitment company recruited a few IT
professionals for Japanese companies in 2002, but the operator was soon disillusioned
because some of the selected professionals contacted the employer directly once they got
the leads and edged the labour company out. The company has now turned the tables,
recruiting Chinese IT professionals from overseas back to multinationals’ branches in
China. Multinationals often pay very high commissions for recruiting suitable employees
with international work experience.11
In order to understand why the Chinese case differs so much from its Indian
counterpart, we must first examine the history of the migration of the highly skilled from
China. Unlike professionals from many other countries who emigrate mainly through
labour migration schemes (either of temporary or permanent skilled migration), studying
overseas remains thus far the dominant channel of skilled emigration from China. Of the
Chinese H-1B visa holders in the United States, the majority are former students, who
studied either in the United States or elsewhere (many overseas Chinese students move to
United States to work after graduating in Europe or Japan). An official source estimates
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that as many as 60 per cent of all Chinese legal emigrants after 1978, including both skilled
and unskilled, were students and their families (Gao 2003, pp. 390, 395). A government
agency of Guangdong province in south China estimates that about one third of all legal
emigrants from the province were from universities and colleges (Gao 2003, p. 395), which
is surprising given the fact that emigration from the region is normally thought to be
driven by family reunion. In Australia, about 80�90 per cent of the 50,000 self-financing
students from China became permanent residents between 1987 and the end of the
1990s, and this is close to the total number of Chinese skilled migrants admitted over the
same period (Zhu 2000, p. 374). The formation of Chinese ‘scientific diaspora’ is therefore
basically a history of student migration.
Chinese skilled (student) migration has been directly shaped by politics in both
China and the destination country and it has little to do with global market dynamics.
Studying abroad was out of the question for most Chinese during the Cultural Revolution
until the end of the 1970s when the Ministry of Education, pushed by Deng Xiaoping,
started sending selected researchers to the West to study. The regulation was strict and
those who did not return on time would be punished. In the beginning, most students
returned on completion of study, but from 1987 the return rate dropped significantly
(Zweig & Chen 1995). The Tian’anmen incident in 1989 stood out as a crucial turning point.
As a response to the Chinese government’s military repression of the student movement,
the United States issued an executive order in 1990, followed by the 1992 Chinese
Students Protection Act, to grant Chinese students permanent residency. Other major
Western countries followed suit. As a result, 70,000 Chinese students and scholars in
the United States (including 20,000 family members), 28,500 in Australia (through the OM-
IS-399 policy) (Zweig & Chen 1995, p. 7) and 10,000 in Canada obtained their permanent
residency almost overnight (McNamara 1995, cited in Mackie 1997, p. 47).
The Tian’anmen incident however dealt only a minor blow to the Chinese policies
regarding student migration. In the early 1990s, the government shifted its stance from
preventing and punishing students overstaying overseas to encouraging their return
regardless of whether one had violated earlier regulations. In 1992, the State Council
(1992) issued a special circular to emphasize that all returned overseas students shall be
welcomed no matter what their past political attitudes were:
No further investigation shall be made about those who had made incorrect statements
or committed incorrect activities when they were overseas. Even those who had
participated in organisations that are against the Chinese government, and had damaged
the security, interests and honour of the state shall also be welcomed as long as they
have withdrawn from these organisations and no longer engage in unconstitutional and
illegal anti-governmental activities.
This was clearly referring to those who had left China due to the Tian’anmen
incident. For those who were sent overseas for their studies by their employers, the
circular urged the employers to reach out and keep in touch with them. Returnees are also
allowed to quit their previous jobs in the public sector if they prefer private or foreign-
owned enterprises. The new policy is aptly summarized as a ‘Twelve-words Approach’,
where the twelve words in Chinese*zhichi liuxue, guli huiguo, laiqu ziyou*mean
‘support study overseas, encourage return, guarantee freedom of movement’.
Chinese student migration entered yet another stage at the end of the 1990s when
both outflow and return increased rapidly. In the year 2001, 146,000 Chinese left for their
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studies overseas, representing an increase of 71.8 per cent from the previous year (People’s
Daily 2002), although the numbers declined to 100,000 for the years 2002 and 2003. Very
different from the earlier students who went overseas with sponsorships from the
government or their work units, the recent increase was mainly pushed by self-financing
students. International education agents operating on a commercial basis also mush-
roomed. First appearing in China during the end of the 1990s, by early 2001 there were at
least 309 agents in operation in Beijing alone! The outflow has indeed become market
driven, but it is driven by the market of education instead of the high-tech industry.
As for the return flow, it is induced by the rising living standards in some parts of
China, but is also directly pushed by government programmes, which I will detail in the
following section.
Policies and Government Programmes for Return
The Chinese government has issued numerous policies to encourage overseas
students to return. According to the Department of International Cooperation and
Communication of the Ministry of Education (2002), 180 relevant policies were issued from
1986 to 2002, including eight general policies issued by the State Council, 90 general
policies by the local governments, 34 regarding industrial parks exclusively for returned
overseas students (see below), seven on schooling for returnees’ children, 27 on
employment, nationality, household registration and even marriage of returnees, 14 on
customs regulations and the overseas students’ ID cards with which the returnees can
enjoy various benefits such as purchasing duty-free commodities.
The Chinese state grants returnees special honours. For example, in September
2003, six ministries held a joint conference to honour 311 outstanding returnees and 22
institutions for their success in attracting overseas professionals back. The president and
vice president addressed the event and it was widely publicized. At the first-ever National
Conference on Skilled Labour Force and Professionals held by the Central Committee of
the Communist Party and the State Council in December 2003, the president, the premier
and the vice president all delivered speeches and stressed the importance of overseas
Chinese professionals. A range of government departments have jumped onto the
bandwagon of facilitating return and establishing contacts with scientific diaspora. Affairs
related to overseas students previously fell exclusively in the purview of the Ministry of
Education, but from the 1990s, the State Council Overseas Chinese Affairs Office (OCAO),
the Ministry of Personnel, Ministry of Science and Technology, National Bureau of Foreign
Experts and even the Communist Youth League have all announced policies, experi-
mented with programmes, and even set up special offices for this. Local governments are
even more enthusiastic. For example, Guangzhou municipal government in south China
and Nanjin municipal government in the south-east organized a series of International
Talents Fairs to provide a platform for overseas professionals to seek development
opportunities in China. Indeed, attracting overseas professionals back to China has
become a special domain of the government’s work*where special policies are
designated, institutions set up, resources put in and departments compete with each
other in performance.12
It is significant to note that the Chinese government increasingly attaches
importance to temporary return. The government formally proposed the term ‘serve the
country (from abroad)’ (weiguo fuwu) to replace the old slogan of ‘return and serve the
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country’ (huiguo fuwu) in 2001, a change which suggests that physical return itself is no
longer indispensable. The government has advocated the so-called ‘dumbbell model’,
which means that a professional has affiliations in both China and overseas and moves
back and forth between the two. Concrete measures that encourage short-term return
include the Cheung Kong Scholar Programme, with an initial fund of HK$ 70 million (US$
9.5 million) donated by the Cheung Kong Holdings and a matching fund from the Ministry
of Education, which sponsors leading overseas scientists to return to China to work in
strategic research areas. The ‘One-Hundred Talent Programme’ of the Chinese Academy of
Science recruits overseas Chinese scientists, with an offer of RMB 2 million (US$ 240,000)
for three years. The Chunhui Programme launched by the Ministry of Education in 1996
has supported about 7000 overseas Chinese professionals to return to China for short
exchanges. The ‘One-Hundred PhD Holders Return Visit Delegations’, organized by OCAO,
aim at giving more exposure to young overseas professionals of developments in China.
There is no data available on the amount of financial input for these programmes.
However, we do know that the Ministry of Personnel that only recently engaged in this
work has allocated nearly RMB 200 million (about US$ 25 million) to sponsor the short-
term visits of overseas Chinese professionals alone in the last few years (Ministry of
Personnel 2003). The Ministry of Education invests about RMB 300�400 million (US$ 37�50 million) per year for its return programmes. Some local governments in prosperous
regions, such as Shanghai, Beijing, Zhejiang, Guandong, Fujian and Shandong, are more
generous than the central level in encouraging return. For example, the Guangzhou
municipal government gives RMB 100,000 (US$ 12,000) as a ‘golden hello present’
(jianmianli) to a returnee who has decided to work in Guangzhou.
The Missing Link between Migration and Industry
It would be wrong to assume that the Chinese government has neglected the
market and industry in managing its scientific diaspora programmes. On the contrary, the
government has been eager to see economic benefits consequent of the return of
overseas professionals. For example, one of the recent major initiatives has been large
conventions aimed at facilitating overseas professionals and local enterprises to set up
joint ventures. OCAO, the Ministry of Science and Technology, the Ministry of Personnel,
the Ministry of Commerce and Zhejiang province (south-east China) government hosted
the high-profile ‘Cooperation and Exchange Convention of Overseas Chinese Enterprise in
Science and Technology Innovation’ in 2002. The Convention was attended by 200
Chinese professionals from more than 20 countries and regions, 100 overseas Chinese
entrepreneurs and representatives of 34 high technology zones and more than 600
enterprises from China. The Convention was aimed at advancing the high-tech industry in
China by enhancing the synergy between established overseas Chinese communities
(particularly those in South-east Asia) who have the capital, highly educated overseas
Chinese who master technologies, and enterprises in China which are rich in production
capacity. The second Convention was held in Shenyang, the capital city of Liaoning
province. At the end of the week-long conference, 511 projects were announced to
be launched, and 366 contracts were signed, with a total potential capitalization of US$
3.2 billion.13
Another key initiative has been the setting up of special industrial parks for
returnees (huiguo liuxuesheng chuangye yuanqu) where the returnees are supposed to turn
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their research innovations into commercial projects. Returnees are offered excellent
facilities and beneficial policies. The Beijing municipal government set up 12 such parks in
Beijing by July 2004, investing about RMB 24 million (US$ 3 million) to support returnees.
The returnee firms are given a three-year tax break and an extremely favourable tax rate
for another two years. Shanghai has now six high-tech parks designated for returnees, and
every enterprise in these parks is entitled to an interest-free loan of up to RMB 150,000.
Policies in Shenzhen, Guangdong province, are even more favourable; returnees can apply
for a grant of RMB 100,000�150,000 to start up a firm once their project proposals are
approved by the municipal government.
However, given the magnitude of financial and political investments in these
initiatives, the economic outcomes have not been satisfactory. Despite the impressive
amount of capitalization of contracts signed at the Conventions, the level of technology of
many projects is low. My participatory observation of one of the Conventions and
involvement in the preparation and follow-up processes of the Convention suggest that
we must look into different actors’ motivations and strategies in order to assess the
success of the initiatives. The government is eager to see as many contracts as possible
signed, which will be presented as the key indicator of their performance to the higher
level and the public. They are thus more concerned about the volume of capitalization
than about the detailed content of each project. For many enterprises in China,
immediately profitable projects remain the priority and few have the capacity to commit
long-term investment to genuinely new technological innovations. Overseas professionals
are interested in setting up joint ventures in China often because of China’s potential
market size instead of its capacity as a base for research and development. This is
particularly true for companies which plan to launch initial public offers in the stock
market because the prospect of capturing the Chinese market of 1.3 billion potential
consumers is surely a most effective trick to attract venture capital from the rest of world.
As a result, although capital, talents and projects move to China, these inflows are not
necessarily more productive to the home country than the outflows from India, thus a
‘paradox’ of inflows.
The returnees’ business parks are not doing particularly well either. Of the 2246
enterprises set up by returnees in Beijing’s 12 parks by June 2004, for example, less than 20
per cent were profitable, and more than 20 per cent of firms close down each year.14
Nationwide, these parks thus far have yet to produce groundbreaking technologies or
leading enterprises in their fields. According to one report, most of the enterprises set up
by returnees engaged in low-level technologies (Lin et al. 2003). Some of my informants
attributed this unsatisfactory outcome to the underdeveloped finance market for the high-
tech sector in China. There is a large number of cases where professionals were attracted
back by government programmes but could not sustain their businesses due to an
underdeveloped market system, particularly the finance market. The so-called ‘Hu Hui
phenomena’ had caught the public imagination in 2004; Dr Hu Hui returned from the
United States to set up a firm with an initial capital of US$ 150,000 in the top science park,
the Zhongguancun Park in Beijing, in 2002. He developed a set of equipment for remote
medical diagnosis. Despite very generous assistance from the government, the company
faced severe problems in marketing and obtaining follow-up investment. In the end, Dr Hu
had to sell his company together with the technology to a US-based company at a price of
US$ 18 million. In other words, the fledging golden goose fed by Chinese public funds flew
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to the United States. Of course, many more enterprises are not as lucky and simply die of
shortage of funding.
Acknowledging the financial difficulties that the high-tech industry faces, the
Chinese government has set up venture funds. But since they are state funds, they are
hardly ‘venture’ in the true sense. To avoid high risks, the funds set strict conditions and
can only offer loans equivalent to a quarter to a third of the total investment required by a
project. Furthermore, the funds normally support projects with imminent commercial
prospects and tend to shun proposals for research and development (Lin et al. 2003). A
vibrant venture capital market cannot be developed without a reliable finance system,
particularly a mature stock market of the Nasdaq style, an active high-tech brokerage
system that matches investors and technologies, and exit schemes for investment. Some
of my informants even suggested that it is simply unrealistic to talk about venture capital
in China given the very problematic finance system as a whole. By comparison, the Indian
banking system is far more mature and reliable, which may provide a solid basis for the
development of local venture capital institutions.
Conclusion
This paper argues that although the exodus of Indian IT professionals reduces the
stock of human resources in India, the outflow generates revenues at home because it
helps integrate India’s IT industry with the global economy. In the Chinese case, return
flows have mainly been encouraged by the government and are not strongly embedded
in the global economy or domestic industry. Thus, the Indian IT outflows are much more
productive than the return migration to China. But this does not mean that the Chinese
experiences are a failure. Government-initiated programmes are essential for developing
strategic research in the long term. The development in the semi-conductor industry in
China, which is invested heavily by the state and assisted by scientific diaspora, is a typical
example. The development in these areas will inevitably create a strong domestic demand
for advanced software technologies and services, making the IT industry in China more
indigenous and autonomous (i.e. less susceptible to the international market) than the
Indian counterpart, which is already evident. Nor is the Indian IT system without problems.
This paper has demonstrated that the body-shopping practice is sustainable precisely
because to a great extent it serves the global industry at considerable cost to the local
society in India. Body shopping may reinforce existing social inequality; the local society
contributes resources to the global industry through investment in human capital (IT
professionals) but does not gain much back. In sum, China perhaps needs to learn from
India how to link its return programmes more closely to industrial dynamics, and India can
take note of China’s various innovative government measures in order to enhance its
capacity in basic research which does not yield immediate commercial returns. India may
also need to devise policies to maximize the benefits from IT for the wider society.
NOTES
1. These documents include: the Buenos Aires Plan of Action adopted by the United
Nations Conference on Technical Co-operation among Developing Countries in 1978,
documents of the second Latin American Regional Preparatory Meeting for the United
Nations Conference on Science and Technology for Development, held in Montevideo in
PRODUCTIVE OUTFLOW OF SKILLS 129
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December 1978, and the Vienna Programme of Action: United Nations Conference on
Science and Technology for Development in 1979. See Pires (1992).
2. Calculation based on data from the Ministry of Education (cited in Duan 2003) and Miao
(2003).
3. Interview with officials at State Council Overseas Chinese Affairs Office (OCAO) and
Chinese Association for Applied Science and Technology. April and June, 2004, Beijing.
4. My China project was partly funded by the Asian Development Bank and was carried out
in collaboration with the Chinese State Council Overseas Chinese Affairs Office (OCAO),
the key governmental organ in charge of overseas Chinese affairs.
5. Tertiary education was high on Nehru’s development agenda and as a result, the number
of universities in India increased from 37 in 1950 to 129 in 1975, and engineering colleges
increased from 58 to 179 over the same period (Krishna & Khadria 1997, p. 351). In the
year 1970 alone, India granted about 120,000 degrees in science and engineering
(p. 352). Modelled on MIT in the US, seven elite Indian Institutes of Technology (IIT) were
set up in different cities since 1950. IIT graduates became a major source of skilled
migrants at latter stages.
6. In 1984, the new Indian Prime Minster, Rajiv Gandhi, passed the New Computer Policy
immediately after going to office, which was followed by a Software Policy in 1986. These
new policies simplified licensing procedures for software firms and opened up a new
space for the development of domestic IT firms encouraging exports. See Evans (1995),
p. 6).
7. For how body shopping enables Indian IT professionals to move globally to benefit their
career, see Xiang (2004).
8. This price was much higher than that in Bangalore, see Times of India (2001).
9. The figure indicates that the Indian IT businesses overseas also include a high tier and a
low tier. The high tier is more product oriented, typically based in Silicon Valley in the
United States. The low tier is more service oriented, many being counterparts of body-
shopping consultancies in India. The boundary between the high and low tier sectors
overseas is less rigid than the one in India, and therefore I see all the firms overseas more
or less as a single part in the system.
10. Interviews with Mr Chang Huizhou, former deputy head of the labour division of
Shenyang International Economic and Technology Cooperation Ltd., 2 November 2005,
Shenyang; 23 January 2006, Beijing.
11. Interview with the company owner, 28 June, 2005, Haitian Hotel, Qingdao, Shangdong
province.
12. For a detailed review of the government policies and programmes, see Xiang (2005).
13. Press release at the second session of Cooperation and Exchange Convention of Overseas
Chinese Enterprise in Science and Technology Innovation, Shenyang, 20 July 2004.
14. Interview with an official from the Human Resources Branch, Zhongguancun Science and
Technology Parks Management Committee. Thursday, 8 July 2004. Beijing.
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E-mail: [email protected]
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