Potential Domestic Software Clients in India
Organizations looking for software services realize that India has a massive
number of technically talented skilled professionals available at a very lower
cost. These organizations wish to use this talented workforce in order to
undergo their software projects at a lower cost. Foreign companies gain by the
lower prices while technically talented people reallocate back into the sectors
which suit their talents. This occurs because they receive comparatively higher
wages due to the increase in demand for their technical services.
clients, however, are not much clear on the capabilities of the Indian talent
to do credible, quality projects within a well-defined time frame. In simple
words, information asymmetry exists in between the providers of the software development services in India and the potential customers in foreign countries. They exactly
do not know whether the talent in India has the ability to deliver the kinds of
services or products in the manner and specifications that they required. This
becomes especially crucial in large-scale software projects where the client's organization
and profitability depends on the proper implementation and management of systems.
At the early growth of the industry, a viable domestic and local market did not
even exist which further raised the concern of potential foreign clients. In
light of these concerns, how do the overseas companies gain the information on firms
in India and find one that may closely satisfy their requirements and concerns?
have to search for them. Although foreign companies know of the cheaper technical
talent available to them overseas, they incur an additional search cost in
looking for the companies that have the abilities to satisfy their specific
requirements. If this search cost is too much high, clients may not find using
the Indian talent feasible and a mutually beneficial transaction will fail to
occur. The transaction becomes profitable only if the advantage of using the
Indian talent outweighs the cost of searching.
let's try to model how the overseas firms behave when trying to choose an Indian
company. This model will include approaches of traditional comparative
advantage models with the new concept of transaction costs involved in
searching for the suitable Indian firm. Consider a overseas firm searching for
an Indian partner to complete a software development project. Subtracting the
cost of using an Indian company from the benefit gives the gain that the
western firms obtain from using an Indian company.
what is the advantage of using an Indian company? Using classical comparative
advantage models, overseas firms use Indian software companies if the cost of a
software project is cheaper in India then in their local domestic country.
cost of doing a project in India is a function of the search effort since the
client searches for the lowest cost company and the more effort the client
spends the lower project cost company he or she is likely to find.