Off-shore Software development in India
In prospect, provided with the thinness of the more sophisticated human resources, the volatility and hostility of government policy, the unstable macro-economic environment, the lure of protected domestic markets and the adverse reputation effect of the closed economy to foreign buyers, even the simplest business of manpower supply was seen as a highly risky venture, resulting to its domination by large firms and impacted in low growth during its first decade.
The IT industry’s activities changed in the mid-1980s with the global industry’s adoption of the U-W standard. Programming became a stand-alone activity that needs no domain skills: once the system was fully specified by the overseas designer, the programmer / coders did not need to know either the hardware platform or the industry for which he was writing the programs and developing the application.
Government policy changed to a supportive stance with the election of a new Prime Minister, Rajiv Gandhi, in 1984. He reinforces new Computer Policy (NCP-1984) comprised of a package of reduced import tariffs on hardware and software (reduced to more than 60%), which led to recognition of software exports as a “de-licensed industry”, that is, henceforth eligible for bank finance but not subject to the intrusive licensing regime, permission for Overseas firms to set up wholly-owned, export-dedicated units (Texas Instruments was the first to enter in 1985) and a project assignment to set up a chain of software IT parks that would enable infrastructure at below-market costs. In 1985, all export revenue (including software exports) was exempted from income-tax.
The combination of the U-W standard and lower costs made writing programs and developing software applications in India very economical and cost-effective. The transition of work to India, though gradual, was led by considerable new entry by MNCs and domestic firms and experimentation with distinct number of activities.
·Some MNCs did R&D , wrote and design product software’s using cross-country teams such as Texas Instruments and Hewlett Packard (HP),
·Others focus on writing custom software for in-house use (such as ANZ Bank and Citigroup) and for clients;
·Domestic and local firms, such as TCS, moved from exporting programmers to outsourced customized software packages and few others started product development (such as Wipro).
·Overall, the number of software firms went from 33 in 1985 to 690 in 1991 and the share of smaller firms rose.
Not all these efforts succeeded. In particular, initially product development did not succeed. The product start-ups failed due to the shortage of venture capital and domains expertize skills. The TNCs doing product development created trans-national teams that faced daunting communications costs and intrusive regulation. As a result, product development accounted for less than 5% of exports by 1990 and reached only 8% by 1999.