Transcript COMPUTER SOFTWARE INDUSTRY IN INDIA

Industry Analysis
COMPUTER SOFTWARE
INDUSTRY IN INDIA
A PRESENTATION BY
Dr. Rana Singh
www.ranasingh.org
9811828987
[email protected]
OBJECTIVE

To analyze Indian Software Industry

To Compare our software export industry with
some of our competitors

To identify key issues of Govt’s IT Policy
STRUCTURE OF INDIAN SOFTWARE
INDUSTRY
Software Activity
Domestic Software
Software Export
Rs. Million
% of Total
RS. Million
% of Total
9855
40.9%
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-
Professional Services
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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 %
Turnkey
SOFTWARE COMPANIES
TURNKEY COMPANIES
WIPRO
INFOSYS
SATYAM
PRODUCT DEVELOPMENT
SUBEX
RAMCO
ADITI TALISMA
INFOSYS
USHA COMMUNICATIONS LTD
CONSULTING & TRAINING
HUGHES SOFTWARE
TCS
ANDERSON
NIIT
PRODUCT SERVICES
ADITI
TCS
INFOSYS
TOP 20 SOFTWARE
COMPANIES IN INDIA
TOP TWENTY EXPORTERS
NASSCOM'S RANKINGS AS PER
EXPORT REVENUES (2000-2001)
DISTRIBUTION OF EXPORTS
DOMESTIC IT SOFTWARE AND
SERVICES MARKET (1995-2000)
INDIAN SOFTWARE INDUSTRY AS A
PERCENTAGE OF INDIA'S GDP
DEVELOPMENT FOCUS SOFTWARE
EXPORTS
Application
Software
Development
Communications
Software
19%
Firmware
7%
2%
11%
61%
Systems Software
Development
Consultancy
CHARACTERISTICS OF INDIAN
SOFTWARE EXPORTS
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Export of Services and not packages
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Lack of familiarity with the markets
Indian domestic market is a poor guide
High costs of sales and marketing
Lack of software brand names
Only 1-5% of packages succeed
Needs high risk long term investment
CHARACTERISTICS OF INDIAN
SOFTWARE EXPORTS

US Domination in Software exports market
– Might present a limitation to future growth because US share of the
world market is slowly declining.
– Growth in other markets, such as those of Asia and Europe.
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Uneven Skill Divisions: Dominance of Programming
– Majority of software contracts have less-skilled coding and testing work.
CHARACTERISTICS OF INDIAN
SOFTWARE EXPORTS

Uneven Market Share: Economic Concentration of
Production
– Out of 400 firms, top 20 export 70%
– Reputation: An Entry Barrier
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Locational Concentration of Production
– Availability of labor
– Quality of life
STUDY OF OTHER MAJOR
SOFTWARE PRODUCING
COUNTRIES
IRELAND
AUSTRALIA
REVENUES OF IRISH SOFTWARE
INDUSTRY
500
400
Revenue 300
[IR£ million] 200
100
0
1998
Indigenous Companies
1999
2000
Overseas Companies
Total
IRELAND
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Strong export bias
– Small domestic market
– 80% of all indigenous developers are active in overseas
markets.
Exports (As a % of total revenue)
100%
50%
Indigenous
Companies
0%
Overseas
Companies
1998 1999
2000
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Strong product bias
– 40% of all Packaged Software sold in Europe is
produced in Ireland.
– 65% of the companies are developing and/or marketing
software products.
REASONS FOR SUCCESS
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People with skills
– Young (40%) and Well Educated
– Low employee turnover
– Cooperation between industry and academia
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Focus for Investment
– Investments in training, research and development
– Policy incentives
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Technology in Place
– Advanced digital telecommunications
AUSTRALIA
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Exports worth $2.1 billion
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Growth Rate 10%
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IBM Australia was the highest ranked IT&T exporter
($601m)
SOFTWARE INDUSTRY
GOVERNMENT POLICIES AND
THEIR EVOLUTION OVER TIME
BRIEF OVERVIEW
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Before 1984: State Planned Development
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1984 - 1991: Guided and guarded liberalization
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1991 - 1998: State getting out of the way
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Post 1998: Complete Liberalization
A BRIEF HISTORY IN TIME –
SOFTWARE POLICY PRIOR TO 1984
 First
mention in 5-Y Plans in late 1960s & early
1970s.
 Electronics Commission and the DoE instituted in
1970
– Allowed the import of computers on condition to export
software above 200% of import over a period of 5
years.
– In 1976, NRIs allowed to invest for export commitment
of 100% of imports over a period of 5 years.
In retrospect, one might consider that the high export
requirements for imported computers might have
contributed towards the "export of human
resources" as a strategy to expand software exports.
1984-1990: GUIDED AND GUARDED
LIBERALISATION
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Software Policy of 1986
aimed to
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promote software exports
promote the integrated
development of software
sirnplify the existing
procedures
promote the use of
computers for decision
making
Better access to
telecommunications
services
Assistance in the training
and education of computer
software personnel
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Measures Undertaken
– Liberalisation of access to
imported inputs
– De-licensing production
capacity for
computers/electronics
– Allowing foreign firms to
operate 100% EoUs
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Agencies formed/
Programs undertaken
– S/W Dev. Agency in the DoE
– Software Technology Parks
– Electronics & Computer S/w
Export Promotion Council
– Software export seminars
INDUSTRY EVOLUTION OF SOFTWARE
POLICY IN THE LAST DECADE
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The appropriateness of the policy's objectives.
– The goal of rapidly expanding exports of software and computer
services via deputation?
– Reducing the % of exports in deputation contracts from the 8085% in 1990 to around 50% by 1995.
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The importance of altering the composition of software
exports
– Low portion of value-added market with Indian firms
– steps identified:
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developing long term relationships with clients and foreign affiliates
developing embedded software for hardware manufacturers
setting up corporate service centres in India, and
constructing alliances among Indian software services
INDUSTRY EVOLUTION OF SOFTWARE
POLICY IN THE LAST DECADE
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The nature of liberalisation, government support
or other policy changes required
– necessity of obtaining import licenses for equipment,
– continuing tariffs on imported software under the open
general license scheme,
– high export performance commitments to offset the
foreign exchange cost of foreign equipment, and
– improved availability, quality, and price of inputs
obtained within India.
– Development of national and international protection for
intelligence for intellectual property rights
ECONOMIC LIBERALISATION 1991 ONWARDS

New measures introduced were:
– Virtual abolition of industrial licensing,
– The dilution of MRTP Act w.r.t. expansions/mergers
– Relaxation of FERA on foreign companies holding a majority stake
in certain Indian operations
– the abolition of import licenses
– the lowering of customs duties.
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Software exports were also aided by
– Decline in disputes over intellectual property rights
– Lessening of complaints from the international s/w industry
– Lessening of export of certain technologies after Cold War ended
PM’S IT TASK FORCE - THE NEW IT
POLICY OF THE GOVERNMENT
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 FEATURES

INFO INFRASTRUCTURE DRIVE
– No license fees for ISP for first 5 years
– Promotion of Hi-Tech Habitats
– Export shipment time for air cargo will be reduced to
less than 24 hours
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FINANCIAL SOPS
– IT Software shall be entitled for zero customs duty and
zero excise duty
– The definition of software and export turnover changed
so as to include IT services exports to get Tax
Exemption under Section 80 HHE of the IT Act
MAIN FEATURES
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FINANCIAL SOPS (Contd... )
– Banks to give 25 percent of the contract value for 18 months
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with the first six months as term loan (without collateral's)
From the 7th month onwards annualised Cash Flow Statements shall
be accepted instead of collateral's.
– IT software and services industry shall be treated as a Priority
Sector by banks for the next five years
– Working Capital amount increased from 400 Crores to 1200 Crores
– Banks shall be allowed to participate in Venture Capital funds
– Banks shall setup JVs for setting up of at least four different
venture capital of a corpus not less than Rs. 50 crores
MAIN FEATURES
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GLOBAL THRUST
– A blanket approval for acquisition of software/IT
companies across the board for software exporters
– Combating Visa regulations of the recipient countries
through a planned diplomatic strategy
– Enabling Indian Marketing companies to set up
wholesale companies abroad.
– 'India Pavilions' shall be set up in several major IT
exhibitions
– 'Mega Web sites' shall be created on INTERNET for
promoting marketing
MAIN FEATURES
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MANPOWER ISSUES
– The seven national level institutions (IITs, IISc.) shall be
encouraged to triple their output of students in IT
– IT Course Module shall be made a compulsory
component of all Degree Courses
– The setting up of Indian Institutes of Information
Technology (IIIT) shall be implemented with urgency
– Promote pairing of our Universities with centres of
excellence in IT in developed countries
– Specific courses in association with the Software
Industry and top management institutes to provide
Project Management skills and Software Marketing
IMPACTS OF SLOWDOWN
DOWNSIZING
COMPANIES FORCED TO REVISE RATES
DOWNWARDS
COMPANIES LOOKING FOR MERGERS
VENTURE CAPITALISTS ARE WARY OF
INVESTING
SMALLER FIRMS HIT HARDER THAN
LARGER FIRMS
PURSUING EQUITY DEALS WITH TOP
CUSTOMERS
THE ROAD AHEAD ...
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IT exports will move to the paradigm of global
manufacturing
Conditions have been created for the much talked
about Value Chain jump of Software industry
Working Capital problems for software exports
will be eased
Venture capital funding will unleash the
entrepreneurial talent
Quality Manpower shortage to ease out
Development of Management Skills