Bengaluru and Hyderabad: How entrepreneurial ecosystem of two leading startup hubs emerged over decades

By the mid-1980s, both cities came to have vibrant modern industrial clusters comprising engineering and electronics industries.

• By M H Bala Subrahmanya

An important development in the recent decades noticed all over the world, particularly in developed and emerging economies, is the rapid and increasing emergence of tech start-ups. This holds good for India as well. However, unlike traditional/modern manufacturing and service enterprises, they do not emerge anywhere and everywhere. The key characteristic of these tech start-ups is that they emerge predominantly in urban areas, which have a minimum support system in the form of markets, finance, and human resources, among others.

In other words, entrepreneurship for tech start-ups gets nurtured in those locations where there is an entrepreneurial ecosystem comprising the key elements of support for entrepreneurial birth and growth. But the pertinent question is what determines the evolution of an entrepreneurial ecosystem in an economy? What does it comprise as a system? How does it nurture tech start-ups? Given its evolution, structure, and role in the promotion of tech start-ups, how to ascertain its sufficiency or adequacy for further promotion of tech start-ups to the advantage of regional economies? These issues need to be understood in-depth, if policymakers have to initiate further policy measures to strengthen entrepreneurial ecosystems in India, for the benefit of tech start-ups.

Among all the tech start-up hubs in India, Bengaluru stands apart, and Hyderabad is a close competitor with Bengaluru, for more than one reason. Both are two of the most vibrant cities globally today, and both have a significant base of Fortune 500 companies (belonging to IT & BT industries) and therefore, have a considerable “stock & flow” of S&T personnel. The ever-increasing working population is largely comprised of an educated workforce who are tech-savvy. Bengaluru is a repeatedly recognized global start-up hub, whereas Hyderabad is an “upcoming” start-up hub.

Given this backdrop, it would be appropriate to probe how did entrepreneurial ecosystems emerge in these two cities? What historical factors facilitated its evolution? What do these ecosystems comprise as a structure? What role do they play in the emergence of tech start-ups and their subsequent lifecycle? Are these two ecosystems matured enough to promote tech start-ups in a big way, throughout their lifecycle? If not, what do they lack with reference to an “ideal ecosystem” that is feasible in the Indian context? Would it be possible to see a large-scale emergence, stability, and accelerated growth of tech start-ups to become “global giants” in these two ecosystems, similar to Silicon Valley of the US?

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The origin of the entrepreneurial ecosystem of Bengaluru can be traced back to India’s independence in August 1947 and that of Hyderabad to its integration with India in 1948. At this point in time, both the cities were non-entities on the global scale and were mere city centers (of trade and industry) at the national level. However, public policies to establish key Central Public Sector Undertakings led to the beginning of their six-decade-long journey to become todays’ globally known tech start-up hubs. This was soon followed by the emergence of supportive Small & Medium Enterprises (located in newly set up and dispersed industrial estates) and the establishment of public and private higher education institutions.

As a result, by the mid-1980s, both cities came to have vibrant modern industrial clusters comprising engineering and electronics industries. Further, both the cities became the nucleus of “modern industry, modern education, and S&T personnel” in the country. Obviously, educated labour started flowing towards these cities to build their careers. This led to the entry and growth of IT followed by BT industries in Bengaluru, whereas BT followed by IT industries in Hyderabad. The positive role of public policies in these developments was crystal clear. While private industry (supported by a responsive regional government) played a major role in the subsequent emergence of IT cluster in Bengaluru in the late 1980s and thereafter, the pro-active role of the regional government (positively responded by private industry) was evident in the emergence and growth of IT cluster in Hyderabad in the late 1990s and after. This was followed by the emergence of an “R&D affiliates cluster” in Bengaluru in the late 1990s onwards, whereas it took at least half a decade more for the emergence of such a cluster in Hyderabad.

Thus, overall, three distinct but overlapping phases can be seen in the laying of the foundation for the evolution of a “visible entrepreneurial ecosystem” for tech start-up hubs in Bengaluru and Hyderabad. But circumstances favored Bengaluru more than Hyderabad, which enabled the former to have a clear edge over the latter in gaining recognition as a “Hub of Tech Start-ups” in India and beyond.

M H Bala Subrahmanya is a Professor, Department of Management Studies at the Indian Institute of Science. Views expressed are the author’s own.