Indian software exports have grown by an annual 40 percent in recent years, as entrepreneurial firms have successfully met demands presented by downsizing, compliance with 2000, and the switch to the euro. India has shown that producing software can bring developing countries jobs, skills and income. Can other southern countries enter the market? Should they emulate India or adopt different strategic approaches?

A study from the University of Manchester reviews the international software market and the options and constraints for southern entrants.

Has the success of Bangalore’s ‘Silicon Plateau’ been over hyped? When marketing expenses and the travel costs and living allowances for staff sent to North America and Europe are discounted, total earnings may only be half of the US$2 billion commonly cited as India’s annual software income. Indians are mostly engaged in low-skill software construction and testing, which accounts for over 80 percent of earnings. Technobrain drain is a risk for companies who send staff to work with foreign clients – indeed India annually loses 15 percent of its software workers to the USA, which has undermined attempts by Indian software companies to move up the value chain. In global terms, India remains a small player: total earnings of its largest software firm are a seventh of Microsoft’s R&D budget.

There is minimal scope for Southern infopreneurs, constrained by small R&D budgets and high piracy rates, to successfully produce domestic operating systems or applications for word processing, spreadsheets and databases. The success of some developing country software firms in exploiting linguistic niches for regional languages is threatened by encroachment from major Western producers. They also face the difficulties of lack of finance for their 'intangible' products, and a 'programmer-heavy' skills profile that sees too few analysts and project managers.

But all is not doom and gloom, and other significant findings include:

• Some southern firms are negotiating the roadblocks to success, charting routes from small beginnings to higher-value work.
• Successful firms rely particularly on strong market awareness, strong marketing, and the informal networks and internal learning mechanisms that build knowledge.
• Governments are vital to the growth of software. In countries like India, Israel and Taiwan they have stimulated the local software sector by providing tax breaks, subsidies, loans, intensive investment in tertiary IT education and, in the case of Israel, links to the military.

Policies aiming to encourage local software firms must therefore recognise:

• The role of governments in developing national strategies to provide finance, skills and access to technology and knowledge.
• Reliable communications links and electricity supplies are essential in areas where software companies cluster.
• A mature software industry exporting its products requires a legal framework of intellectual property laws and enforcement (though an immature one does not).
• Over and above strategy, there is a key role for 'vision' since key visionaries have been instrumental in most of the South's software success stories.

Source(s):
‘Software strategies in developing countries’ by Richard Heeks, Development Informatics Working Paper #6, Institute for Development Policy and Management,University of Manchester, June 1999 Full document.

Funded by: Department for International Development

id21 Research Highlight: 25 April 2001

Further Information:
Richard Heeks
Institute for Development Policy and Management
Crawford House
Precinct Centre
Manchester M13 9GH
UK

Tel: +44 (0)161 275 2800
Fax: +44 (0)161 273 8829
Contact the contributor: Richard.heeks@man.ac.uk

Contact the contributor: idpm@man.ac.uk

Institute for Development Policy and Management, UK

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