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An earlier version of the paper was published in the working paper series
of the Centre for Development Studies No 453 titled, Changing Leadership
in Computer and Information Services: Emergence of India as the
Current World Leader in Computer and Information Services.
Comments received from Keun Lee, Franco Malerba, Sudip Chaudhuri,
M Vijayabaskar and M Arun are gratefully acknowledged. K Kavitha
helped with the preparation of some of the data tables in the paper.
However none of them are to be implicated for any errors that may still
remain in the paper. Those are the authors sole responsibility.
Sunil Mani (mani@cds.edu) teaches at the Centre for Development
Studies, Thiruvananthapuram.
Economic & Political Weekly
EPW
DECember 6, 2014
vol xlix no 49
1 Introduction
SPECIAL ARTICLE
Five major areas of concern are discernible in the large literature on the economics and policy aspects of Indias computer
software industry (Arora et al 2001; Arora and Gambardella
2005; Arun 2013; Athreye 2005; Balakrishnan 2006; Das,
Banga and Kumar 2011; Desai 2005; Heeks 1996; Joseph 2007;
Joseph and Harilal 2001; Karnik 2012, 2013; Kite 2013; Lee,
Park and Krishnan 2013; Mani 2006; Nanda and Khanna 2010;
Saxenian 2006; Vijayabaskar and Babu 2013).
These are:
(i) Growth performance of the industry: The studies in this
area include those questioning the reliability of the data used
to compute the growth performance, as in the initial period
most of the analysts relied almost exclusively on industrygenerated data sets. This literature has also analysed the contribution of the computer software sector to the countrys
overall GDP and exports. Another issue that has been dealt
with here is the geographical spread of software production
with clusters becoming an important mode of software service
production. Some studies have also focused on explaining the
reasons for the emergence of Bengaluru as an important
software production centre in the country.
(ii) Relative role of the state and markets in explaining the success of the industry: This is another issue that has attracted
much attention and the research in this area is polarised with
analysts taking either of two positions. Some of the studies
52
In explaining Indias emergence as a leader in computer software services, following Lee, Park and Krishnan (2013), we
employ the window of opportunity framework. According to
them the break for Indian software exports came when there
was a techno-economic paradigm shift. The arrival of personal
computers and client server systems in the US during the late
1980s opened up demand for custom-made software. Indian
firms could easily take up the production of this software, as
they had a comparative cost advantage. However, this window
of opportunity would have been open to other countries as
well although India seems to be the only country that seemed
to have seized this opportunity in a big way. She was able to do
this essentially due to a number of India-specific factors which
we will discuss in one of the subsequent sections.
Of the specific factors that helped India become an important player in the arena of rendering custom-made software
services, two stand out. The first is the association that some of
the leading firms have had with well-known MNCs in the field.
This enabled the initial firm which incidentally was the only
domestic firm in the Indian software services industry to have
a foothold in the largest market for software services, namely,
the US. Having secured a place in the market, the firm was able
to assiduously improve the quality of its services to its customers which increased the firms ability to secure more contracts
in a growing market but also could find places for other
domestic firms which had sprung up.
The second is the enormous opportunity that arose from the
so-called Y2K problem. Prior to Y2K (till about 1996-97),
Indian IT firms were predominantly engaged in filling specific
skill shortages at the clients end by sending qualified people to
work for them, otherwise referred to as body shopping or
DECember 6, 2014
vol xlix no 49
EPW
SPECIAL ARTICLE
market share from less than 50% to almost 60% in 2012. Interestingly, the ratio of Indias exports to that of Irelands kept on
increasing all through the period and has been above unity
since 2005 (Figure 1). Indias CIS industry had become much
more innovative now, whether one measures innovations in
terms of the number of patents granted or in terms of going up
the value chain in being able to perform more sophisticated
software services in a wide host of high technology industries
such as R&D and engineering services. There are now many
instances of reverse innovations where innovations are first
developed in India and then transferred back to developed
countries. Admittedly, the precise measurement of the increase
in technological sophistication of the industry is fraught with
much empirical problems, the lack of availability of requisite
data being one of the most important reasons.
India
Ireland
United States
United Kingdom
Germany
China,PR:
Mainland
France
Israel
Netherlands
Canada
Others
Total
15.29
13.58
0.00
11.84
7.47
2006
2007
15.35 16.03
11.97 12.66
8.74 8.39
10.20 9.21
6.82 6.78
2008
17.09
12.19
7.85
7.19
6.54
2009
2010
2011
vol xlix no 49
1.40
1.40
1.37
1.27
1.26
1.20
1.12
1.00
0.83
0.80
* Data for 2011 and 2012 refers to telecom, computer and information services.
Source: IMF (2012).
EPW
1.52
0.87
0.85
0.79
2012
1.57
1.88 2.29
2.65
2.69 3.28 3.97 4.39
3.53
2.94 2.63
2.17
2.95 2.87 3.01 3.66
3.17
2.80 2.50
2.42
2.77 2.50 2.86 3.19
5.05
4.46 4.40 3.80 3.68 3.53 3.48 3.10
3.75
3.26 2.83 2.54 2.38 2.46 2.43 2.65
34.74 31.57 32.27 35.58 35.34 34.68 32.01 30.60
100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
1.60
0.64
0.60
2000
2001 2002 2003
2004
Source: Based on data provided in Table 1.
2005
2006
2007
2008
2009
2010
In addition to using the relative position of a country in exports of CIS as an indicator for measuring leadership, one could
also use a summary measure of leadership as exemplified by
the AT Kearney Global Services Table 2: Ranking of Top 10
in the Global Services
Location Index (GSLI). The in- Countries
Location Index (2004 and 2011)
dex, constructed for the first Rank
2004
2011
time in 2004, analyses and 1
India
India
ranks the top 50 countries 2
China
China
worldwide as the best destina- 3
Malaysia
Malaysia
Czech Republic Egypt
tions for providing outsourcing 4
Singapore
Indonesia
activities, including CIS and 5
Philippines
Mexico
support, contact centres and 6
7
Brazil
Thailand
back-office support. The 2011
Canada
Vietnam
version of the GSLI has been 8
9
Chile
Philippines
1
computed for 50 countries.
10
Poland
Chile
India has been consistently ran- Source:AT Kearney, http://www.at
ked as number one in the index kearney.com/gbpc/global-serviceslocation-index (accessed on 30 July 2013).
all through the years (Table 2).
There are two issues that may be highlighted. First, excepting for India and China, there appears to be very little correlation
between the ranks in exports and ranks in GSLI. Second,
Ireland does not appear to be a strong location for CIS according to
the GSLI. In fact, her rank in 2011 is 49 out of 50, although it
continues to be an important source of exports of software. This
may actually raise some questions about the robustness of
the GSLI.
53
SPECIAL ARTICLE
Table 4: Trends in CIS Exports from India, 1997-98 to 2012-13 (in million $)
Exports
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
CIS Exports
as a % of Service Exports as a % of Total Exports
1,760
2,626
4,015
6,341
7,556
9,600
12,800
17,700
23,600
31,300
40,300
46,300
49,705
55,460
62,212
66,080
69,439
18.67
19.92
25.56
38.98
44.08
46.24
47.64
40.93
40.93
42.42
44.61
45.54
53.00
42.13
43.71
45.36
45.84
3.90
5.53
7.54
10.27
12.22
12.88
13.74
13.78
14.50
15.44
15.71
15.93
18.01
14.51
13.76
14.61
14.77
0
-20,000
Million of $
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-40,000
-60,000
-80,000
-1,00,000
-1,20,000
-1,40,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
GDP at
Factor Cost
23,21,868
24,55,525
25,48,047
27,63,371
29,71,464
32,53,073
35,64,364
38,96,636
41,58,676
45,07,637
48,85,954
52,43,582
54,82,111
Average Annual
Percentage
Change (%)
29,821
35,990
42,249
52,774
65,175
82,515
1,01,467
1,14,868
1,39,251
1,46,730
1,53,568
1,72,332
1,94,231
1.28
1.47
1.66
1.91
2.19
2.54
2.85
2.95
3.35
3.26
3.14
3.29
3.54
20.69
17.39
24.91
23.5
26.61
22.97
13.21
21.23
5.37
4.66
12.22
12.71
54
-1,60,000
Source: Reserve Bank of India (2013).
vol xlix no 49
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SPECIAL ARTICLE
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DECember 6, 2014
vol xlix no 49
SPECIAL ARTICLE
2007
2008
2009
2010
2011
2012
2013
6.38
12.00
11.80
18.00
19.05
22.94
21.86
27.61
21.99
22.99
15.99
13.39
9.51
10.59
7.36
15.00
13.10
15.10
21.34
24.38
24.02
26.63
18.99
20.89
18.89
11.10
8.07
8.43
* The extent of tax subsidy is computed by taking the difference between the statutory
corporate income tax rate for domestic companies and the effective tax rate.
Source: Ministry of Finance, Government of India (various issues) and
KPMG, http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/
corporate-tax-rates-table.aspx (accessed on 28 July 2013).
vol xlix no 49
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SPECIAL ARTICLE
Source: Compiled from Asian Technology Information Program (2004) and company websites.
Economic & Political Weekly
EPW
DECember 6, 2014
vol xlix no 49
205.3
200
Million of $
150
149.13
150.8
132.29
106.2
100
50
0
2008
2009
Source: Reserve Bank of India (2009 to 2013).
2010
2011
2012
SPECIAL ARTICLE
There are several instances of these tree types of innovations and a sample of these are presented in Table 8.
Process
Business model
Examples
A more standard way of analysing the increasing technological capability of Indias CIS industry is to analyse some of
the innovation indicators such as patents. Since Indias patent
regime does not allow for software patents16 we rely on the
patenting of computer implemented inventions (software
patents are known by this technical term)17 by India-based
inventors at the United States Patent and Trademark Office
(USPTO) (Table 9). It is interesting to note that software patents from India now account for about a third of all patents
from Indian inventors and much of it is accounted for by foreign companies operating from India through their own affiliates. Although the number of patents secured by Indian CIS
firms has increased very much even during this short period,
as a share it has been declining. Many foreign IT majors such
as IBM, Texas instruments, Honeywell, Microsoft, Symantec,
Cisco, Adobe, Oracle, SAP, etc, do a fair amount of their IT-related
R&D in India. In fact, for some of them patents secured from
R&D done in India is increasingly an important contribution
to their total worldwide patent portfolio.
Table 9: Trends in Software Patents Granted to Indian Inventors at the USPTO
Domestic
(Number)
2008
2009
2010
2011
2012
2013
17
21
51
38
54
100
Foreign CIS
Companies
Based in India
(Number)
97
129
245
352
461
1,268
Total
Software
Patents
(Number)
Total
Patents
from India
(Number)
114
150
296
390
515
1,368
634
679
1,098
1,234
1,691
2,474
Share of
Share of
Domestic
Software
Companies in Patents in Total
Total Software Patents from
Patents (%)
India (%)
14.91
14.00
17.23
9.74
10.49
7.30
17.98
22.09
26.96
31.60
30.46
55.30
2008
2009
2010
2011
2012
2013
TCS
0
1
12
14
29
59
4
1
4
2
4
14
WIPRO
2
1
6
7
8
9
3
7
16
3
3
3
2
5
4
5
6
3
6
2
4
3
2
5
0
4
4
0
2
2
0
0
1
4
0
0
Mindtree
0
0
0
0
0
5
Total
Domestic
17
21
51
38
54
100
Type of Innovation
Infosys
500
390
400
296
300
200
150
114
100
78
30
31
52
43
0
2008
2009
Source: Compiled from USPTO.
2010
2011
2012
vol xlix no 49
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SPECIAL ARTICLE
The country is one of the most preferred locations for engineering offshoring according to a customer poll conducted by
Booz and Co.
4.4 Emergence of the Bioinformatics Industry
Total
250
220
231
230
190
200
Rs in million
252
170
145
150
100
100 80
120
101
11
146
117
113
106
85
74
72
28
181
157
120
69
50
150
40
19
50
25
Exports
Domestic
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Compiled from Annual Surveys conducted by Association of Biotech-Led Enterprises,
http://ableindia.in/able_biospectrum_surveys.php (accessed on 12 August 2013).
contracts with just one. So CIS firms which also possess skill
sets in traditional management consultancy area are likely to
be more successful. Ireland has such CIS firms which also have
strong consultancy capabilities (e g, Accenture). Major Indian
domestic CIS firms are now in the process of toning up their
consultancy capabilities.
Fourth, easy scalability in the sense that firms can enter and
exit from industry very fast and existing firms can increase
their scale of operations quite fast.
Fifth, Indian CIS firms have used cross-border M&A as a way
of enlarging the scope of their markets abroad, in dealing with
protectionist tendencies especially in the US, and in acquiring
skill sets that they do not possess and which are difficult to be
build up in the short run (Saxena and Sen 2013). For instance,
the 2008 acquisition of Axon by HCL Technologies have made
the latter possess an increased technological capability: Axons
strong business consulting and implementation capabilities
and HCLs robust global delivery-based application and infrastructure management capabilities have been combined.
Finally, the firms are also using the newer technologies of
cloud computing, social media and data analytics especially in
Big Data21 to their advantage. Also is the ability to tap into new
business models such as Software as a Service (SaaS). Given
the existence of extremely skilled humanpower at their disposal, which at the beginning looked over-qualified for the nature of low skilled operations, is now proving to the advantage
of the firms in moving up the value chain.
EPW
DECember 6, 2014
vol xlix no 49
5 Conclusions
India has emerged as a leader in CIS in 2005 and she has been
maintaining her leadership ever since that year. The window
of opportunity for India was changes in the technology of rendering IT services, initial association with MNCs and the emergence of a new market in the form of the Y2K problem. It is not
immediately clear as to who was the first leader in CIS. Both
the US, Germany and the UK are obvious candidates. However,
the mid-1990s, Ireland emerged as a clear leader if leadership
is measured in terms of exports of CIS. She maintained that
position for very nearly 10 years. The availability of high quality
software engineers and a favourable incentive policy towards
MNCs were two of the important factors which lead to the
country becoming a leader. So production of CIS was almost
entirely in the hands of foreign companies. Once these favourable factors reversed themselves and other locations like India
become more attractive, production moved to those locations.
India, which had a copious supply of the key factor input, soon
started assuming this leadership from 2005 onwards.
A key difference between India and Ireland is the fact that
production of CIS in India is concentrated in domesticallyowned companies as against MNCs in the case of Ireland.
Although it must be added that the share of MNCs in the production of IT-related services is clearly on the rise, although
quantitative estimates of it are hard to come by. The initial factors that were favourable to the growth of CIS are now slowly
disappearing with the increase in the salary levels of software
engineers. Therefore the only way for the country to maintain
59
SPECIAL ARTICLE
Notes
1 For details of the methodology involved in the
computation of the GLSI, see, Peterson, Gott
and King (2012).
2 See Arora et al (2001) and Arora and
Gambardella (2005).
3 This is Division 72 according to National Industrial Classification (NIC) 204 or Division 62 according to the more recent NIC 2008. The activities listed under this are hardware consultancy, software consultancy, data processing,
database activities, maintenance and repair of
office/accounting/computing machinery and
other computer related activities.
4 See United Nations, Department of Economic
and Social Affairs (2011), pp 112-13.
5 The source of this data is unstarred question
number 254 answered in the Lok Sabha on 23
November 2001. See http://164.100.47.132/Annexture/lsq15/9/au254.htm (accessed on 16
August 2013).
6 See NASSCOM, Industry Ranking, http://
www.nasscom.in/industry-ranking (accessed
on 12 August 2013).
7 Section 10AA of the Income Tax Act provides
11
12
13
14
real role or contributions to their respective industries. However, the role played by NASSCOM
in place the Indian CIS industry on the world
map is failry well understood.
India is supposed to be having the largest
number of CMMi Level 5 certified CIS firms in
the world. This is the highest quality certification that a company can get for software development in this world. This certification is given
by Software Engineering Institute in Carnegie
Mellon University, the US. Only about a 100
companies around the world have this certification. This certification ensures that all software developed in the company has been created using highly analysed statistical processes
which go through rigorous refinements leading
to continuous improvements.
In fact one of the leading CIS companies, when
faced with deline in its ranking among the top
CIS companies have gone on to the extend of
inviting back one of the founder entrepreneurs
as a way of reversing this fall in ranking.
iYogi, TutorVista, GetFriday and Plexion are
illustraions of this.
See also Joseph (2007).
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15 These arguments are based on Asian Technology Information Program (2004).
16 According to Section 3(k) of Indias Patent Act
1970 (amended in 1999, 2002 and 2005), a
mathematical or business method or a computer programme per se or algorithms are not
patentable in the country.
17 The definition of computer implemented invention that we employ here includes US Patent
Classes 700-707, 709, 715-725.
18 707 refers to Database and File Management or
Data Structures, 709 is in Multicomputer Data
Transferring (Electrical Computers and Digital
Processing Systems) and 717 refers to Software
Development, Installation, and Management.
19 During the five-year period, 2008 to 2012, IBM
had 437 patents from research done in India,
while it had 77 from Ireland. Similar figures for
HP are 145 from India, while only 15 from Ireland. Microsoft had 113 from India and 12 from
Ireland.
20 The source of this information is India Brand
Equity Foundation (2013).
21 Big Data refers to a collection of data sets or
chunks of information too large and complex
to be processed using traditional software
tools. By applying Big Data solutions, enterprises
are looking to sift through massive amounts of
information about users, analyse usage patterns on a real-time basis, and prepare personalised campaigns that can potentially increase
revenue per user. Apart from this, firms can
make use of Big Data insights to cut costs and
boost profit.
Local%20Assets/Documents/Thoughtware/
Compensation_Trends_Survey_2012.pdf (accessed on 31 July 2013).
Department of Electronics and Information Technology (2013): Annual Report 2012-13, Ministry
of Communications and Information Technology, Government of India, Delhi.
Department of Industrial Policy and Performance
(2013): Fact Sheet on Foreign Direct Investment,
From April 2000 to March 2013, http://dipp.
nic.in/English/Publications/FDI_Statistics/2013/india_FDI_March2013.pdf (accessed
on 12 August 2013).
Desai, Ashok (2005): India in Simon Commander
(ed.), The Software Industry in Emerging Markets (Chelenha, UK and Northampton, Massachusetts, USA: Edward Elgar), pp 32-72.
Economist (2013): Management Consulting: To the
Brainy, the Spoils, Economist, 11 May, http://
www.economist.com/news/business/21577376world-grows-more-confusing-demand-cleverconsultants-booming-brainy (accessed on
7 August 2013).
Electronics and Computer Software Export Promotion Council (2013): Statistical Year Book 2011-12,
http://www.escindia.in/uploads/software1112.pdf (accessed on 29 July 2013).
Heeks, Richard (1996): Indias Software Industry,
State Policy, Liberalization and Industrial Development (New Delhi: Sage Publications).
India Brand Equity Foundation (2013): IT and ITeS
Sector Presentation, http://www.ibef.org/download/IT-ITeS-March-220313.pdf (accessed on
28 July 2013).
IMF (2012): Balance of Payments Statistics Year
Book (Washington DC: IMF).
Joseph, K J (2007): Sectoral Innovation Systems in
Developing Countries: The Case of ICTs in
India in Bengt-keLundvall et al (ed.), Handbook of Innovation Systems and Developing
Countries Building Domestic Capabilities in a
Global Setting, pp 183-213.
Joseph, K J and K N Harilal (2001): Indias IT Export Boom, Challenges Ahead, Working Paper
Series, Number 317, Thiruvananthapuram,
Centre for Development Studies.
Karnik, Kiran (2012): The Coalition of Competitors:
The Story of NASSCOM and the IT Industry
(Delhi: HarperCollins India).
(2013): ICT and Science in Science Advisory
Council to the Prime Minister, Science in India,
Department of Science and Technology, Government of India, New Delhi, pp 173-80.
Kite, Grace (2013): Indias Software and CIS Sector,
A Teacher to Treasure, Economic & Political
Weekly, Vol 48, No 3, pp 164-72.
Lee, Keun, Tae Young Park and Rishikesha
Krishnan (2013): Catching-up or Leapfrogging
in the Indian CIS Sector: Windows of Opportunity, Path-creating, and Moving Up the
Value Chain, Development Policy Review,
forthcoming.
Mani, Sunil (2002): Government, Innovation and
Technology Policy: An International Comparative Analysis (Cheltenham, UK and Northampton, Massachusetts, USA: Edward Elgar).
(2006): Growth of New Technology-based Industries in India, the Contrasting Experiences
of Biotechnology and Information Technology
Industries, International Journal of Technology
and Globalisation, Vol 2, Nos 1 & 2, pp 200-16.
(2010): India in UNESCO Science Report 2010
(Paris: UNESCO), pp 363-77.
Mani, Sunil and Anthony Bartzokas (2004): Institutional Support for Investment in New Technologies: The Role of Venture Capital Institutions in Developing Countries in Anthony
Bartzokas and Sunil Mani (ed.), Financial
Systems, Corporate Investment in Innovation
and Venture Capital (Cheltenham, UK and
vol xlix no 49
References
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