Trends in and determinants of technical efficiency of software companies in India

Abstract

This paper attempts to discuss the trends in and determinants of technical efficiency of software companies in India during 1999–2008 by applying input-oriented DEA model. Based upon the PROWESS Database of CMIE, the efficiencies were estimated for the old and new companies and also for Indian, multinational and group companies. The estimations were made for a sample of 72 software companies, under VRS assumption, as dataset manifested large magnitude of differences owing to the presence of big and small companies in the sample. The sales revenue is taken as output variable, and employment, expenditure on computers and electronics equipments, operating expenditure, power, fuel, and water charges as the input variables. The results and analyses demonstrate that the mean overall technical efficiency of the software industry in India during 1999–2008 was low suggesting that software firms, on an average, were wasting 35% of their inputs. It was found that the number of companies operating on most productive scale size has declined during the period under reference. The results also suggest that Indian-owned companies were more efficient than the foreign-owned and group-owned companies. Contrary to the expectations, exports were not found to have exercised significant impact on the efficiency of Indian software industry.