Industry Analysis

COMPUTER SOFTWARE
INDUSTRY IN INDIA
A PRESENTATION BY
Dr. Rana Singh
www.ranasingh.org
9811828987
Singh_rana@yahoo.com
 OBJECTIVE

■ To analyze Indian Software Industry

■ To Compare our software export industry

with some of our competitors

■ To identify key issues of Govt’s IT Policy

 STRUCTURE OF INDIAN
SOFTWARE INDUSTRY
Software Activity Domestic Software Software Export
Rs. Million % of Total RS. Million % of Total
Turnkey 9855 40.9% - -
Professional Services - - 18213 46.7%
Products & Packages 11270 46.8% 4330 11.1%
Consultancy & Training 1675 6.9% 10685 27.4%
Data Processing 1250 5.2% 4290 11 %
Others 50 0.2% 1482 3.8%
Total 24,100 100 % 39000 100 %
 SOFTWARE COMPANIES
TURNKEY COMPANIES WIPRO
INFOSYS
SATYAM
PRODUCT DEVELOPMENT SUBEX
RAMCO
ADITI TALISMA
INFOSYS
USHA COMMUNICATIONS LTD
CONSULTING & TRAINING HUGHES SOFTWARE
TCS
ANDERSON
NIIT
PRODUCT SERVICES ADITI
TCS
INFOSYS
 TOP 20 SOFTWARE
COMPANIES IN INDIA
 TOP TWENTY EXPORTERS
NASSCOM'S RANKINGS AS PER
EXPORT REVENUES (2000-2001)
DISTRIBUTION OF EXPORTS
DOMESTIC IT SOFTWARE AND
SERVICES MARKET (1995-
2000)
INDIAN SOFTWARE INDUSTRY AS A
PERCENTAGE OF INDIA'S GDP
DEVELOPMENT FOCUS
SOFTWARE EXPORTS
Application
Software
Development
19% Communications
Software

7% Firmware
2%
61%
11% Systems Software
Development

Consultancy
 CHARACTERISTICS OF INDIAN
SOFTWARE EXPORTS

■ Export of Services and not packages

– Lack of familiarity with the markets

– Indian domestic market is a poor guide
– High costs of sales and marketing
– Lack of software brand names
– Only 1-5% of packages succeed
– Needs high risk long term investment
 CHARACTERISTICS OF INDIAN
SOFTWARE EXPORTS
■ US Domination in Software exports market

– Might present a limitation to future growth because US share of the

world market is slowly declining.

– Growth in other markets, such as those of Asia and Europe.

■ Uneven Skill Divisions: Dominance of Programming

– Majority of software contracts have less-skilled coding and testing work.

 CHARACTERISTICS OF INDIAN
SOFTWARE EXPORTS
■ Uneven Market Share: Economic
Concentration of Production
– Out of 400 firms, top 20 export 70%
– Reputation: An Entry Barrier

■ Locational Concentration of Production

– Availability of labor
– Quality of life
STUDY OF OTHER MAJOR
SOFTWARE PRODUCING
COUNTRIES

IRELAND

AUSTRALIA
REVENUES OF IRISH SOFTWARE
INDUSTRY

500
400
Re venue 300
[IR£ m illion]200
100
0
1998 1999 2000

In digen ous C om pan iesOvers eas C o m panies Tota l

 IRELAND
■ Strong export bias
– Small domestic market
– 80% of all indigenous developers are active in
overseas markets.

Exports (As a % of total revenue)

100%
Indigenous
50% Companies
Overseas
0% Companies
1998 1999
2000
■ Strong product bias

– 40% of all Packaged Software sold in Europe is

produced in Ireland.

– 65% of the companies are developing and/or

marketing software products.
 REASONS FOR SUCCESS
■ People with skills
– Young (40%) and Well Educated
– Low employee turnover
– Cooperation between industry and academia

■ Focus for Investment

– Investments in training, research and development
– Policy incentives

■ Technology in Place
– Advanced digital telecommunications
AUSTRALIA
SOFTWARE INDUSTRY

GOVERNMENT POLICIES AND

THEIR EVOLUTION OVER TIME
 BRIEF OVERVIEW

■ Before 1984: State Planned Development

■ 1984 - 1991: Guided and guarded

liberalization

■ 1991 - 1998: State getting out of the way

■ Post 1998: Complete Liberalization

 A BRIEF HISTORY IN TIME –
SOFTWARE POLICY PRIOR TO
1984
■ Firstmention in 5-Y Plans in late 1960s & early
1970s.
■ Electronics Commission and the DoE instituted in
1970
– Allowed the import of computers on condition to export
software above 200% of import over a period of 5 years.
– In 1976, NRIs allowed to invest for export commitment of
100% of imports over a period of 5 years.
In retrospect, one might consider that the high export
requirements for imported computers might have
contributed towards the "export of human resources"
as a strategy to expand software exports.
 1984-1990: GUIDED AND
GUARDED LIBERALISATION
■ Software Policy of 1986 ■ Measures Undertaken
aimed to – Liberalisation of access to
imported inputs
– promote software exports
– De-licensing production capacity
– promote the integrated for computers/electronics
development of software
– Allowing foreign firms to operate
– sirnplify the existing 100% EoUs
procedures ■ Agencies formed/ Programs
– promote the use of undertaken
computers for decision S/W Dev. Agency in the DoE
–
making
– Software Technology Parks
– Better access to Electronics & Computer S/w
–
telecommunications Export Promotion Council
services
– Software export seminars
– Assistance in the training
and education of computer
software personnel
 INDUSTRY EVOLUTION OF
SOFTWARE POLICY IN THE LAST
DECADE
■ The appropriateness of the policy's objectives.
– The goal of rapidly expanding exports of software and
computer services via deputation?
– Reducing the % of exports in deputation contracts from the
80- 85% in 1990 to around 50% by 1995.

■ The importance of altering the composition of

software exports
– Low portion of value-added market with Indian firms
– steps identified:
■ developing long term relationships with clients and foreign
affiliates
■ developing embedded software for hardware manufacturers
■ setting up corporate service centres in India, and
■ constructing alliances among Indian software services
 INDUSTRY EVOLUTION OF
SOFTWARE POLICY IN THE LAST
DECADE
■ The nature of liberalisation, government support
or other policy changes required
– necessity of obtaining import licenses for equipment,
– continuing tariffs on imported software under the open
general license scheme,
– high export performance commitments to offset the
foreign exchange cost of foreign equipment, and
– improved availability, quality, and price of inputs
obtained within India.
– Development of national and international protection
for intelligence for intellectual property rights
 ECONOMIC LIBERALISATION -
1991 ONWARDS
■ New measures introduced were:
– Virtual abolition of industrial licensing,
– The dilution of MRTP Act w.r.t. expansions/mergers
– Relaxation of FERA on foreign companies holding a
majority stake in certain Indian operations
– the abolition of import licenses
– the lowering of customs duties.
■ Software exports were also aided by
– Decline in disputes over intellectual property rights
– Lessening of complaints from the international s/w industry
– Lessening of export of certain technologies after Cold War
ended
 PM’S IT TASK FORCE - THE NEW
IT POLICY OF THE
GOVERNMENT
The Government of India, recognising that the impressive growth the country
has
achieved since the mid-Eighties in Information Technology is still a small proportion
of the potential to achieve, has resolved to make India Global
a IT Superpower and a
front-runner in the age of Information Revolution. The Government of India consider
IT as an agent of transformation of every facet of human life that will bring abou
knowledge based society in the twenty
-first century.
 MAIN FEATURES
■ INFO INFRASTRUCTURE DRIVE
– No license fees for ISP for first 5 years
– Promotion of Hi-Tech Habitats
– Export shipment time for air cargo will be reduced to less than 24 hours
■ FINANCIAL SOPS
– IT Software shall be entitled for zero customs duty and zero excise duty
– The definition of software and export turnover changed so as to include IT
services exports to get Tax Exemption under Section 80 HHE of the IT Act
 MAIN FEATURES
■ FINANCIAL SOPS (Contd... )

– Banks to give 25 percent of the contract value for 18 months

■ with the first six months as term loan (without collateral's)
■ From the 7th month onwards annualised Cash Flow Statements shall be
accepted instead of collateral's.
– IT software and services industry shall be treated as a Priority Sector
by banks for the next five years
– Working Capital amount increased from 400 Crores to 1200 Crores
– Banks shall be allowed to participate in Venture Capital funds
– Banks shall setup JVs for setting up of at least four different venture
capital of a corpus not less than Rs. 50 crores
 MAIN FEATURES
■ GLOBAL THRUST
– A blanket approval for acquisition of software/IT
companies across the board for software exporters
– Combating Visa regulations of the recipient countries
through a planned diplomatic strategy
– Enabling Indian Marketing companies to set up
wholesale companies abroad.
– 'India Pavilions' shall be set up in several major IT
exhibitions
– 'Mega Web sites' shall be created on INTERNET for
promoting marketing
 MAIN FEATURES
■ MANPOWER ISSUES
– The seven national level institutions (IITs, IISc.) shall
be encouraged to triple their output of students in IT
– IT Course Module shall be made a compulsory
component of all Degree Courses
– The setting up of Indian Institutes of Information
Technology (IIIT) shall be implemented with urgency
– Promote pairing of our Universities with centres of
excellence in IT in developed countries
– Specific courses in association with the Software
Industry and top management institutes to provide
Project Management skills and Software Marketing
 IMPACTS OF SLOWDOWN
DOWNSIZING
COMPANIES FORCED TO REVISE
RATES
DOWNWARDS
COMPANIES LOOKING FOR MERGERS
VENTURE CAPITALISTS ARE WARY OF
INVESTING
SMALLER FIRMS HIT HARDER THAN
LARGER FIRMS
PURSUING EQUITY DEALS WITH TOP
CUSTOMERS
 THE ROAD AHEAD ...
■ IT exports will move to the paradigm of global
manufacturing
■ Conditions have been created for the much talked
about Value Chain jump of Software industry
■ Working Capital problems for software exports
will be eased
■ Venture capital funding will unleash the
entrepreneurial talent
■ Quality Manpower shortage to ease out
■ Development of Management Skills