Source: Computerworld, September 15, 2003

Country Analysis: India

India invented the modern offshore outsourcing industr , and it currentl e!ports about "S# $%&'(5 )illion1 a ear in software and I* Services, with growth rates of over 2'+2& Indian software companies initiall concentrated their efforts b providing low level design, coding, testing, maintenance and support services for the e!port mar,et& -lthough, Indian companies have moved up the value chain into areas such as s stems integration, networ, and infrastructure management and s stem planning and design wor,, the do not have the name recognition that "&S& based consulting firms do. the are mainl seen as providing a low/cost, high/0ualit solution& It is estimated that "&S& companies outsourcing development to Indian software companies can see pro1ected savings of 50+ to (0+3, compared to similar priced pro1ects in the "&S& *he real strength in the Indian software Industr however, does not lie in its low/cost structure, instead, the reason that Indian firms dominate the outsource software development industr is their strong focus on 0ualit software and processes& In software development, Carnegie 2ellon "niversities Capabilit 2aturit 2odel 3C224 is a model which prescribes standards in different stages of software development that firms at a given level of maturit must have& -ll the top/tier Indian vendors are certified at C22 5evel 5, the highest level& In fact, of the 23 firms in the world that have been awarded C22/5, 15 of them are Indian 6&

*his combination of large suppl of top notch low cost labor, high 0ualit software processes, and the scale to handle all t pes of wor, has allowed the Indian software industr to become a global software powerhouse& 7owever, Indian firms now face the threat of lower cost software developers from developing nations such as 8omania, China and 8ussia& *he ne!t step for the Indian software firms is too move up the value chain and provide total solutions for their clients& 9amel , the Indian firms are now concentrating on providing I* and business consulting services to their global clients, going head to head against global giants such as -ccenture and :#S& *his leap from writing bac,/end code to ac0uiring domain ,nowledge, business e!pertise and developing reusable code is a difficult transition& It will re0uire a step up in gaining mindshare of the ,e decision ma,ers in global corporations& *he Indian software companies will have to ma,e a large investment in hiring, training and retraining their emplo ees to compete in a global mar,et& *he will also have to e!pand overseas and establish subsidiaries in the "S and :urope& -ll these moves will increase their overall costs. while at the same time fend off lower costs competitors from 8ussia, China and :astern :urope& Statistics on the Indian Software and Services Export5

Human Capital *he Indian software industr boasts a large suppl of over 615,000 I* professionals emplo ed b e!port/onl software companies;, with appro!imatel ;',000 new entrants into the I* field each ear(& -lthough wages for Indian software engineers is low compared to their <estern counterparts, Indian engineers are well paid compared to Chinese and =hilippine engineers& *he average Indian I* programmers salar is appro!imatel "S# $;,600 annuall software engineers earning over "S# $20,000 & >ne of India?s core strengths is its education s stem, both at the "niversit level and through its technical schools and I* training companies& *he Indian Institute of *echnolog 3II*4 is a collection of si! elite engineering institutes which graduate the vast ma1orit of India?s best engineers& *hese schools set the tone for the rest of the educational s stem, with its emphasis on math and science& -n additional advantage that Indian programmers have is their proficienc with :nglish, which is taught to all students starting at an earl age& )uilding up on the strength of the Indian educational s stem, training institutes, such as 9II* and -=*:C7, have sprung up to provide software training throughout India& *hese training providers have fulfilled three important functions for the Indian software industr & @irst, the have given potential programmers the facilities to learn and practice their s,ills& Second, the training institutions serve as bases for training and certification of foreign software firms such as 2icrosoft and >racle& @inall , the provide a direct avenue for cheap labor on software related contracts such as consulting and setting up I* s stems& *he combination of strong educational s stem, widel available training infrastructure and proficienc in :nglish, has allowed India to develop a large and sophisticated software talent pool for the software services industr & *he onl clouds on the horiAon for Indian software developers is that with the growth of the industr , along with the arrival of foreign entrants into India, programmer salaries will increase across the board& Telecommunications Infrastructure -lthough India?s telecommunications sector has registered rapid growth in recent ears, India has one of the lowest levels of telephone densit in the world& India has appro!imatel 5 telephone lines per 100 people, for a total of onl 6' million lines for a population of over 1 billion 10& *he main culprit in India?s dismal telecommunications infrastructure is that despite a decade of reform, state/owned companies / )S95, 2*95, and BS95 / continue to dominate India?s telecoms services mar,et& India did deregulate its telecoms services mar,et, however, due to regulator issues, there is ver little competition from the private sector&
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with advanced

Internet access is another area in which India lags its -sian neighbors, with India being the onl -sian/=acific nation with a single/digit home Internet access rate& >nl one out of 16 Indian households with telephones had Internet access via a home =C, this compares to rates of over '0+ home Internet access for some -sian/=acific countries11& *his low rate can be attributed to the high cost of =C?s and the poor telecommunications infrastructure throughout India& -lthough India has made strides in shoring up its telecommunications infrastructure, the nation still has a tremendous amount of investment that is re0uired if it wants to continue to post impressive economic growth rates& Government Support India?s central and state governments have pla ed a crucial role in promoting India?s outsource software services industr & *he central )C= government has given top priorit to the software services industr b setting up a 2inistr of Information *echnolog , and appointing a tas, force to find out the I* industr ?s re0uirements and translating those re0uirements into polic & Indian state governments have also pla ed an active role in the development and promotion of the software services industr in India& In particular, the states of -ndhra =radesh, 2aharashtra, Darnata,a and *amil 9adu have all pla ed an active part in promoting the software services industr through economic and other incentives in the establishment of foreign and domestic businesses in their respective states& Industry Association Support 9ational -ssociation of Software and Service Companies 39-SSC>24 is the preeminent software industr association representing the Indian I* industr , nationall and internationall & 9-SSC>2 has over '00 members covering small, medium and large siAed software companies, which in aggregate represent over %5+12 of the revenues generated b the Indian software and services industr & 9-SSC>2?s main role is to promote, lobb and consult with the software services industr and government regarding matters related to the Indian I* sector& >ne of the associations ,e ob1ectives include wor,ing with the Indian government in formulating national I* policies with a specific focus on I* software and services industr & -nother ob1ective includes gathering and disseminating policies, mar,et information and other statistics on the Indian I* software and services industr & 9-SSC>2 also activel wor,s with overseas governments and embassies to create easier visa and wor, permit rules for the Indian software industr & @inall , 9-SSC>2 provides a launch pad for foreign and Indian I* software and services firms to e!plore potential 1oint ventures, strategic and mar,eting alliances, etc& b organiAing business meeting with delegation of various countries&

Re ional IT Cluster

In India, software firms and emplo ment in the software industr is heavil clustered around )angalore, 7 darabad and 2umbai regions in <estern, Central and South India& *hese three urban areas account for the ma1orit of the large software firms in India, this is due to the clustering of human capital and the presence of high 0ualit research universities 3Indian Institute of *echnolog 4 in these three locations& In particular, the )angalore region has proven to be a magnet for both the ma1or Indian software firms such as <ipro and for large 2ulti/ 9ational Corporations 329C4, such as 9ortel and 5ucent&

*his site was developed for Impacts of 9ational Information *echnolog :nvironments on )usiness Dogod School of )usiness -merican "niversit , <ashington, #C& Created b Caspreet Singh *his page was last updated: #ecember 5, 2003