Industry AnalysisIndustry AnalysisCOMPUTERCOMPUTER SOFTWARE SOFTWARE

INDUSTRY IN INDIAINDUSTRY IN INDIA

A PRESENTATION BYA PRESENTATION BY

Dr. Rana SinghDr. Rana Singh

www.ranasingh.orgwww.ranasingh.org

98118289879811828987

Singh_rana@yahoo.comSingh_rana@yahoo.com

OBJECTIVE

To analyze Indian Software IndustryTo analyze Indian Software Industry

To Compare our software export industry To Compare our software export industry with some of our competitorswith some of our competitors

To identify key issues of Govt’s IT PolicyTo identify key issues of Govt’s IT Policy

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 %

STRUCTURE OF INDIAN SOFTWARE INDUSTRY

SOFTWARE COMPANIESSOFTWARE COMPANIES

TURNKEY COMPANIESTURNKEY COMPANIES WIPRO WIPRO

INFOSYSINFOSYS

SATYAMSATYAM

PRODUCT DEVELOPMENTPRODUCT DEVELOPMENT SUBEXSUBEX

RAMCORAMCO

ADITI TALISMAADITI TALISMA

INFOSYSINFOSYS

USHA COMMUNICATIONS LTDUSHA COMMUNICATIONS LTD

CONSULTING & TRAININGCONSULTING & TRAINING HUGHES SOFTWAREHUGHES SOFTWARE

TCSTCS

ANDERSONANDERSON

NIITNIIT

PRODUCT SERVICESPRODUCT SERVICES ADITIADITI

TCSTCS

INFOSYSINFOSYS

TOP 20 SOFTWARE TOP 20 SOFTWARE COMPANIES IN INDIACOMPANIES IN INDIA

TOP TWENTY EXPORTERSTOP TWENTY EXPORTERSNASSCOM'S RANKINGS AS PERNASSCOM'S RANKINGS AS PER

EXPORT REVENUES (2000-2001)EXPORT REVENUES (2000-2001)

DISTRIBUTION OF EXPORTSDISTRIBUTION OF EXPORTS

DOMESTIC IT SOFTWARE AND DOMESTIC IT SOFTWARE AND SERVICES MARKET (1995-SERVICES MARKET (1995-

2000)2000)

INDIAN SOFTWARE INDUSTRY AS A PERCENTAGE OF INDIA'S GDP

                                                             

DEVELOPMENT FOCUS SOFTWARE EXPORTS

61%11%

2%

7%

19%

ApplicationSoftwareDevelopment

CommunicationsSoftware

Firmware

Systems SoftwareDevelopment

Consultancy

CHARACTERISTICS OF INDIAN CHARACTERISTICS OF INDIAN SOFTWARE EXPORTSSOFTWARE EXPORTS

Export of Services and not packagesExport of Services and not packages

– Lack of familiarity with the marketsLack of familiarity with the markets– Indian domestic market is a poor guideIndian domestic market is a poor guide– High costs of sales and marketingHigh costs of sales and marketing– Lack of software brand namesLack of software brand names– Only 1-5% of packages succeedOnly 1-5% of packages succeed– Needs high risk long term investmentNeeds high risk long term investment

CHARACTERISTICS OF INDIAN CHARACTERISTICS OF INDIAN SOFTWARE EXPORTSSOFTWARE EXPORTS

US Domination in Software exports marketUS Domination in Software exports market

– Might present a limitation to future growth because US share of the Might present a limitation to future growth because US share of the world market is slowly declining.world market is slowly declining.

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

Uneven Skill Divisions: Dominance of ProgrammingUneven Skill Divisions: Dominance of Programming

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

CHARACTERISTICS OF INDIAN CHARACTERISTICS OF INDIAN SOFTWARE EXPORTSSOFTWARE EXPORTS

Uneven Market Share: Economic Uneven Market Share: Economic Concentration of ProductionConcentration of Production– Out of 400 firms, top 20 export 70%Out of 400 firms, top 20 export 70%– Reputation: An Entry BarrierReputation: An Entry Barrier

Locational Concentration of ProductionLocational Concentration of Production– Availability of laborAvailability of labor– Quality of lifeQuality of life

STUDY OF OTHER MAJOR STUDY OF OTHER MAJOR SOFTWARE PRODUCING SOFTWARE PRODUCING

COUNTRIESCOUNTRIES

IRELANDIRELAND

AUSTRALIAAUSTRALIA

0

100

200

300

400

500

Revenue [IR£ million]

1998 1999 2000

Indigenous Companies Overseas Companies Total

REVENUES OF IRISH SOFTWARE REVENUES OF IRISH SOFTWARE INDUSTRYINDUSTRY

IRELANDIRELAND

Strong export biasStrong export bias– Small domestic marketSmall domestic market– 80% of all indigenous developers are active in 80% of all indigenous developers are active in

overseas markets.overseas markets.

1998 1999 2000

0%

50%

100%

Exports (As a % of total revenue)

IndigenousCompanies

OverseasCompanies

Strong product biasStrong product bias

– 40% of all Packaged Software sold in Europe is 40% of all Packaged Software sold in Europe is produced in Ireland.produced in Ireland.

– 65% of the companies are developing and/or 65% of the companies are developing and/or marketing software products.marketing software products.

REASONS FOR SUCCESSREASONS FOR SUCCESS

People with skillsPeople with skills– Young (40%) and Well EducatedYoung (40%) and Well Educated– Low employee turnoverLow employee turnover– Cooperation between industry and academiaCooperation between industry and academia

Focus for InvestmentFocus for Investment– Investments in training, research and developmentInvestments in training, research and development– Policy incentivesPolicy incentives

Technology in PlaceTechnology in Place– Advanced digital telecommunicationsAdvanced digital telecommunications

AUSTRALIAAUSTRALIA

Exports worth $2.1 billionExports worth $2.1 billion

Growth Rate 10%Growth Rate 10%

IBM Australia was the highest ranked IT&T exporterIBM Australia was the highest ranked IT&T exporter ($601m)($601m)

SOFTWARE INDUSTRYSOFTWARE INDUSTRY

GOVERNMENT POLICIES AND GOVERNMENT POLICIES AND THEIR EVOLUTION OVER TIMETHEIR EVOLUTION OVER TIME

BRIEF OVERVIEWBRIEF OVERVIEW

Before 1984: State Planned DevelopmentBefore 1984: State Planned Development

1984 - 1991: Guided and guarded 1984 - 1991: Guided and guarded liberalizationliberalization

1991 - 1998: State getting out of the way1991 - 1998: State getting out of the way

Post 1998: Complete LiberalizationPost 1998: Complete Liberalization

A BRIEF HISTORY IN TIME – A BRIEF HISTORY IN TIME – SOFTWARE POLICY PRIOR TO SOFTWARE POLICY PRIOR TO

19841984 First mention in 5-Y Plans in late 1960s & early First mention in 5-Y Plans in late 1960s & early

1970s.1970s. Electronics Commission and the DoE instituted Electronics Commission and the DoE instituted

in 1970in 1970– Allowed the import of computers on condition to Allowed the import of computers on condition to

export software above 200% of import over a period export software above 200% of import over a period of 5 years. of 5 years.

– In 1976, NRIs allowed to invest for export In 1976, NRIs allowed to invest for export commitment of 100% of imports over a period of 5 commitment of 100% of imports over a period of 5 years. years.

In retrospect, one might consider that the high In retrospect, one might consider that the high export requirements for imported computers export requirements for imported computers might have contributed towards the "export of might have contributed towards the "export of human resources" as a strategy to expand human resources" as a strategy to expand software exportssoftware exports..

1984-1990: GUIDED AND 1984-1990: GUIDED AND GUARDED LIBERALISATIONGUARDED LIBERALISATION

Software Policy of 1986 Software Policy of 1986 aimed toaimed to– promote software promote software

exportsexports– promote the integrated promote the integrated

development of softwaredevelopment of software– sirnplify the existing sirnplify the existing

proceduresprocedures– promote the use of promote the use of

computers for decision computers for decision makingmaking

– Better access to Better access to telecommunications telecommunications servicesservices

– Assistance in the training Assistance in the training and education of and education of computer software computer software personnelpersonnel

Measures UndertakenMeasures Undertaken– Liberalisation of access to Liberalisation of access to

imported inputsimported inputs– De-licensing production De-licensing production

capacity for capacity for computers/electronicscomputers/electronics

– Allowing foreign firms to Allowing foreign firms to operate 100% EoUsoperate 100% EoUs

Agencies formed/ Agencies formed/ Programs undertakenPrograms undertaken– S/W Dev. Agency in the S/W Dev. Agency in the

DoEDoE– Software Technology ParksSoftware Technology Parks– Electronics & Computer Electronics & Computer

S/w Export Promotion S/w Export Promotion CouncilCouncil

– Software export seminarsSoftware export seminars

INDUSTRY EVOLUTION OF INDUSTRY EVOLUTION OF SOFTWARE POLICY IN THE LAST SOFTWARE POLICY IN THE LAST

DECADEDECADE The appropriateness of the policy's objectivesThe appropriateness of the policy's objectives. .

– The goal of rapidly expanding exports of software and The goal of rapidly expanding exports of software and computer services via deputation?computer services via deputation?

– Reducing the % of exports in deputation contracts from the Reducing the % of exports in deputation contracts from the 80- 85% in 1990 to around 50% by 1995.80- 85% in 1990 to around 50% by 1995.

The importance of altering the composition of The importance of altering the composition of software exportssoftware exports– Low portion of value-added market with Indian firmsLow portion of value-added market with Indian firms– steps identified:steps identified:

developing long term relationships with clients and foreign developing long term relationships with clients and foreign affiliatesaffiliates

developing embedded software for hardware manufacturersdeveloping embedded software for hardware manufacturers setting up corporate service centres in India, and setting up corporate service centres in India, and constructing alliances among Indian software servicesconstructing alliances among Indian software services

INDUSTRY EVOLUTION OF INDUSTRY EVOLUTION OF SOFTWARE POLICY IN THE LAST SOFTWARE POLICY IN THE LAST

DECADEDECADE The nature of liberalisation, government The nature of liberalisation, government

support or other policy changes requiredsupport or other policy changes required – necessity of obtaining import licenses for necessity of obtaining import licenses for

equipment, equipment, – continuing tariffs on imported software under the continuing tariffs on imported software under the

open general license scheme, open general license scheme, – high export performance commitments to offset the high export performance commitments to offset the

foreign exchange cost of foreign equipment, and foreign exchange cost of foreign equipment, and – improved availability, quality, and price of inputs improved availability, quality, and price of inputs

obtained within India.obtained within India.– Development of national and international Development of national and international

protection for intelligence for intellectual property protection for intelligence for intellectual property rightsrights

ECONOMIC LIBERALISATION - ECONOMIC LIBERALISATION - 1991 ONWARDS1991 ONWARDS

New measures introduced were:New measures introduced were:– Virtual abolition of industrial licensing, Virtual abolition of industrial licensing, – The dilution of MRTP Act w.r.t. expansions/mergers The dilution of MRTP Act w.r.t. expansions/mergers – Relaxation of FERA on foreign companies holding a Relaxation of FERA on foreign companies holding a

majority stake in certain Indian operations majority stake in certain Indian operations – the abolition of import licensesthe abolition of import licenses– the lowering of customs duties. the lowering of customs duties.

Software exports were also aided bySoftware exports were also aided by– Decline in disputes over intellectual property rightsDecline in disputes over intellectual property rights– Lessening of complaints from the international s/w industryLessening of complaints from the international s/w industry– Lessening of export of certain technologies after Cold War Lessening of export of certain technologies after Cold War

endedended

PM’S IT TASK FORCE - THE NEW PM’S IT TASK FORCE - THE NEW IT POLICY OF THE IT POLICY OF THE

GOVERNMENTGOVERNMENT

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 a Global IT Superpower and a

front-runner in the age of Information Revolution. The Government of India considers

IT as an agent of transformation of every facet of human life that will bring about

knowledge based society in the twenty-first century.

MAIN FEATURESMAIN FEATURES

INFO INFRASTRUCTURE DRIVEINFO INFRASTRUCTURE DRIVE– No license fees for ISP for first 5 yearsNo license fees for ISP for first 5 years– Promotion of Hi-Tech HabitatsPromotion of Hi-Tech Habitats– Export shipment time for air cargo will be Export shipment time for air cargo will be

reduced to less than 24 hoursreduced to less than 24 hours FINANCIAL SOPSFINANCIAL SOPS

– IT Software shall be entitled for zero customs IT Software shall be entitled for zero customs duty and zero excise dutyduty and zero excise duty

– The definition of software and export turnover The definition of software and export turnover changed so as to include IT services exports to changed so as to include IT services exports to get Tax Exemption under Section 80 HHE of the get Tax Exemption under Section 80 HHE of the IT ActIT Act

MAIN FEATURESMAIN FEATURES

FINANCIAL SOPS (Contd... )FINANCIAL SOPS (Contd... )

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

with the first six months as term loan (without collateral's)with the first six months as term loan (without collateral's) From the 7th month onwards annualised Cash Flow From the 7th month onwards annualised Cash Flow

Statements shall be accepted instead of collateral's. Statements shall be accepted instead of collateral's.

– IT software and services industry shall be treated as a IT software and services industry shall be treated as a Priority Sector by banks for the next five yearsPriority Sector by banks for the next five years

– Working Capital amount increased from 400 Crores to Working Capital amount increased from 400 Crores to 1200 Crores1200 Crores

– Banks shall be allowed to participate in Venture Capital Banks shall be allowed to participate in Venture Capital fundsfunds

– Banks shall setup JVs Banks shall setup JVs for setting up of at least four different for setting up of at least four different venture capital of a corpus not less than Rs. 50 crores venture capital of a corpus not less than Rs. 50 crores

MAIN FEATURESMAIN FEATURES

GLOBAL THRUSTGLOBAL THRUST– A blanket approval for acquisition of software/IT A blanket approval for acquisition of software/IT

companies across the board for software companies across the board for software exporters exporters

– Combating Visa regulations of the recipient Combating Visa regulations of the recipient countries through a planned diplomatic strategy countries through a planned diplomatic strategy

– Enabling Indian Marketing companies to set up Enabling Indian Marketing companies to set up wholesale companies abroad.wholesale companies abroad.

– 'India Pavilions' shall be set up in several major 'India Pavilions' shall be set up in several major IT exhibitionsIT exhibitions

– 'Mega Web sites' shall be created on INTERNET 'Mega Web sites' shall be created on INTERNET for promoting marketingfor promoting marketing

MAIN FEATURESMAIN FEATURES

MANPOWER ISSUESMANPOWER ISSUES– The seven national level institutions (IITs, IISc.) shall The seven national level institutions (IITs, IISc.) shall

be encouraged to triple their output of students in IT be encouraged to triple their output of students in IT – IT Course Module shall be made a compulsory IT Course Module shall be made a compulsory

component of all Degree Coursescomponent of all Degree Courses– The setting up of Indian Institutes of Information The setting up of Indian Institutes of Information

Technology (IIIT) shall be implemented with urgencyTechnology (IIIT) shall be implemented with urgency– Promote pairing of our Universities with centres of Promote pairing of our Universities with centres of

excellence in IT in developed countriesexcellence in IT in developed countries– Specific courses in association with the Software Specific courses in association with the Software

Industry and top management institutes to provide Industry and top management institutes to provide Project Management skills and Software MarketingProject Management skills and Software Marketing

IMPACTS OF SLOWDOWNIMPACTS OF SLOWDOWN

DOWNSIZINGDOWNSIZINGCOMPANIES FORCED TO REVISE COMPANIES FORCED TO REVISE RATES RATES DOWNWARDS DOWNWARDS COMPANIES LOOKING FOR MERGERSCOMPANIES LOOKING FOR MERGERSVENTURE CAPITALISTS ARE WARY OFVENTURE CAPITALISTS ARE WARY OF INVESTINGINVESTINGSMALLER FIRMS HIT HARDER THANSMALLER FIRMS HIT HARDER THAN LARGER FIRMSLARGER FIRMSPURSUING EQUITY DEALS WITH TOPPURSUING EQUITY DEALS WITH TOP CUSTOMERSCUSTOMERS

THE ROAD AHEAD ...THE ROAD AHEAD ...

IT exports will move to the paradigm of IT exports will move to the paradigm of global manufacturingglobal manufacturing

Conditions have been created for the much Conditions have been created for the much talked about talked about Value Chain jumpValue Chain jump of of Software industrySoftware industry

Working Capital problemsWorking Capital problems for software for software exports will be easedexports will be eased

Venture capital funding will unleash the Venture capital funding will unleash the entrepreneurial talententrepreneurial talent

Quality ManpowerQuality Manpower shortage to ease out shortage to ease out Development of Development of Management SkillsManagement Skills