The Indian software industry and its evolving service capability

Abstract

This paper examines the growth of dynamic capabilities among firms in the Indian software industry by looking in some detail at the changing constraints, opportunities and competition facing incumbent firms. It emphasizes the important role played by tight labour market conditions in inducing investment in process capability and the role of entrepreneurial experimentation in evolving a business model (outsourced software) that was best suited to limited resource advantages of Indian software firms. The growth of the Indian software industry has been a phenomenal success when measured against standard indicators such as growth in sales, employment and exports, and especially when contrasted with the performance of other industrial sectors in India. Even measured against successful new exporters of software, such as Israel and Ireland, the Indian software industry stands out in terms of the volume of employment created and the indigenous nature of its growth. The largely untold story of the Indian software industry centres on the abilities of the pioneer firms in the industry who learnt how to transform the programming skills of their labour force into firm-specific capabilities, and to become credible rivals of firms such as Accenture, EDS and IBM Services in the outsourced-software market. The particular strength of Indian firms was their ability to assemble teams of talented engineers and deliver a technical, outsourced service to exacting and different customers anywhere in the world. They also leveraged their capabilities for maximum economic value through the adaptation and perfection of a new business model. This model was based around an outsourced service offering, and different variants of it were developed by Indian firms as new economic opportunities arose. Over time, one variant of this outsourcing model commonly known as offshoring, has come to be applied to other domains and areas: call centres, financial services and other forms of content management services of large firms that can be done remotely. As a result, India now enjoys a ‘created’ comparative advantage in outsourced services and offshoring. An interesting aspect of the history of outsourcing is that the factors that were crucial to the emergence of outsourced software exports from India were quite distinct