India as a Software Superstar

In much of the developed world, India today has a substantial part of the mindshare amongst those involved in information technology (IT) software and services. Like India's widely respected Space and Atomic Energy programs, IT presents another true-life fairy-tale of outstanding success against all odds.

India as a Software Superstar

India was an early starter in the field of IT. Visionaries like Dr. Vikram Sarabhai realized the potential of the then-emerging field of electronics and took steps to ensure the development of indigenous capabilities. In the 1970s, the creation of a separate Department within government was intended to recognize the importance of electronics and to catalyze its growth. At the same time, the setting up of the Electronics Corporation of India Ltd. (ECIL) signaled acknowledgment of the commercial potential of this sector. The withdrawal of IBM from India in the late 70's marked a new phase; the consequent growth of CMC (and other smaller, private-sector firms) laid the foundation for India's software prowess. Yet, it was many years before this was to fructify.

India as a Software Superstar

In the 1980s, the future-oriented policies of the political leadership resulted in many initiatives in the area of computerization, and computer education. This included the start of e-governance, through government intranets, computerization of land records, setting up of an Education and Research Network (ERNET), computerization of the railway reservation system, computer education in school (CLASS project), etc. Simultaneously, we saw the beginning of an explosion in private engineering colleges, especially in the South. It was these developments that served as the launchpad for later success.

In the 90s, as the IT wave engulfed the West, the demand for trained manpower far outstripped the limited supply in these countries. India not only had the skilled human power available at a low cost; their knowledge of English was a tremendous asset, especially in the biggest market - the USA. Moreover, India had the infrastructure to churn out even larger numbers of skilled people through both, its university system as well as the vast number of private training institutions that had sprung up.

Undoubtedly, the Indian diaspora ("NRIs"), particularly in the US, played an important role in the huge demand for Indian expertise. As more Indians went to the US, a virtuous cycle began, with the initial small numbers becoming a virtual flood. Obviously, this happened only because those who went proved their capabilities.

Apart from numbers and capability, this model was clearly dependent on "brain arbitrage" - "buying" brains in India for a price much higher than the local rate here, and exporting them to the US for a price much lower than the local rate there. Thus, everyone gained: the "brain"(individual), the exporting company in India; and the importing US company. Though derided as "body-shopping", there is nothing inherently wrong with this model: it is a win-win situation for all involved and is both viable and sustainable - at least until a superior competitor emerges.

Indian industry, however, from an early stage itself, was also exporting solutions, integrated software packages, and even software products. While the proportion of this was initially small, it indicated an ambition (and capabilities) to move up the "value chain". The credibility established by the early Indian programmers who went abroad was certainly important in opening the doors for more sophisticated and higher-value software exports.

A quantitative indication of the phenomenal success of the IT software and services industry is provided by the export figures: from Rs 1,000 crores in 1993-94 to Rs 11,000 crores in 1998-99, to Rs 28,000 crores last year (2000-01). This year, despite the worldwide economic slowdown, compounded by the September 11 events and their aftermath, exports are expected to grow by as much as 30%, reaching a figure of about Rs 37,000 crores. According to the NASSCOM-McKinsey study, exports would reach US$ 50 billion in 2008, and the total revenue will be US$ 87 billion. The software industry would account for as much as 35% of India's exports.

On the qualitative side, the Indian IT industry and its resounding success have created a tremendous worldwide impact. One perceptible difference, as vouchsafed by many veteran travelers, is the changed attitude towards Indian passport holders at airport immigration centers, as compared to 8 or 10 years ago. This new respect for Indians is undoubtedly due, in no small measure, to the widely-known and much-publicized success of the Indian IT industry.

Unfortunately, India's success in IT has been primarily limited to software. The story of Indian IT hardware is sad and hardly encouraging. ECIL was mentioned earlier, and there were others too in the IT hardware area two and three decades ago. A few companies and many research institutions have done some outstanding work - e.g., CDAC (Center for Development of Advanced Computing). In the 80s, it was felt that India could be a base for hardware manufacturing in the then-emerging IT area. We did get into many things - from chip design to "screw-driver" assembly - yet, the hardware industry never took off. Even those who got into the manufacturing/assembly of Personal Computers soon abandoned their efforts.

One reason for the unhappy story about hardware is probably the limited thinking and vision: we did not think of world-scale, world-class manufacturing facilities, despite a potentially huge domestic market and considerable competitive advantage enhanced by the availability of highly skilled human resources. Inward-looking government policies, that provided tariff protection to inefficient manufacturers, only made Indian hardware less competitive. Even a marginal opening up of the market decimated the Indian manufacturers. Clearly, there are many lessons to be learned from the contrasting policies, and the vastly differing results, in India's computer hardware and software industries.

In computer software, India has now achieved wide recognition and acclaim worldwide - what one may call " superstardom"- this is, of course, rather different from being a "superpower" - something that we can hardly lay claim to when we represent hardly 2% of the global market for software). The appreciation is certainly well-deserved but the question is: how do we at least stay where we are, if not build further? Much effort will be needed, in a variety of fields. This will have to include:

Continuous up-gradation of basic educational standards, right from primary level. This will have to include a strong foundation in Mathematics and English. Updating the syllabus, especially in science and technology, in schools and colleges. Often, the syllabus is so hopelessly out of date, as to be erroneous.

A major effort to ensure an up-gradation of faculty and of pedagogic methods, especially in engineering including through the use of teaching aids like computers, access to the Internet, videos, etc. These tools can accelerate and enhance learning, with obvious advantages.

Augmenting and modernizing the facilities of engineering colleges, so that we have at least 100 "IIT-class" institutions in 5 years. Today, most top IT companies limit their recruitment to 50-60 institutions, because most of the others are "sub-standard".

A major program of improving our critical infrastructure - power, roads, transportation, health and education facilities, telecommunication/connectivity - is essential. The dependence of the IT industry on them is, unfortunately, substantial. The dismal state of most of this infrastructure in most places acts as a brake on the growth of the industry.

Increasing the efficiency of public services is another key area. Delays, bureaucratic rigidities, lack of transparency, and blatant corruption are, sadly, the hallmark of many of these services. While, like infrastructure, this is a much broader issue, it impinges seriously on the software industry.

Changes in archaic rules and regulations are obviously necessary. Some initiatives have been taken by the Central and a few State governments. However, many unnecessary rules continue to exist.

Micro-electronics and biology must be the new focus areas in tertiary education. These are going to be critically important as we explore and exploit the areas of ASICs, custom-designed chips, and their testing; also for the area of bioinformatics.

Catalyzing the creation of high-quality institutes for training prospective/existing employees of ITES and Call Centre companies. Similarly, catalyzing a quality certification standard for IT-enabled service companies is a must.

In positioning the "India" brand abroad, it is essential to emphasize the sustainable quality and productivity of India's HR base, rather than focusing merely on the cost advantage. The latter is a vulnerable and temporary advantage.

Identifying new markets and potential competition (the two could, on rare occasions, be applicable to the same country). This is important if we are to continue to grow and also to protect our flanks. Studying and understanding competition is a necessary first step to overcoming it.

Building the domestic market is essential - not only as a potentially large business opportunity but also as a "testbed" for software and systems that are to be exported.

To move up the value chain and capture more of the revenues, Indian software companies need to develop capabilities (or tie up with a provider) for consulting in areas like Business Process Engineering. This is the "front-end" of the outsourcing process and providing this along with the actual outsourcing capability gives the client a one-stop integrated service of high value. Similarly, for high-value products, companies need to tie up with the extensive R&D network that exists in the country.

The software industry has ignored marketing. For long-range sustainability, it needs to invest in marketing and brand-building, ensure the "de-commodification" of services, and claim a premium on the basis of branding.

Finally, a much under-estimated - often ignored -advantage, is the ability of Indians to handle multi-cultural, multi-linguistic, multi-ethnic situations. In today's globalizing world, these abilities are critical - and they are scarce. Our multi-culturalism and multi-everything, which comes from our respect and celebration of our diversity, needs to be preserved and enhanced. In the long run, this may well be a prime advantage over other competitors who will soon match us on other dimensions of cost-effectiveness.

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