I write this in response to Giridhar Rao’s comment. He brought a scholarly paper to my attention that in a section on the Indian IT sector claims that the sole basis on which India is competing is wages. (You can find the paper here. You can directly scroll down to the section on The IT sector if you like). It also claims that India should not be called a ‘knowledge economy’ but a ‘low wage economy’. The article seems to be well researched but reaches odd conclusions at least for the IT industry.
My response to the thrust of the entire paper, if it has one, is ‘So what?’
So what if the Indian IT industry exists solely because of a large wage differential between India and developed markets. So what if they don’t have more patents or don’t own proprietary software. Does that make the industry less valuable to the Indian economy? Or is there a fear that the whole industry will evaporate when the wage differential closes at 12 noon tomorrow?
China’s entire manufacturing exports industry exists because of the low wages in China. I doubt if even 5% of China’s exports are designed by a Chinese company for a developed market. Most of it is low-value added merchandise manufactured for mega-retailers like Walmart who mark it up by 2 to 3 times in their stores. Sure they have high-tech manufacturing industries too that manufacture chipsets and components, but rarely are these designed in China Why does the world beat a path to China? Because of low wages. And their low wage manufacturing economy produces strong GDP growth and jobs. Exactly what India’s IT industry does.
With some differences. India’s IT industry on average has a higher value-add. It produces higher paying jobs largely for college graduates. (Although there definitely are other jobs created because of the spending of IT companies and their employees). And it does not depend as much on infrastructure as does the Chinese manufacturing industry. Otherwise, with India’s creaking infrastructure, it wouldn’t have come up in the first place.
The Indian IT industry is 3% of the Indian economy with a variety of trickle-down benefits for the rest of the economy. It has put India on the world map again. The common man in America now associates India with software engineers and not snake-charmers. Be proud.
And stop moaning about why the Indian IT industry isn’t more like Microsoft. For that is what many well-informed Indians expect. That Indian IT Services firms should be more like Microsoft, which writes and sells licensed software. This is not just unlikely to happen, it would be downright irresponsible for Indian companies to attempt that. I wrote an article on Rediff three years back which will help the reader understand why.
Most Indians call the IT Services industry the Software industry. It is not. This is the cause of great confusion. There are two distinct industries in all markets. The Software industry has companies like Microsoft, Oracle, SAP in it. The IT Services industry has Accenture, CapGemini, Infosys and Satyam. Like all industries, the boundaries are not etched in stone. Some companies like Amdocs which does Telecom billing software have a large Services business and services companies like Keane sell licensed software. But by and large except for IBM no company straddles both industries. The DNA required to be successful in each industry is very different.
You might say – So I shouldn’t hope for Infosys to become like Microsoft, but can I hope for an Indian Microsoft? Understand that you are asking for a global multi-billion dollar software company that dominates in some sector of the industry. I can’t stop you from dreaming, but I would ask you – why did you pick the software industry? Why not say a global automobile company, or a global banking and financial services company? What’s the largest software company in India? Not even $100 million. On the other hand we have huge, competitive auto companies like Maruti and TELCO and banks like ICICI Bank. I’d say they have a much better chance of building a global business.
Just because an IT Services company and a Software company both have programmers doesn’t mean a thing. Don’t expect one to be like the other.