Steep export curve

The software success can be attributed to a number of factors. The first is the lack of software engineers in the West. Major foreign companies have set up software research centres in India. More than 10 per cent of Microsoft employees are Indians and software exports from India crossed $3,600 million in 2000 at a growth rate of 65 per cent. It’s anybody’s guess where the peak would.

Experts like Dr Richard Heeks, a Senior Lecturer in Information Systems and Development, Institute for Development Policy and Management, University of Manchester, assume "the curve will keep growing at more than 40 per cent per year in $ terms for many years." "The gap between supply and demand is huge and shows no sign of abating — growth will, therefore, continue for Indian software," he feels.

Pratap Aggarwal, Managing Director, Inde-Dutch Systems, echoes the same views. "All the visionaries, including Bill Gates, have given software industry from India a big status and it is an opportunity for our country. Reports indicate a size of the order of $ 87 billion by 2008 A.D. The software industry would grow by about 70 to 80 per cent annually till 2005 and should retard to 40 per cent after that," he says.

A Nasscom survey indicates that out of a total revenue of Rs 24,350 crore during 1999-2000, software exports grossed at Rs 17,150 crore and the domestic software fetched Rs 7,200 crore.

Foreign companies repose confidence in the ability of India’s software companies, who have been able to overcome the problem of credibility. Today, the client base is increasing. In June last year, the market capital of listed software companies in India was pegged as $ 55 billion. With more companies to set up shop in India, this may increase further. "The future is pretty bright. A major portion of customers would be from the USA followed by Europe, Japan and the Asia-Pacific region," SVL Narayan, vice-president, corporate communications, Satyam, says.

With liberalisation, the software industry is confident of achieving the target of $ 10 billion by the next year.

Onsite and offshore work

The software component is the power plant of the Indian IT industry. It is thriving because of highly skilled manpower. Setting up a software unit has no undesirable side effects on environment and investment in the industry is not easily displaced, unlike other low-skill industries.

Much of India’s export work of custom software development is actually carried out onsite (at the clients’ base overseas) rather than offshore, i.e. here in India. According to a report, Indians abroad are developing nearly 80 per cent of the software and only 20 per cent is generated in India.
"India has built a strong name for itself as a destination for software development. As more and more computerisation takes place, more and more software needs would arise. India can definitely capitalise on the emerging opportunities," says Rajiv Kucchal of Infosys Technology.

But then the brain drain is affecting India.

While on one hand Indian software is being threatened by body shopping from China, Russia, and Sri Lanka, on the other there’s still a very large pie for which Indian firms can bid. "Indian software firms do need to haul themselves up the value chain to address some of the problems of competitors in other countries snapping at their heels. But it is not easy to ward off India. It has many advantages that its rivals don’t — first-mover advantage, size, reputation, English, a large domestic IT market, and a (fairly) supportive government. It also has the advantage of the Indian diaspora, myriad points of contact in all the world’s major economies that help to channel business," Dr Heeks adds.

However, a few like Bal Sehgal from QuarkXpress feel that physical presence has nothing to do with software development. "Good professionals have a lot of opportunities abroad. There are a lot of Indians who are not physically present but are contributing to the Indian economy," he says.

Companies with business interests in India, or out of sheer patriotism, are attempting to solder the Silicon Valley and India. A few companies fetch business from the USA and the software is then actually developed in our nation.
A few believe that India may go the Taiwan way in near future. US business houses invested in Taiwan to take advantage of low labour rates in the ’60s and ’70s. Later, in early ’90s, a lot of manpower, experienced by then, returned to their native land to boost the economy of their motherland.

Onsite programming persists because, in general, there is a risk perception among clients who are wary of capabilities and credibility of Indian software "contractors." To reduce this risk, clients prefer to develop software onsite and only "routinised," monotonous jobs are handed down to be performed offshore (in India) under strict specifications. Cost, quality and credentials are the motives for onsite work and Indian firms working onsite score well on all these fronts. For offshore assignments cost is less important while management skills and access to technology are of paramount importance. Needless to say, Indian firms score poorly in these. Further, if the contract is small, it is not economically feasible to send the manpower abroad. Though, software development projects do not require a lot of input from programmers, yet most of the workers in Indian software exports are programmers. Such a lop-sided profile encourages programming-only contracts, thereby making onsite work lucrative. Many Indians, who want to work overseas, if denied such an opportunity by one firm, would simply join another company to fulfil their desire. This forces most companies to retain work onsite.

Once an Indian company executes a few contracts for a particular client, it develops a goodwill and rapport and may then be allowed to carry out work offshore. A few companies have built such trust.

The US Government has issued tougher guidelines on work visas. Indian workers are made to take temporary work visas. The number of visas was also lowered. A large number of Indian software workers continue to undertake contract work in the USA but tougher visa rules make them work offshore. Better telecom facilities have helped and foreign clients and Indian developers can now interact on a daily basis, allowing software to be sent back and forth. More interaction means there is a reduced risk and greater control from foreign clients that encourage greater trust.

Y2K benefits

Sceptics who believed that planeloads of Y2K specialists who went to the USA would be back in India after the bug crisis was over were proved wrong.

According to a Nasscom survey during 1999-2000, solutions for Y2K revenues accounted for about 12 per cent of India’s software export. Revenues from export of Y2K software solutions were worth $ 480 million out a of total Indian software exports of $ 4 billion during this period.

The Indian software industry earned a cumulative total of $ 2.5 billion from 1996 to 1999 from Y2K solutions. The survey further says that contrary to popular belief, India’s expertise in Y2K actually helped get new customers and the completion of Y2K orders had no adverse effect on the Indian software industry. Rather, it helped India get more customers.

The American slowdown also couldn’t make a major dent in the software exports. "Indian software firms have proven remarkably adaptable to change. Y2K came and went — Indian firms benefited and then moved on to new contracts when the bug disappeared. In general, they are able to find and follow demand — where one door closes, two open. The relationship between economic slowdown and sub-contracting is not simple. It’s certainly not the case that slowdown leads to a decrease in sub-contracting: quite the opposite — slowdown often prompts US (and other) firms to increase the amount of sub-contracting they do as they scrabble desperately for ways to save money. Perversely, then, America’s pain could be India’s gain," Dr Heeks feels.

"It has not really affected the Indian IT economy. It is expected that while the overall growth in the USA may be limited, India’s share in the pie is slated to increase. And, moreover, Indian companies are moving beyond body shopping to product level development. In the next few years we will see substantial development in this space and will see lots of branded products emerging from Indian companies," Gitesh Tibrewal from Vspalsh feels.

Why South and not Punjab?

Most of the software companies are Bangalore-centric, mainly due to the abundant skilled labour drawn from a number of scientific institutions abounding in the city. Besides, the city has better quality of life to offer and better infrastructure.

"Bangalore, in fact most of the South for that matter, has an abundance of qualified and cheap manpower coupled with a high percentage of English-speaking population. The Karanataka government’s attitude is also favourable and there is a lower employee turnover as compared to the North, meaning more stability and lower recruitment and training costs," says Dinesh Aggarwal, CEO, Indiamart.com.

What chance do Punjab and other northern states stand? Can Punjab ever come up to the expectations of software companies desirous of setting up shop in this region?

"We have all that is required! A bit more on higher-end software education would add to the supply line. Chandigarh can compete with Bangalore but more autonomy is required to create a ring that would include the support of Punjab and Haryana governments,"Pratap adds.

Even the Confederation of Indian Industry (CII) has suggested the Punjab Government to augment software exports from this region. "Punjab must strive to achieve 3 per cent of the year 2005 target and for this the state exports by 2005 in this segment should be worth Rs 5000 crore," the proposal says.

"The scope for Punjab is good. This industry is all about having quality manpower, considering the number of people from this region who have moved elsewhere due to lack of opportunities. I’ll say that it has a good scope. The Punjab Government needs to build the right kind of environment as today, by default, software companies go elsewhere," Kucchal says.

There is more happy news that is making the software companies’ confidence soar. For dotcom companies, it will be business as usual. Impact, if any, may come indirectly from the market situation that will not be any different from other businesses. "The declaration that e-commerce will not be taxed, however, is a positive signal. Enhanced tax sops for software export firms operating out of SEPZs, the tax holiday extended for another five years and no tax on e-commerce could be counted as major Budget benefits," Dinesh says.

The Y2K bug, the Budget, or the American slowdown — software companies don’t seem to have suffered a scratch. For them it is business as usual, exports to be precise.

How Rs 17,150 crore of software export in 1999-2000
 was shared by the world

Major Indian cities that software companies preferred to
set up headquarters