The New International Division of Labour and the ...

The New International Division of Labour and the Indian Computer Software Industry Author(s): Salim Lakha Source: Modern Asian Studies, Vol. 28, No. 2 (May, 1994), pp. 381-408 Published by: Cambridge University Press Stable URL: http://www.jstor.org/stable/312892 . Accessed: 07/01/2015 20:44 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp

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Modern Asian Studies 28, 2 (I994),

pp. 381-408.

Printed in Great Britain.

The New InternationalDivision of Labourand

theIndianComputer SoftwareIndustry SALIM LAKHA SwinburneUniversityof Technology The literature on the new international division of labour (NIDL) highlights the rapid growth of the electronics industry in East and Southeast Asia.' By contrast, the Indian electronics industry has received less attention because of its traditional emphasis upon import substitution and relatively weak articulation with the prevailing global division of labour.2 Moreover, the application of the microchip technology in India is still in its early stages, though government interest and support for it suggest a promising future.3 Nevertheless, in computer software India is emerging as a competitive location for software development and exports. Indian software producers are confident that in the I99OS they will command a status in software comparable to that of South Korea and Taiwan in hardware.4 Over the last few years many foreign corporations have contracted out their software development to Indian companies or alternatively set up export units in India. Whilst studies of '

See, for example, J. W. Henderson, 'The New International Division of Labour and American Semiconductor Production in Southeast Asia', in C. J. Dixon, D. and the ThirdWorld Drakakis-Smith and H. D. Watts (eds), MultinationalCorporations (London: Croom Helm, I986), pp. 91-117; Rajah Rasiah, 'The Semiconductor Industry in Penang: Implications for the New International Division of Labour', Asia, 18, i (1988), pp. 24-46; and Kamal Salih, Mei Ling Journal of Contemporary 'The Changing Face of the Electronics Industry in the and Rajah Rasiah, Young Journalof Urbanand RegionalResearch, Periphery: The Case of Malaysia', International 12, 3 (I988), pp. 375-403.

2 Government of India (hereafter GOI), Department of Electronics (hereafter in SouthKorea,Taiwan,Singapore withElectronics in Indiaand Comparison DOE), Electronics and Hong Kong (New Delhi: November 1982), pp. 4-6; and K. J. Joseph, 'Growth andPolitical Weekly, Performanceof Indian Electronics under Liberalisation', Economic XXIV, 3

33 (I9 Aug. 1989), p. I9I5.

Swapna Mukhopadhyay, 'Micro-chip Technology and the Labour Market in

India', Labour and Society, 14 (I989), pp. 127 and 135. 4 Indian 26 Nov.

I988.

Express(Bombay),

oo26-749X/94/$5.oo + .oo

?

994 Cambridge University Press 38I


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NIDL have extensively commented on the growth of the semiconductor industry in Asia, parallel trends in the computer software sector have yet to be addressed. In response to rising costs, combined with a shortage of software professionals in the advanced capitalist countries, the transnational corporations (TNCs) are increasingly resorting to offshore development of computer software, especially in Asia.5 Amongst the Asian locations-Hong Kong, Singapore, South Korea, Taiwan, Thailand and Philippines-India is at the forefront because of its low production costs and large reservoir of competent scientific and technical personnel. Apart from low cost labour, some offshore locations offer additional benefits to the TNCs such as higher productivity, efficient management, and a higher rate of project completion.6 This paper examines the growth of the computer software sector in India in the context of the discussions on the NIDL. It confirms some of the propositions of NIDL theorists by arguing that the strategy of expanding the Indian software industry through exports is promoting its integration into the global division of labour. However, the industry is not merely an export enclave of the TNCs but is articulated with the local economy. To that extent, the paper supports the critics of the NIDL who argue that the newly industrialized countries (NICs) cannot be regarded as simply extensions of the NIDL.7 Importantly, the offshore development of software by the TNCs indicates a broadening of the NIDL which now extends beyond low valueadded manufacturing. The paper begins with a consideration of the literature on NIDL, followed by an account of the role of the state in promoting the computer software industry in India. Section three deals with the growth of the software sector and section four focuses on India's considerable advantage in human resources. Finally, the paper examines the market for Indian software and the significance of foreign collaboration.

5 Claudia Nalven and Paul Tate, 'Taking the Offshore Option', Datamation,35, 3

(i Feb. 1989), pp. 72-5 to 72-6. 6 Ed

Yourdon, 'U.S. Has No Monopoly on Software', SoftwareMagazine,International Edition (Nov. I989), p. 44. 7Manuel Castells, 'High Technology and the New International Division of Labour', Labour and Society, 14 (1989), p. 23.


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NIDL According to NIDL theorists, the contemporary world economy is shifting away from the traditional division of the globe consisting of a minority of industrialized nations and many primary producers, that is, the developing countries.8 Instead the NIDL is characterized by a fragmentation of manufacturing processes which are globally dispersed. It involves the relocation of certain industrial activities from the advanced countries to the less advanced ones, and is motivated by the need for cheap labour, both unskilled and semi-skilled, which is employed to perform non-complex, routine operations in factories catering for the world market.9 The underlying logic of this process is explained by the 'valorisation and accumulation of capital' which requires three conditions: the availability of a global reserve of industrial labour, the possibility for the fragmentation of production processes, and an efficient transport and communications network.10 Whilst NIDL theorists were mainly concerned with changes in manufacturing, comparable developments in computer software are currently underway. Subsequent review of NIDL propositions has considerably refined the original claims and shed light on the complexities connected wth the whole process of the globalization of manufacturing. In particular, there is increasing recognition of the broadening of export-oriented industrialization in Asia rather than its mere confinement to enclaves as claimed by NIDL theorists. Nevertheless, this manufacturing growth is based on an international division of labour where the labour intensive and technologically less sophisticated production processes are located in the NICs and other developing nations." Whilst low labour costs are an important factor in the investment decisions of TNCs, they are not the sole attraction. The availability of an efficient infrastructure, relatively educated and compliant labour force, and the host nations' attitude towards foreign investment are significant considerations too.12 For example, the package of incen8 Divisionof Folker Frobel, Jurgen Heinrichs and Otto Kreye, TheNew International Labour(Cambridge: Cambridge University Press, i980), p. 45.

9

Ibid., pp. 322-3, 328-9, 336.

10 Ibid., pp. 24 and 44.

11 Richard Higgot et al., 'Theories of Development and Underdevelopment: Implications for the Study of Southeast Asia', in R. Higgot and R. Robison (eds), Southeast Asia. Essaysin thePoliticalEconomyof StructuralChange(London: Routledge and Kegan Paul, I985), pp. 45-6. 12 Rasiah, 'The Semiconductor Industry in Penang', pp. 25-7.


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tives including wide-ranging tax and tariff concessions are characteristic of the benefits offered by the Free Trade Zones (FTZs) in many Asian countries.13 However, in contrast to the semiconductor industry of Southeast Asia where the labour force is mostly engaged in assembly type operations, the labour requirements of the software sector demand professional skills. This skills differential is a major factor influencing the international mobility of computer personnel and thus the labour market in different parts of the world. Computer professionals, whose skills are widely sought after in the advanced countries, enjoy considerable international mobility and substantial financial rewards. Therefore, in the software industry the NIDL is characterized by transnational upward wage mobility for at least some sections of the labour force. Technological upgrading within the hierarchical international division of labour is a major concern of NIDL analyses. It is widely recognized that the NIDL is not static since some mobility does occur as NICs attempt to upgrade their technologies.14 Such mobility, however, is not automatic and neither is success guaranteed. Singapore's attempts from 1979 onwards to promote the 'Second Industrial Revolution', which aimed to upgrade skills and enhance existing technology, proved less successful than anticipated by the government.15 For instance, in the electronics industry the goal of increased mechanization and automation was only partially realized. Despite increased foreign investment in computer hardware as well as the promotion of certain advanced technological processes, the emphasis in electronics still remained on assembly work which now accounted for somewhat higher value-added production compared to the situation which existed previously.16 It seems the pertinent issue is not whether there is any technological upgrading at all, but how far, and under what conditions, the technological gap between the advanced capitalist countries and the less advanced ones is bridged. Some sceptics doubt whether the NICs can reach the technological heights attained by the advanced nations. 13

Salih, Young and Rasiah, 'The Changing Face of the Electronics Industry', pp. 377-9'4 Henderson, 'The New International Division of Labour', pp. 101-2. 15 Garry Rodan, 'The Rise and Fall of Singapore's "Second Industrial Revolution"' in Richard Robison, Kevin Hewison and Richard Higgot (eds), Southeast Asia in the i980s. The Politics of Economic Crisis (Sydney: Allen and Unwin, I987), pp. i58 and

I75. 16

Ibid., p. I63.


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The ascent to higher stages of the technological hierarchy is not excluded but the differences may not necessarily be overcome.'7 Linked to the question of technology is a concern with the mobility of capital and the permanence of employment offered by the TNCs. It is feared that in response to automation in the advanced countries, the production processes located in NICs and elsewhere could become redundant. Further, inflationary pressures, combined with demands for higher wages in the host countries, may lead to large-scale shifting of production facilities. Whilst some relocations and fluctuations in employment have occurred for various reasons,18 the likelihood of a massive relocation of facilities is considered unlikely, partly owing to the high costs associated with relocating the established patterns of sourcing, production and marketing.19 Instead, in response to rising wage levels, there has emerged a sub-regional division of labour. Low wage countries in Southeast Asia have become locations for 'assembly plants for large-batch standardised low grade outputs' and relatively high wage centres like Hong Kong and Singapore are increasingly undertaking critical testing tasks for which they have sufficient numbers of well qualified scientific and technical personnel.20 Also, the ability of Asian countries to improve their infrastructure and education facilities in the face of automation, makes it possible to accommodate some of the technological changes at existing sites without the need to relocate. Even though further relocation of production processes to the less advanced countries may have subsided owing to new technological developments and post-Fordist labour arrangements in the advanced nations, existing operations in the former are not doomed to extinction.21 Thus within the NIDL, the NICs, and others less developed, possess some flexibility which allows them to modify the consequences of technological changes emanating from the advanced industrial centres. Despite some pessimistic prognosis of the technological gap between the NICs and developed countries, the former have extended their technological base to a stage where their current capabilities 17 A. Sivanandan,

'New Circuits of Imperialism', Race and Class, 30, 4 (I989), p. 4. Rasiah, 'The Semiconductor Industry in Penang', pp. 30-2; and Mukhopadhyay, 'Micro-chip Technology', p. 129. 19 Dieter Ernst, 'Automation and the Worldwide Restructuring of the Electronics Industry: Strategic Implications for Developing Countries', World Development, I3, 3 (1985), pp. 342-320 Henderson, 'The New International Division of Labour', pp. 01-2. 21 Castells, 'High Technology', p. I9; and Ernst, 'Automation and Worldwide Restructuring', pp. 334-5, 345 and 349. 18


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provide substantial opportunities for further technical gains. Countries such as South Korea and Brazil have made determined attempts to move beyond clones in computer production and develop indigenous capability for the manufacture of sophisticated computer systems such as the supermini which requires qualitatively higher design skills.22 Similarly, India is extending its technological capabilities in electronics by acquiring technical know-how through foreign collaboration; it is also expanding its computer manufacturing industry through encouraging exports and local reductions in the prices of personal computers so that more people can afford them.23 There is now some indication that in computer hardware the technological gap between India and the West might be narrowing as a result of more investment in Design and Development. Thus, the lead time for the development of new generation micros has been reduced from previously two years to only two months now.24 The active involvement of the government of India through the establishment of public sector computer companies, controls over TNCs domestic market share, and the imposition of foreign exchange regulations is reminiscent of the early actions of MITI in Japan.25 The Indian government's involvement goes well beyond tariff controls. It has engaged in charting the economic direction as well as participating in the production of consumer and essential non-consumer goods. The extent to which countries progress within the NIDL will depend on a variety of factors besides the dominant interests of TNCs from the advanced industrialized countries. Whilst the NIDL is underpinned by the global strategies of TNCs, development policies pursued by individual states26 are important, too, in defining the boundaries of industrial-technological progress. The role of the state is not confined to the provision of infrastructure facilities but extends to other spheres such as the mediation of different class interests, including those of foreign capital. In the case of India where the state 22 Peter B. Evans and Paulo Batos Tigre, 'Going Beyond Clones in Brazil and Korea: A Comparative Analysis of NIC Strategies in the Computer Industry', World Development, 17, i (1989), pp. 1751-2. 23 Mohan Raj, 'India Introduces a People's Computer', Asia Technology,Dec. I989, PP. 32-3. 24 The Hindu (International Edition), 6 July I991, p. o0. 25 Marie Anchordoguy, 'Mastering the Market: Japanese Government Targeting of the Computer Industry', International Organization, 42, 3 (Summer 1988), pp. 50943; and Marie Anchordoguy, 'How Japan Built a Computer Industry', Harvard Business Review, July-Aug. 1990, p. 5. 26 Henderson, 'The New International Division of Labour', pp. o06-7.


INDIAN

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has traditionally assumed an interventionist role, it is in a relatively strong position to direct the development process. In addition to an interventionist state, Castells attributes the competitiveness of NICs to the external orientation of their economies, an educated work force, and a progressive push for technological enhancement through government policies and technological transfer from the TNCs.27Besides these factors, the variations in the industrial structures of individual countries can also have a substantial impact on the pattern of technological development. The industrial structure of the NICs in Asia exhibits varying connections between the state, the TNCs and local capital, both small and large.28 The structure of the computer software industry in India is distinctive because of the significant involvement of local capital and the existence of a large pool of human resources. Though the presence of foreign companies in software is rapidly growing, the state retains an important role in shaping the development of the software sector. Therefore, the articulation of the Indian software industry with the NIDL, must be viewed in the context of the state's capability to upgrade resources with the aim of enlarging India's share of the international market and retaining advantage within the expanding local market.

Role of the State The government has actively intervened in the development of the computer software industry through policy initiatives and the provision of the necessary infrastructure facilities. The policy measures involve a substantial liberalization of conditions under which TNCs can operate in India. For instance, investment procedures have been streamlined to expedite the establishment of new ventures leading to a growing influx of foreign capital, which in turn has facilitated the integration of the software sector into the NIDL. The government's commitment to software development was stated in its policy document of November 1986 which enunciated the main objectives, including the promotion of software exports to obtain a sizeable proportion of the global market in software, and an integrated development of software for national and export markets.29 27 29

Castells, 'High Technology',

p. 23.

28

Ibid., pp. 21-3.

and Training SoftwareExport,SoftwareDevelopment GOI, DOE, Policyon Computer

(New Delhi: Nov. 1986), pp.

1-2.


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The software policy designed to promote software development and exports, provided guidelines on various issues ranging from the imports of computer hardware and software to foreign collaboration and foreign investment.30 Some of the measures, for example, on imports and foreign collaboration and foreign investment, are indicative of the economic liberalization in India since I984-85.31 Where foreign investment is concerned, the equity limit was removed for Ioo% export-oriented projects. For such projects, Ioo% foreign equity was permitted as in the case of several fully export-oriented units owned by foreign corporations from the US and elsewhere. Apart from easing ownership regulations for predominantly export based units, the government has established export-oriented Software Technology Parks that are located in the cities of Bangalore, Bhubaneswar and Pune.32 Bangalore is a major electronics centre in the southern Indian state of Karnataka, whereas Pune is situated near the metropolis of Bombay, a leading location for banks and industries such as electronics. The software park in Bangalore is aimed at attracting small to medium sized businesses through the provision of various services which include centralized airconditioning and power, international telecommunications links, financial and marketing support, leasing arrangements for personal computers and minicomputers, and fast approvals from both the state and central governments. A similar park in Pune provides direct satellite connection with Boston from a base station owned and run by the government's Videsh Sanchar Nigam which controls India's overseas communications.33 The government parks, which provide communications facilities such as satellite links and dedicated earth stations, aid productivity by raising both the accuracy and the speed of data transmission.34 A software technology park can also be established by private investors who have obtained government approval from the Department of Electronics; the US corporation, Texas Instruments, has operated (since 1986) a technology park in Bangalore with its own satellite link 30

Ibid., pp. 2-I4.

Basil Caplan, 'India's Quickening Pace of Reform', TheBanker,i35, 7I (May I985), Pp. 63-71. For a more analytical and critical approach to liberalization refer to Eddie J. Girdner, 'Economic Liberalisation in India: The New Electronics Policy', Asian Survey,XXVII, I (Nov. 1987), pp. 1I88-1204; and Atul Kohli, 'Politics of Economic Liberalisation in India', WorldDevelopment, I7, 3 (March 1989), pp. 305-28. 32 Software Development Agency (hereafter SDA), DOE, GOI, SoftwareIndia '88 Indo-U.S. Conference, 8 and 1. pp. 33 TheIndianPost 34 Dataquest,Feb. 1989, p. 89." (Bombay), 25 Nov. 1988. 31


INDIAN

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to the corporation's main facility in Bedford, UK.35 These developments in communications are integral to the incorporation of the Indian software industry into the NIDL, and complement other infrastructural facilities such as the Export Processing Zones which offer a wide range of benefits to software exporters.36 Government involvement, however, is not confined to the provision of economic incentives and locational facilities but includes other major initiatives aiding computerization across the nation.37Through Nicnet, over 400 district capitals in India are now integrated into a government computer network linked by satellite. The program will be further extended so that by I994 all the 5,500 blocks (responsible for community development) will also be connected in a nation-wide network. Nicnet, which only caters for government needs, is just one of an increasing number of computer networks. Another major network, Indonet, has a diverse clientele that includes 70 corporations and links nine cities through telephone lines. Additionally, Indonet's 'international gateway' links users to many overseas networks. The various initiatives of the government have created an environment and an infrastructure for software development that has attracted both local and foreign investors. In I987 it was reported that India had 'become the new Mecca for the world's computer software companies',38 and foreign corporations were entering into collaboration with local companies to take advantage of the economic benefits available in India. The software policy, predicated on the principle of 'Flood-in Flood-out', was intended to allow into India a range of US developed software that could be utilized by Indian programmers to improve their own software which could then be exported to the US and Western Europe.39This strategy, whilst aiming to expand software development and exports, is also reliant on the TNCs for the inflow of technology, and especially access to overseas markets.

35 SDA, SoftwareIndia '88, p. 8; and Lincoln Kaye, 'Problem Programme', Far EasternEconomicReview,2 March 1989, p. 87. 36 A specialized electronics zone, the Santa Cruz Electronics Export Processing Zone is located at Bombay and accommodates many software companies; other multi-industrial zones are regionally dispersed. 37 Mohan Raj, 'India's Computer Network Revolution', Asia Technology,March

1990, pp. 22-4. 38

India Today, 5 July 1987, p. 95. Vijay Mukhi and Raju Chellam, 'Software: An Emerging Business', Supplement, BusinessIndia,22 Aug.-4 Sept. 1988, p. 131. 39


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Growth of Computer

Software

The growth of computer software in India is part of the broader process of the development of an indigenous computer (and electronics) industry in which the state and local capital have also played an important role. The origin of the software sector in India during the early i96os was connected with the introduction of curimercial computers that were largely employed by the big companies able to afford the high costs of operating such technology.40 Though the use of computers in the following decade was still limited, a pool of skilled programmers had emerged. However, an important factor influencing the development of the software industry was the pressure to earn foreign exchange through exports. In order to finance various government programs in electronics, including the development of computers, the government sponsored a 'software export scheme' in June 1976 whereby software producers willing to undertake exports would receive priority treatment for their requests to import computers.41 In more recent years similar considerations have applied with regard to software exports. The computer software policy of 1986 has played a complementary role to the New Computer Policy initiated in November I984. It is argued that software production, and particularly exports, are essential to counteract the high costs of imports triggered by economic liberalization and the anticipated growth of the computer industry.42 By the end of the century, the computer industry is targeted to reach the production level of US$8,ooo million.43 Since exports of computer hardware products are unlikely to compensate for the substantial inflow of imports, the onus for foreign exchange earnings is placed upon software exports.44 The software industry also received a boost from developments in the Indian computer industry in 1978 when IBM withdrew from India in response to pressure from the Indian government to indigenize part of its equity holding. IBM's exit from India had significant repercussions for the computer sector since IBM systems were widely used in the country. Some of the consequences had a positive 40 41

SDA, Software India '88, p. 5. Joseph M. Grieco, Between Dependency and Autonomy. India's Experience with the

InternationalComputerIndustry(Berkeley and Los Angeles: University of California Press, I984), pp. 84-93. 42 Dataquest, Dec. 1988, p. 107. 3 Ibid., p. io6. 44 Ibid., p. 107.


INDIAN

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39I

outcome because they forced the local industry to fill the void left by IBM. To begin with, the public sector company, Computer Maintenance Corporation (CMC), took over the task of servicing IBM equipment and software.45 Subsequently, CMC has emerged as one of the most successful Indian computer firms that has distinguished itself in software development for both the local and overseas markets. Further, many of the Indian professionals previously employed and trained by IBM set up small software businesses that generated entrepreneurship within the local software industry. Besides the foreign exchange imperative and the conflict with foreign capital, namely IBM, the development of the software industry has also been aided by the government's belief that India has a comparative advantage in software because of its large pool of scientific personnel that is proficient in English, relatively low-cost and capable of high productivity. Senior bureaucrats have often justified software as a priority sector because it is labour intensive and therefore compatible with the country's human resource endowment. Global trends in electronics have, moreover, favoured the promotion of software as it is expanding more rapidly worldwide than the hardware sector. According to one US expert, software accounts for over 50% of the budget for data processing in most organizations and is likely to grow.46 In recent years, the growth of software in India has been considerably aided by the expansion of the electronics industry, including computers, which received priority consideration during the ig8os as a result of the government's attempts at economic and technological modernization. Over the last few years the electronics industry in India has expanded at a very rapid rate: the growth rate for the threeyear period 1985-86 to 1987-88 averaged at over 36%.47 Whilst the industry achieved a compound growth rate of 25% in the Sixth Five Year Plan (1980-85), the compound growth rate for the Seventh Plan was expected to reach 35%.48 The euphoria surrounding (1985-90) the growth of electronics was conveyed by the Chairman of the Electronics Research and Development Centre, Mr K. P. P. Nambiar, who predicted that electronics would 'emerge as the single largest 45 Elizabeth U. Harding, 'After IBM's Exit an Industry Arose', Software Magazine, International Edition (Nov. I989), p. 49. 46 Yourdon, 'U.S. Has No Monopoly on Software', p. 44. 47 DOE, GOI, Annual Report 1988-89, p. 5. The post-1980 growth rate of electronics is lower when calculated at constant prices. See Joseph, 'Growth Performance', p.

I915. 48

DOE, GOI, Annual Report I98g-go, p.

I.


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TABLE I

Valueof SoftwareExports1984-1987 Year

Export

1984 1985

US$22 million US$26 million

1986 1987

US$38 million US$54 million

Source: Software Development Agency, Department of Electronics, Government of India, SoftwareIndia '88,

Indo-USConference,p.6.

industry in the country' if the prevailing growth rate was 'maintained in the next decade'.49 Within electronics, the computer industry has also grown rapidly at an annual compounded growth rate of 60% from I984 to 1987.50 During the same years the value of production rose from Rs92o million to Rs3,750 million.51 This expansion is to some extent attributed to the New Computer Policy which liberalized the industry through a variety of measures aimed at promoting growth. Within a year of the release of the New Computer Policy, computer production registered a rise of about Ioo% in physical terms and 65% in monetary value. At the same time, prices fell by 50%.52 During the I98os the utilization of computers rose rapidly with the installed computer base expanding from 3,500 systems in 1983 to 26,560 in March I987.53 Similarly, software exports have expanded since the mid-i970s. From only Rs8.50 million in 1975, the software exports leapt to Rs420 million in i986.54 According to official statistics, exports of software from India experienced a considerable rise in the period I984-I987 as shown in Table i. Despite the rapid growth of software exports, the results have fallen short of government target. During 199-91 India's software exports were worth approximately US$I 17.5 million (Rs235 crore)55 which is 49 Financial Express (New Delhi), 8 March 1989.

50 Dataquest, Dec. 1988, p. io6.

52

51 Ibid.

The Computer Directoryof India i985-86 (New Delhi: Constellate Consultants), p.

477.

53 Cheryl Debes et al., 'India Goes High-Tech', International BusinessWeek,IOAug.

I987,

p. 35-

54 Confederation of Engineering Industry (hereafter CEI), ExportStrategyPaperSoftware(not dated), see Annexure I. 55 Dataquest,July 199I, p. 26.


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393

2

SectoralBreakdownof Exportof ElectronicItems (Value: Rs Million) Item i. Consumer Electronics 2. Industrial Electronics 3. Computers 4. Communications and Broadcasting 5. Electronic Components 6. Computer Software

I985 140 235 345 5 480 340

1986 i8o 645 376 72 637 490

1987 303 640 407

Total

1545

2400

3I20

1988 477

105

1378 85

1989 570 86o 2430 30

960 705

1280

2290

1010

1570

4750

7750

520

Source: Department of Electronics, Government of India, AnnualReportig89-go, p.66.

well below the expectation of US$250 million by I989-9o.56 Official targets of future achievements are still ambitious, with the Department of Electronics aiming at software exports worth US$I billion by I995.57

Nevertheless, computer software is one of the single biggest export items58 and in 1989 its export value in the electronics sector was only exceeded by computers and electronic components (see Table 2). The software export achievements are based upon capability which extends across a wide range of activities including computer aided design, computer aided manufacturing, and expert systems, all of which demand a high skills input since they represent the more specialized and sophisticated branches of software. India has also successfully undertaken software assignments on turnkey basis. In the communications area, notably most of the communications software used by Nicnet is prepared by the staff of the National Informatics Centre which administers Nicnet.59 Though Indonet still relies on IBM software, CMC Ltd, which owns Indonet, provides some of its own applications software that offers various services to its subscribers.60 These achievements are one reflection of the well qualified pool of scientific experts that is currently available in India.

56

Indian Express (Bombay), 26 Nov. I988; SDA, Software India '88, p. 5. 7 Asiaweek, 27 April i99o, p. 6i. 58 DOE, GOI, Annual Report 1988-89, p. 6. 59 Raj, 'India's Computer Network Revolution', p. 22. 60 Ibid., p. 24.


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Human Resources and the International Division of Labour It is widely recognized that India possesses a vast source of scientific personnel which can be employed at a relatively low rate of remuneration. Whilst abundant expertise, combined with low salaries, offer substantial benefits to TNCs in search of cheap offshore locations for software development, they cannot guarantee continued expansion and technological upgrading. Other considerations, too, may have a considerable bearing on the long-term outcome for the computer software sector in India. Estimates reveal that India has technical personnel numbering around 2.5 million and 225 million high school graduates, which on an international scale means that the country has one of the highest numbers of educated and technically skilled workers.6' The country's work force of engineers and skilled technicians ranks third highest in the world;62 and the annual output of scientists and technical personnel was estimated at I6o,ooo in i986.63 In i989, the strength of computer personnel numbered 80,ooo professionals64 and the software industry accounted for 40,000 software professionals.65 To augment the pool of computer personnel, the government is encouraging the spread of computer education in the country. Almost 350 institutions offered computer courses at degree and diploma levels in 1988-89, whereas in i983 there were only 30 such institutions.66 Each year the government is introducing computer courses in around Ioo institutes of higher education, and through another program, training institutes in the private sector will gain recognition for courses in information technology.67 Consequently, education institutes providing computer courses are producing more computer graduates than earlier; the annual output has risen from I,ooo in i983 to around Io,ooo in i988.68 Despite these efforts, personnel requirements are exceeding the current supply, 61 Indian Express (Bombay), 26 Nov. i988; Ross H. Munro, 'The Problems of Success', Time, 28 May I979, p. 25. 62 Debes et al., 'India Goes High-Tech', p. 36. 63 Marc Beauchamp, 'Planet Computer', Forbes, I37, 4 (24 Feb. 1986), p. 62. 64 Dataquest, Nov. 1989, p. 113. 65 E. Sridharan, 'World Trends and India's Software Products', Dataquest, Dec. 1989, p. 56. 66 DOE, Annual Report 1988-89, p. 51. 67 SDA, Software India '88, pp. 7-8. 68 DOE, Annual Report i988-89, p. 51.


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making it more difficult to attain the government's software export target. Apart from the shortage of personnel, other limitations have surfaced too. The level of computer education offered at universities and the Indian Institutes of Technology is criticized for failing to meet international standards.69 Some of the blame for the various shortcomings is attributed to the Indian computer industry which is reluctant to take an interest in science education. The failure of Indian companies to combine efforts with institutes of higher learning encourages the best graduates to migrate overseas where corporations play a more active role in education and the universities.70 This outflow of professionals is also facilitated by their proficiency in the English language which in India is still an important medium of communication in business, education and the government. Nevertheless, the Indian computer professionals' command of English is a major asset for the software industry since it is the main language spoken in parts of the world that collectively provide the largest market for computer software.71 Combined with this advantage, the Indian software developers are conversant with all the major computer systems.72 Further, through overseas exposure some professionals are familiar with foreign scientific developments, and especially British and US business practices. For example, in the case of Tata Consultancy Services (TCS) many of the professional staff possess two degrees of which one is from British or US universities.73 The rapid growth of the Indian software sector, however, is not based solely upon the availability of scientific-entrepreneurial expertise since low labour costs are a major consideration too.74 The low labour costs contribute significantly to the cost advantage enjoyed by the Indian software industry as Indian professionals are the lowest paid compared to their counterparts in other countries. Computer professionals in India earn only about one-sixth to one-eighth of an average salary of a British or US professional75 and an Indian programmer/analyst who has just graduated from one of the five prestigious technology institutes in the country can expect to earn only 69

Mukhi and Chellam, 'Software', p. I37.

70 Ibid.

71 TheHinduSurveyof IndianIndustry,1988, p. I53. 72 ELSOFTEX Newsletter,Electronics and Computer Software Export Promotion Council, 2,

(Jan. 1989), p. 4.

73 Tom Nash, 'India's Lead in Offshore Software', ibid., p. 4. 74 Ibid.

75 Mukhi and Chellam, 'Software', pp. I29-31.


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US$3,ooo per year.76 Even the East and Southeast Asian (Hongkong, Taiwan, South Korea and Singapore) software engineers earn four times as much as the Indian professionals.77 Low labour costs in India assume considerable importance since producing software is a labour intensive task involving labour input of between 70 to 80% of the cost. Moreover, software accounts for a high proportion of the costs of installing a business or professional computer system in western countries-as much as 70% of the total installation costs.78 Historically, the situation was different when thirty years ago hardware accounted for 70% of the costs. The different cost advantages between India and the rest of the world are reflected by the hardware and software budget commitments. Globally the ratio of hardware to software budget outlay is 30:70 whereas in India it is 60:40 due to higher hardware costs.79 Prevailing cost ratios, therefore, favour Indian software producers. International cost differences explain, to some extent, why some advanced countries are shifting their software production offshore to Asian locations, leading to a worldwide division of labour in the software industry. Amongst the foreign companies, Burroughs has long recognized the benefit of utilizing low-cost software personnel in India to enhance its global status against major competitors like IBM.80 One reason for Burroughs' concessions to the Indian government's stringent investment demands during I970s was its realization of the potential for low-cost software development in India. The company's strategy involved employing Indian programmers for the normally expensive task of developing software conversion programs which could be used by non-Burroughs (mostly IBM) clients to switch to Burroughs computer systems. The lower costs offshore, coupled with a shortage of skilled labour in the UK, has led certain British businesses to locate the most labour intensive stages of their software development in India. Companies like TCS are actively involved in this offshore development and have provided tailored financial software to their British clients with savings of between 40-50% .81 Such projects may be wholly undertaken in the UK or in India, or partly in both the countries. In a typical case, 76

Nalven and Tate, 'Taking the Offshore Option', pp. 72-6. Mukhi and Chellam, 'Software', pp. 129-31. 78 ELSOFTEX Newsletter, Jan. I989, p. 4; and Mukhi and Chellam, 'Software', p. 77

131. 79 Financial Express (New Delhi), 15 March 1989. 80 Grieco, Between Dependencyand Autonomy,pp. 84-93. 81 Nash, 'India's Lead in Offshore Software', pp. 13-14.


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the initial stages involving the specifications of a project are handled in Britain by a British consultancy firm representing TCS; the latter's personnel is brought to Britain if needed. A detailed description of the overall task is prepared which requires experience and knowledge of the organization to ensure that the software will be suitable. The next phase of designing the system, which needs a relatively high level of technical expertise, is normally also located in Britain. The final and most costly section-coding and testing-is undertaken in India. Since coding, the actual writing of the program, is the most labour intensive activity, it is cost efficient to locate it in India where labour costs are lower. Many foreign firms including American Express, Swissair, Yamaha, National Westminster Bank (UK) and others are now relying on Indian software companies for coding.82In the case of France's Banque Indosuez, which has the code and documentation of its new worldwide banking system prepared in India, the reasons for offshore development are the increase in workload and lack of programmers in France. Reductions in production costs are substantial as French software services are expensive relative to Indian ones. Consequently, costs are reduced by 'half in the first stage of the project and as much as half again in the future', according to a senior executive of the Bank.83

In addition to low-cost labour, foreign corporations also derive other benefits in India. The standard of work is comparable to that offered by some companies in Europe and the USA, and organizations like TCS obtain productivity levels as high as 15o% compared to their competitors in UK.84 Importantly, the advantage of cost savings is reinforced by prompt delivery,85 quality86 and the prevailing work practices. Those familiar with the work environment in India claim that Indian programmers are subjected to longer work hours; commit themselves more readily to urgent job schedules, and have fewer leisure opportunities. An average working week of 60 hours, including overtime, is regarded by some as common practice. Whilst currently India enjoys several advantages in software production, certain limitations could over time counteract the benefits derived by the industry. It is argued that low labour costs together 82 Nalven and Tate, 'Taking the Offshore Option', pp. 72-5. 83 Ibid.

Nash, 'India's Lead in Offshore Software', p. 14. 85 Ibid.

84

86

Mukhi and Chellam, 'Software', p. I35.


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with the price advantage may be offset in the global market because of the high computer and marketing costs incurred by the Indian producers.87 Moreover, the level of research and development (R and D) in Indian companies is discouraging compared to US corporations which allocate up to 15% of their sales revenue on R and D activity.88 By contrast, Indian firms spend only between one to two per cent. In high technology, where competitive strength rests ultimately upon the rate of technical inventions and innovations, R and D performance accounts for much of the economic dynamism. Lack of indigenous R and D could mean continued reliance on borrowed technology resulting in an inferior status within the world technological order. India's technological handicap is revealed in the field of artificial intelligence where for India to reach the same level as Japan would have required an expenditure beyond its total annual R and D budget.89 A major advantage of Indian companies, quality computer personnel, is being lost to its technologically superior competitors who have better research facilities, working conditions, and offer higher remuneration. One report estimated that India continues to lose to the West, especially the US, top five per cent of its experts.90 The luring of experienced Indian personnel by the TNCs, sometimes through overt recruitment campaigns in India, has invited a sharp response from at least one industry representative who expressed grave concern at the loss incurred by the high technology sector in India. Equating the raiding of company personnel with piracy, he argued in favour of demanding hefty monetary conmpensation in hard currency from the foreign companies involved.91 Apart from direct recruitment by the TNCs, the immigration policy of the US has also contributed to the loss of highly qualified professionals from India. In response to large numbers of Indian software professionals permanently settling down in the US after obtaining only a temporary visa, the US Department of Labour clamped down by imposing new regulations whereby only professionals with 'distinguished merit or ability' would qualify for a job.92 Under these 87

Arun Kumar, 'Software Policy: Where are We Headed?', Economic and Political Weekly, XXII, 7 (14 Feb. i987), p. 292. 88 The Indian Post (Bombay), 28 Dec. 1988. 89 Kumar, 'Software Policy', p. 293. 90 Mukhi and Chellam, 'Software', p. i35. 91 Abraham Kuruvilla, 'Price of Intellectual Property', MAIT News, The Newsletter of Manufacturers' Association for Information Technology, 2, I (Feb. 1989), Pp. 2-3. 92 Dataquest, Feb. i989, pp. 50-1.


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restrictions, US will accept only the cream of Indian expertise. The US preferencefor better qualified professionals will further accentuate the global polarization of technical skills which are already concentrated in the advanced capitalist countries. In an industry where human skills are integral to market strength, the drain of human resources presents a serious loss, especially when the corresponding gains accrue to competitors dominating the markets that the Indian companies seek to penetrate further. Markets and Foreign Collaboration The profile of the software market in India reveals a high degree of concentration with only a few companies exercising dominant control both in the domestic and export spheres. The overseas market is regionally concentrated too, with a heavy reliance on the US. Though Indian companies have penetrated overseas markets, their operations are confined to a limited area of software activity. India's market orientation highlights some of the structural weaknesses of the software industry which is currently confined to a subordinate status within the NIDL. In the international market for software products, India is still a very minor contender. During the early I98os the world software market was worth US$io billion,93and it has experienced a massive growth since then reaching almost US$I30 billion94 in the first quarter of I99I. Within this huge international market, India's share of software exports is just o. I %. Even if the 1989-90 official target had

been reached, it would have still represented only 0.5% of the global market in I990.95 To expand its share of the world market, India needs to penetrate effectively the US market which is internationally the largest. Within the international software market, Indian companies are constrained by their lack of specialization in packaged software; half the world market in software is based on packaged software sales.96 This significant component of software, however, accounts for only one per cent of the country's software exports. In the high value 93 The Indian Post (Bombay), 28 Dec. 1988. 94 Dataquest, March i991, p. 91. 95 The ComputerDirectoy of India i985-86, p. 477. 96 Debashish Ghosh, 'Hard Thoughts on Software', Dataquest, Special Issue I988, p. 15.


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packaged software market, the US with its technical and marketing strength dominates. According to one senior executive, India's lack of concentration on packaged software is attributed to at least three factors.97 First, its unfamiliarity with the most recent market trends and the environment in US and Europe. Differences in computer systems also present impediments. Finally, the severe competition in the software industry with high costs in marketing and promotion make it difficult to compete effectively. Proportionately, the cost of writing a program is much lower compared to that of marketing, training and supporting the products.98 Estimates by many experts suggest that 70% to 80% of the final price of a software package is accounted for by marketing costs.99 High marketing costs impose severe constraints on particularly the smaller firms as they are unable to afford an extensive sales network which is necessary to promote their products.'00 Many of the software operators in India lack the resources to compete internationally in the packaged software market. Whilst there are around 700 software companies operating in the country, most (altogether 550) have only a small annual turnover which is under Rs o lakh.'0' Moreover, a large number of companies are very small units staffed by just one or two persons.'02 Only a few companies in India dominate the domestic and export markets with TCS and Tata Unisys Ltd (TUL) in the forefront; their share of India's total software export income in I988 and I990-9I was as high as 59.5% and 43% respectively.103 Owing to their small size, many of the software companies are unable to compete internationally because they cannot afford the cost of high-speed international communication necessary to transmit packages and communicate with overseas clients. The satellite link utilized by Texas Instruments in India cost the company two million dollars, a sum well beyond the financial means of most Indian companies. Even the cheaper link offered by the Department of Telecommunications at an annual charge of Rsio lakh is unaffordable by the 97 Author's discussion with Saurabh Srivastava; at the time vice-president, International Marketing and Operations, Tata Unisys Ltd, i i March i989. 98 Hari C. Polvarapu, 'Product Software: A Packaged Puzzle', Dataquest,Aug. p. 5. I989, 99 Dr Lalit Kanodia, 'How to Export Rs. 1,500 Crore of Software', Dataquest,Nov. 1989, p I 5. 100 Polvarapu, 'Product Software', p. 64. 101Alok Tiwari, 'No Easy Way', India Today,15 Oct. I991, p. 70. 102 Mukhi and Chellam, 'Software', pp. 13I and '35. 103 Dataquest,July i989, p. 75; and Dataquest,July 199I, p. 26.


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majority of the companies whose annual turnover is less than the charge.104 Further, many small-scale producers are excluded from utilizing the more advanced computer hardware and software because of the expense involved in its introduction. The lack of venture capital is yet another major impediment to the successful marketing of packaged software in overseas markets as revealed by the experience of a prominent Indian company, Wipro Systems Ltd.'05 When initial attempts by Wipro to promote its software products in the US yielded insufficient financial returns, the Reserve Bank of India refused permission for a further release of foreign exchange. Consequently, Wipro was forced to obtain investment funds from a US based Indian businessman under an unfavourable agreement that yielded lucrative rewards to the US investors but only meagre returns to the former. Belatedly, the government has recognized the need for venture capital and made some provision for financial assistance. Apart from the lack of venture capital, other considerations such as the low level of computerization in India and software piracy also present obstacles to the promotion of Indian software in internal and overseas markets. Despite increasing expenditure on software and an expanding domestic market,'06 computerization overall is still very limited even amongst the big companies in the private sector as revealed by one study in I987. The computer expenditure of i8 companies from a total of 30, was only between o to o.6% of their entire sales turnover.'07 The very large companies with turnover of over Rs5o billion do not even possess in-house computers or systems management and private concerns have only gradually acquired mainframe computers. The gap in computerization between India and the advanced countries is revealed by the comparative expenditure on computers; in India it was only 0.25% of the GNP in 1989 whereas in the latter nations it reached 3.5% of the GNP.'08 Limited utilization of computers in India restricts the volume of software production, thus preventing the necessary price reductions.'09 104 105

Tiwari, 'No Easy Way', p. 70. Dataquest, Nov. 1989, p. 7.

106 The domestic software sales were estimated at See Rs36o crore in I990-91. Tiwari, 'No Easy Way', p. 71. 107 Arun India,March 1989, Bhattacharjee, 'Miles Covered Miles to Go', Telematics pp. 4I and 43. 108 Satish Pandya, 'Horizon Beckons at Indian Exporters', TelematicsIndia, Sept.

I989, p- 74.

109Polvarapu, 'Product Software', p. 69.


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Moreover, low volumes and small size of the computer industry may limit the introduction of up-to-date technologies, especially if their viable use is linked to large-scale production. Another disincentive for the development of packaged software for the Indian market is the readily available supply of pirated software. It is estimated that about go% of the software for many of the internationally popular packages used in India is pirated.10 There is general agreement that the high price of software in India is an important reason accounting for the widespread piracy."' The failure effectively to check software piracy has brought India into conflict with the US administration which has placed India on its 'priority watch list' because of the latter's alleged infringement of US intellectual property rights."' The widespread reliance of Indian software users on imported packages, both legal and pirated, underlines the weakness of the domestic industry. Local software developers are unable to compete against imports because of the limitations connected with price, quality and range. A common response of Indian companies to competition from imports is to set up either agency operations or tie-ups with major TNCs. Whilst imports restrict the domestic market for local firms, industry representatives believe some imports are necessary because they provide a window to foreign technology for which local capability is currently lacking.' 1 As a result of the weakness of the packaged software sector, Indian software exports are largely based on customized production, that is, software produced to cater for the requirements of particular clients. This in some cases involves the provision of on-site services to the client overseas which entails the added cost of maintaining personnel abroad.14 Customized software is, nevertheless, an advance on the previously greater reliance on 'body-shopping', a reference to exporting software personnel from India to overseas firms for a certain fee. The practice of 'body-shopping' is of questionable value because it does little to upgrade the technical skills of computer professionals who are often assigned tasks requiring relatively limited skills input. In the past, staff sent on such assignments have sometimes felt 110 Mukhi and Chellam, 'Software', p. I44; Dataquest, Special Issue i988, p. i6. 1 Dataquest, Feb. 1989, p. i ; and Polvarapu, 'Product Software', p. 72. 112 Dataquest, July i989, p. 23; and Panajoy Guha Thakurta, 'Indo-US Trade. Eyeball to Eyeball', India Today, 30June 1989, p. I02. 113 Polvarapu, 'Product Software', p. 73. 114 Tiwari, 'No Easy Way', p. 69.


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demoralized because of low pay, unfavourable work conditions and job dissatisfaction which ultimately resulted in employees relinquishing their positions for more permanent employment in the host countries.15

Apart from India's skewed export composition, the software export market is also regionally focused. Between 50% to 90o%of the exports are destined for the US, mainly in the form of customized software which has shown a strong growth in the US market."6 The US market is of considerable significance to India, both because it is a major consumer of Indian software and because of its dominant size at the global level. The market in the US is bigger than the combined market for the European Economic Community which ranks second in the world. The leading status of the US market explains why many of the Indian companies have sought collaborations with the major American companies, though attempts are being made to expand India's share of the European and other markets, for example, Australia, New Zealand, Southeast Asia and the Middle East. Indian companies engaged in software appear to seek foreign collaboration mainly for market considerations."' Owing to the global importance of the US market, many Indian firms opt for a US partner, though some who have non-American links underplay the significance of the US market. Regardless of the nationality of their collaborators, Indian software businessmen agree on the need for a foreign partner. The director of one of the software companies, Mafatlal Consultants Ltd, argued: 'it is absolutely necessary for Indian companies to have a good foreign partner at least in the takeoff stage.'18 According to the general manager of TCS, a foreign collaborator provides a medium for the products of Indian companies as well as offering savings in marketing these products. Whilst in its initial phase TCS collaborated with Burroughs Corporation, US, it subsequently moved away, appointing its own marketing agents in the major US cities. This trend might reflect its stronger base as well as its substantial business connections since TCS is a division of Tata Sons Ltd and part of the powerful Tata Group whose origins date back to 1868. In contrast to many other Indian software companies, TCS with its staff of 3,000 employees, has considerable human For details refer to Salim Lakha, 'Growth of Computer Software Industry in India', Economicand Political Weekly,XXV, i (6 Jan. I990), p. 53. 116 CEI, Export Strategy Paper, p. 2; Commerce,26 Oct.-I Nov. 1988, p. 49. 117 Mukhi and Chellam, 'Software', p. 135. 118 Ibid. 115


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resources, particularly in its well-trained staff of software professionals. 19 Despite the export success of a few companies like TCS, Indian software exporters are still reliant in various ways on the TNCs to access overseas markets. Some of the companies are closely tied to the software requirements of their foreign partners or overseas based parent companies. For example, in 988 amongst the top five software exporters in India, the two fully foreign owned companies, namely, Texas Instruments and Citicorp Overseas Software Limited (COSL), were both mainly engaged in developing software for their parent organizations.'20 The other export leader, TUL, a joint venture between the Tata group and Unisys, produced most of its software for the US partner, Unisys. TUL's domestic sales were only five per cent of its entire worldwide software income in I989.121 Under the joint

venture, Unisys provided the specifications, undertook project management, and reaped the benefit of cheap professional labour in India.'22 Whilst the export share of these three companies (TUL, COSL and Texas Instruments) was not overwhelming, it was nevertheless fairly substantial. In 1988, the top five software companies contributed over 74% of the total exports, and the above-mentioned

three exporters accounted for 37.5% of the entire export earnings (see Table 3). In contrast to I988, recent evidence reveals less concentration in the export market as well as some decline in the total export share of foreign owned companies. By 1990-9

, there were altogether 15 com-

panies that contributed over 75% of the total software export earnings, and of these the joint ventures combined with fully foreign owned companies accounted for over 34% of the total exports.'23It is arguable whether the fall in the export market share of foreign companies and joint ventures reflects their generally declining influence. More likely, the decline is partly a result of the temporary business difficulties experienced by TUL which had relatively low growth in export earnings between 1989-90

and

I990-9I.124

In view of the fur-

119

Tata ConsultancyServices.A Wide Spectrumof ConsultancyServices(not dated); Dataquest, July I991, p. 5. 120 Dataquest, July

p.

27.

1991, 121 'After IBM's Exit', p. 50. Harding, 122 Sukumar Muralidharan, 'Electronics: Liberalisation Reconsidered', Economic andPoliticalWeekly,XXIII, 33 (I3 Aug. 1988), p. i666. 123 Dataquest,July I991, p. 26; estimate is based upon figures provided in the Table on 'Top Software Exporters', p. 26.

124

Ibid., pp. 26 and 54.


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TABLE 3

SoftwareExportLeaders[1988]* Company

TCS TUL COSL

Datamatics Texas Instruments

Total Others Industry Total

[Export] Revenue (Rs Crore) 32 27.5 5.5

4.86 4.5

[Exports as] % of Total Revenue

Percentage of Total [Indian Software] Exports

74 93 o00

88 ioo

74-36 25.64 oo

32 27.5 5.5

4.86 4.5

74-36 25.64 io00

Source: Dataquest,July i989: 75.

*Informationin bracketsaddedby the author.

ther liberalization of the Indian economy, continuing interest by the TNCs in the Indian software industry, and growing ties with the US, foreign capital is likely to exercise an even greater influence in the future over India's software sector. Already, the US has assumed considerable economic and technological significance for India leading, amongst other linkages, to further ties in high technology between Indian and US companies. The US is India's leading trade partner with two-way trade between both countries amounting to US$5.7 billion in i988.125 The US is also a major source of investment funds and technology for India; from 1987 to 1988 there was a dramatic growth in new equity investment which rose from Rs29.5 crore to Rs97 crore. Collaborations between US and Indian companies are technologically significant since over half of these include high-technology products in chemicals, computers, electrical equipment, electronics, software development and specialized industrial machinery. In the import of electronics technology, over 750 collaborations involving various countries were approved by the government between 1985 and late I988, and the US was in the forefront with over 250 agreements.'26An important measure of the expanding technological links between the US and India in recent years is the growth in the value of commercial licences granted by the 125 James Clad, 'Deferred Taxation', Far EasternEconomic Review,5 Oct. I989, p. 88; and TheHindustanTimes(New Delhi), 19 Feb. 1989. 126TheIndianExpress(Bombay), 26 Nov. i988.


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former for the export of high-technology goods to India; worth only US$23.2 million in 1983, they totalled US$563 million in 1987.127 These varied links between India and the US will serve to integrate further the Indian software industry into the NIDL.

Conclusion Even though, currently, India is a very minor player in the international market for software, the emergence of India (and other developing countries) as a software exporter reveals a broadening of the NIDL which now extends beyond manufacturing. Studies of the NIDL need to account for these changes because they have considerable ramifications for the development process. The growth of the software industry contributes to a higher level of skills formation since it requires the professional skills of computer programmers, software engineers and other scientific personnel. By contrast, many manufacturing processes relocated in the developing countries have largely sought semi-skilled labour. Even in the high-technology semiconductor manufacturing, the TNCs have been slow to transfer more knowledge-intensive activities like wafer fabrication128 to the Southeast Asian countries. The developmental consequences of the software industry are considerable, owing to the critical role of software in extending the microelectronics technology to other sectors of the economy like agriculture, communications, manufacturing and social services.129 In the interests of integrated development, an indigenous capability in software is crucial because it allows for a wider application of the new technologies. Whilst India has actively pursued the promotion of software exports, the software sector is not solely geared to exports. The development of software for local application as in the case of the communication network, Nicnet, is a significant achievement, particularly when viewed in conjunction with other similar advances in the railways, banking and the coal industry. 127 Bruce C. P. Rayner, 'India: Struggling to Enter the Electronics Age', Electronics

Business,9 Jan. 1989, p. 130. 128 Henderson, 'The New International Division of Labour', p. 103; Salih, Young and Rasiah, 'The Changing Face of the Electronics Industry', pp. 384 and 394; and Carl Goldstein, 'Government Pushes Singapore into Wafer Fabrication', Far Eastern Economic Review,i8 Aug. 1988, pp. 85-6. 129 Ernst, 'Automation and Worldwide Restructuring', pp. 350-I.


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These achievements underline the major role of the state in both the promotion of exports and the broadening application of software for local economic development. The state's involvement in infrastructure development, support for computer education, and the setting up of public sector computer enterprises are indicative of the priority accorded to the development of knowledge-intensive industries. It also suggests that the state is not entirely constrained by the NIDL, but is capable of extending the technological base beyond the limited requirements of the NIDL. The development of the software industry in India is the result of an interplay between both local and international forces. Globally, software has emerged as a growth industry which, as a consequence of labour shortages and rising costs, has increasingly sought offshore locations to overcome the constraints on growth. Countries like India with their relatively low cost professional labour and burgeoning computer industries have proved competitive locations for investments by TNCs engaged in software development. Locally, as stated above, the state in India has intervened to enhance the competitive capability of the country's software industry. Additionally, local capital has provided the bases for collaboration. This conjuncture of local and international forces confirms that the NIDL can be fully comprehended only by taking into account the articulation between the state, local capital and the TNCs. Whilst India's considerable supply of low-cost scientific and technical personnel is perceived by many as a major advantage for the promotion of the software industry, it is not on its own sufficient to sustain further development. Though low labour costs offer certain initial benefits, over time other factors such as R and D, the level of computerization in the country, availability of capital, and an affordable as well as efficient communications infrastructure will prove crucial in upgrading India's status within the global software industry. India's subordinate status is clearly reflected in the composition of software exports which involves a heavy reliance on customized production and the export of personnel ('bodyshopping'), leading India to act as a source of cheap professional labour that facilitates capital accumulation in the advanced industrial centres. If India is to progress to higher stages of software exports, it will have to concentrate on the export of packaged software, and software products that embody 'unique national expertise' (for example, expert systems for dock


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management in Singapore's case).130 Any progress to a higher stage of development is also likely to be influenced by the possible outcome of the structural changes in the global software industry which, according to one World Bank official, could lead to the rise of huge, fully integrated software 'factories' employing large teams of professionals engaged in big projects.131 Such an outcome is likely to exclude small independent operators in the export sector and intensify competition for Indian companies in the international market. Ultimately, the outcome for India will hinge on the effectiveness with which the state and private capital are able to remedy some of the major deficiencies such as those arising out of a low level of computerization, inadequate R and D, limited access to communications facilities, and lack of capital resources in the industry. 130 Yourdon, 'U.S. Has No Monopoly on Software', p. 46. 131 See Sridharan, 'World Trends and India's Software Products', pp. 53-6.
