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July 1-15, 1999 My CT Almanac Column |
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SOFTWARE EXPORTS Is Vision $100 b Achievable? We are probably the best positioned amongst all countries to become
"the software factory of the world". But success creates its own Saurabh Srivastava
The early growth of the software industry was under the most difficult circumstances. Policies and procedures were cumbersome and unhelpful. There was no STP scheme; EOU approvals took ages; import duty on software was 160 percent; RBI approvals for overseas travel mirrored the BOP problems of those days; setting up overseas offices or subsidiaries or doing overseas acquisitions meant excruciatingly slow and painful approval processes; high speed communication links were simply not available. To cap it all there was no understanding in government or banking circles about software and virtually no financing was available. Therefore, the industry embarked on the only available option for software export i.e. onsite consulting or "body shopping" as it is somewhat unfortunately called. The limitations of the environment made this the only viable approach. This approach proved successful and established the credentials of the industry overseas. To the credit of the software industry, however, companies did not resort to short term profit taking but pursued a systematic strategy of investing for the future. They astutely and diligently leveraged their growing resources with the favourably evolving scenario regarding government policy and available infrastructure into moving up the value chain. From using informal marketing channels, the leading companies now have their own offices, subsidiaries, JVs. Some have even made acquisitions overseas. There is no doubt that the infrastructure created by many Indian companies is absolutely world class. The net result of all this has been the emergence of a world class software industry in India. Much like the Japanese auto industry some decades ago, we have reached critical mass in terms of size and international recognition. We are probably the best positioned of any country to become "the software factory of the world" in much the same way that South East Asia has dominated hardware. With the declining share of hardware in an IT solution and the substantially higher profitability of the software component, our unique positioning gives us a long term sustainable competitive advantage. But success creates its own problems. Today, China, the Philippines, Russia and many countries in Eastern Europe, Latin America and South East Asia are seeking to learn and emulate our example. To think that "imitation is the sincerest form of flattery" may be appealing. In reality, we have created our own competition: many of these countries are now less expensive than we are. Our salary costs have gone up dramatically; the quality of our infrastructure remains poor; and the costs are still high. Our success has also created concern in the developed world which constitute our primary market and many of them are resorting to restrictive trade practices in some form or another. Rather than industry and government discussing issues such as policy and procedures, our joint engagement must be with foreign governments to negotiate away such barriers in the context of the larger trade negotiations. We can also help our cause by changing our mindset. If we indeed believe we are world class players, we must stop thinking of ourselves as Indian exporting companies but more as international companies doing the bulk of their software development in India. Clearly, since we have started from a very low salary base for our people, we must reconcile to much faster galloping increases in this area than will be the case in our markets. To retain our margins, we will have to move up the value chain but, equally, focus on operational efficiencies. The government too can help by helping us reduce the relatively higher level of infrastructure costs that we incur. There has been good progress on telecom charges but we still need to invest in parallel back up power generation. The various technology parks coming up in the states will also help alleviate the current situation where companies typically have to pay a year's deposit and a year's rent in advance before moving into their four walls. One of the biggest fall outs of our success in the software industry has been the creation of another huge opportunity i.e. IT enabled services. Though somewhat unheralded, the emergence of this industry is only logical. Our success in software export was based on simple value proposition, "World call services at a less than world-class price". Clearly, this value proposition applies beyond software, to a variety of back office functions such as medical transcription, call centres, legal databases and insurance claims processing. The same competitive pressures that are leading companies to outsource software development are in operation here. Perhaps even more so as many of these functions are even less core to the company. This market is estimated to be over a whopping-trillion dollars in the next few years. And the good news is that in these areas, manpower is far more abundant than software. And this manpower is available not just in the metros. Most of the infrastructure bottlenecks, that such an industry would have faced five years ago, have already been cleaned up as a result of the focus on software exports. And the international recognition that we have received in software is going to make it far easier for companies to sell the concept of outsourcing IT enabled services to India from overseas. Another important fact to realise is that there are already 500 odd software companies in operation. So I think it is justifiable for us to have the seemingly ambitious vision of $100 billion in 2010. Considering the many opportunities that we have let slip in the past, we should spare no efforts to tap this one. Achieving this ambition would not be a cake walk. But when we do, the impact on us will be phenomenal. The writer is chairman, IIS Infotech Ltd |
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problems. Many competing countries are
learning and seeking to emulate the Indian example. 
it took IIS just Rs 2.75 crore of turnover
and 3 years of existence to make it to NASSCOM's list of the top 20 software exporters in
1991-92. Last year we crossed Rs 150 crore but today even this performance no longer
guarantees a place in NASSCOM's top 20. This fact is a measure of the success of the
Indian software industry. From reasonably modest beginnings, the Indian software industry
has grown almost 30 fold over the past 10 years to touch an estimated $4 billion in
1998-99. Our current vision of becoming a $100 billion industry by 2010 can be achieved by
simply maintaining this growth rate. Doubtless, we have earned the right to savour this
vision. 
