Factors that have Contributed to the Growth of India’s Software Industry

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India’s software industry was growing rapidly from the mid-1980s. There are four factors that have contributed to the growth of India’s software industry.

The first one is India has numerous supply of engineering talent. In India, there are some 400,000 engineers who graduate from local universities. Thus, it can provide huge talent pool for developing local software industry. “New bloods” can also provide their creativity and innovation for the industry. The second one is the salaries of Indian labor are low. The cost of hiring an Indian graduate is relatively lower than hiring an American graduate. It is 12 percent of the cost of an American labor costs. Lower labor costs can reduce the overall of operation costs so new software firms can have incentive to join the industry and attract potential investors. The third one is Indians can be able to communicate with American because of their language skill. The availability of a large number of Indians who speak English which makes coordination between Western firms and India easier and understandably. Hence, they have no language barrier while cooperating. The last factor is time differences. Indians can match the working time of American. When American get off work, it is time for Indian working. It can allocate the work and conduct business effectively and efficiency. Also, by utilizing Indian labor and the internet, software enterprises can create global software development factories that can work 24 hour per day.

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India’s software industry changed in recent years. To analyze this phenomena, here are three aspects to mention the changing of India’s software industry, which are the growth of the industry, the industry structure, and number of manufacturer.

About the growth of the industry, some 30 years ago, there is a number of small software enterprises were established in Bangalore, India. But now, there are already having over a hundred software companies around Bangalore. There are many clusters in the market now. Furthermore, the scale of software enterprises was expanding. For example, Infosys Technologies which was started by only seven local enterpreneurs with about $1000 between them. And now, it has annual revenues of $22 billion and some 60,000 emplyees. It has become the fastest growing information technology sector in India. From the mid-1980s, by 2008 to 2009 this sector was gainning revenues of $60 billion. Moreover, the firm also has 16 percent growth rate even though it happened a sharp global economic slowdown during 2008 to 2009. Therefore, India had emerged as home to some of the fastest growing software service companies on the planet.

About the industry structure, Indian software enterprises focused on the low end of the software industry, supplying basic software development and testing services to Western firms originally. Nevertheless, as the industry has grown in size and sophistication, Indian firms have moved up-market. Now, the leading Indian companies compete with the likes of IBM and EDS for large software development projects, business process outsourcing contracts, and information technology consulting services. The business development and market are expanding continually. The industry penetrate the larger market. Based on this points, the software firms in the market is being more mature.

About the number of manufacturer, presently there are more than 500 software firms have setup operations in India to tap into India’s enormous talent pool which shows the monumental advancement that the India Software Industry has experienced.

2.

Today India is home to some of the finest software companies in the world. There are some examples of India’s software industry illustrate about globalization.

With the huge success of the software companies in India, the Indian software industry has become successful in making a mark in the global arena. The software companies in India are reputed across the globe for their efficient IT and business related solutions.The export of software has also gone up, even software exports has major share in India's total exports. Today, the Software Industry in India exports software and services to nearly 95 countries around the world. The total share of India's exports in the global market rose form 4.9 per cent in 1997 to 20.4 percent in 2002-03. Also, Indian software firms design and build software solutions for the world. Working 24 hours a day delivering overnight to clients around the globe. All these facts can illustrate about the globalization of markets. India’s software industry is already gone into a huge global marketplace.

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Due to highly skilled human resources coupled with low wage structure and excellent qualities in India, the globe spending on information technology outsourcing will increase. Thus, some firms wanted to invest in India to gain the same kind of economic advantages that Indian firms enjoy. For example, IBM and Microsoft. They find that India has potential developing opportunities. It can elaborate the globalization of production. Those enterprises can lower overall cost structure and improve the quality or functionality of the product to gain competitive advantage.

The technological change is also a driver of India’s software industry being globalization. Because of having time differences with other countries, it utilizes labor and the Internet, Indian firms can create global software development factories that are working 24 hours a day. For example, the software code written in America during the day can be tested in India and at night shipped back through the Internet to America in time for the start of work the following day. Technological change can enhance information processing and communication around the world.

The Indian Government has also played a vital role in the development of the India software industry. In 1986, the Indian government announced a new software policy which was designed to serve as a catalyst for the software industry. This was followed in 1988 with the World Market Policy and the establishment of the Software Technology Parks of India (STP) scheme. In addition, in order to attract foreign direct investment, the government permitted foreign equity of up to 100 percent and duty free import on all inputs and products. The capital gains in India is just 11 per cent. It can attract more foregin investors to invest local software companies. Also, to made sure that the industry has a chance to succeed on a global level, the local government set the stock options that will be taxed only on the basis of capital gains at the time of sale of the stocks. Today, it is the best taxation regime for stock option plans is from India. Lower trade barriers led to an acceleration in the volume of world trade and investment.

For example, IBM which has invested $2 billion in its Indian operations, and now had 53,000 employees located there. It is more than in any other ountru without America. In 2007, it planed to invest $6 billion over the next few years in there again. Furthermore, Microsoft has also made major investment on India,