Growth of Software Product
Development Companies in India
drawbacks that remains is the lack of domain skills arising from small domestic
and local markets, limited university
research and related educational system, and low linkages in between university
and commerce. There are many examples of nations whose domestic companies
successfully shifted to high value-added software despite lacking several supposedly
essential attributes. For instance, Israel had succeeded without a massive domestic
market (however it could be argued that it has done best in defence-related software
domain, for which it has, a large home market). Of course, the difference with
Israel was its openness to MNCs from the beginning.
product development in India (including R&D) rose from 10% of software
exports in 2000 (this is the year from which major changes in overseas
ownership rules, and telecommunications, intellectual property protection and
venture capital policy reforms began) to 25% in 2003 and revenue per employee
rose by 14% . It appears that the Indian software development industry is
acquiring domain expertise skills. Many of this is undoubtedly because of the leveling
of the playing field for MNCs and start-ups since 1999. Some has to do with a
strategy of foreign alliances being pursued by the larger domestic and local
firms. The IT industry, thus, appears to have the capability to rise up and
move the value-chain. As a result, industry leadership, currently with massive domestically-owned
software services firms offering and providing customized programming services,
will have to be shared with start-ups (diaspora-linked or funded with overseas
venture capital) and MNCs offering innovative products and services. The top 20
software exporters included 5 MNCs in 2005, up from just 2 in 2001.
and local entrepreneurship drove the IT industry’s origination, survival and
innovation during the period of time when the state used policy to promote SOEs
and to crowd out the private sector. These state policies effectively prevented
the private development of software in India. The private sector, in
collaboration with MNCs, found an innovative solution, that of exporting
this strategy had caused certain drawbacks and weaknesses such as the shortage
of domain expertize skills and project management skills to become embedded.
rapid growth of the industry, which happened in the mid-1980s, was preceded by
a paradigmatic movement in government policy from hostility to the private
sector to support for it; and maturation was also critically provided by the
modularization of the software programming function and techniques through the
establishment of Unix and the workstation in the 1982. These results led firms
to a focus on customized programming services located in Bangalore. In this
process, the industry acquired right amount of skills in managing projects remotely.
Other weaknesses, particularly the scarcity of domain expertize skills and complexities
in with coordinating cross-border projects, persisted.