After years of playing catch-up to the industrialised nations of the world, India is poised to become a massive producer and consumer of computer goods. The speed with which this change is being achieved is remarkable and results from a number of facts: Indian computer professionals returning home from the US to establish companies; liberalisation of trade laws; development of high speed communications links; and the maturation of all the offshore development work Indian companies have done over the last decade. From a standing start in the mid-1980s, the Indian computer industry has grown to be worth $960m in 1993. The engine behind this expanison has been the sub-continent’s software business.
Offshore work
There are 450 companies, employing 7,500 technical staff, working on developing software alone. The core of this business is offshore work, primarily for US companies although domestic consumption of software is rising. Last financial year, software exports were worth $225m, 10 times their 1988 value and have grown at a compound average growth rate of 54%. About 65% of this work is done at the client’s site, but this proportion is diminishing as Indian companies gain standing and more work is done in India. The government’s creation of export-dedicated software technology parks in Pune, Bangalore, Bhubaneshwar, Trivandrum, Hyderabad, Gandhinagar and Noida, and plans for another eight, has helped. By the end of this year the products from these parks will have earned $69m. The government estimates that it can push exports’ growth rate up to 70%. The biggest consumer of India’s exported software is the US, followed by Western Europe, where Germany is the most important market. Bombay-based industrial conglomerate Tata Sons & Co Pvt Ltd is credited as having started the trend for offshore development when, in 1976, it formed Tata-Burroughs, a joint venture with the then Burroughs Corp of Detroit. This venture has become Tata Unisys Ltd, employing 1,150 people and with a $30m turnover. Since then numerous US corporations have established joint ventures in India: Texas Instruments Inc, Hewlett-Packard Co and Oracle Corp whose Bangalore-based Software Development Division started work in April with 25 staff. This number will grow, says Oracle to 200 by June 1996. Indeed, India has become so popular that its choice as an offshore location is no longer confined to just large firms. Santa Clara, California-based Veritas Software Inc hooked up with an Indian company almost as soon as it was established in 1988. Originally, it contracted work with Frontier Software of Bombay; now it has what it describes as a ‘captive’ group of eight employees within Frontier that is dedicated to Veritas’ work: the final step will be to hive off this group into a subsidiary, a move scheduled for some time next year when the Indian division will employ about 30. Veritas, which develops software for data storage, cites the abundant supply of less expensive, well qualified, English-speaking staff as a reason for choosing India.
By Maya Anaokar
These are the reasons companies choose India: for many it is simply cheaper to get good quality products to market, often more quickly than in house development. US programmers’ salaries are six to seven times higher than those earned by Indians; UK ones, four to five times higher. And with a population of around 850m people and 300 institutions offering training in software development, India offers the largest pool of software expertise outside of the US, so companies can pick and choose who works for them. But had Veritas attempted to tap into these resources just a few years ago, India’s prohibition on overseas companies owning more than 40% of Indian companies, among other protectionist legislation since abolished, would have made its plans impossible. For example, Oracle owns only 51% of Oracle Software (India) Pvt Ltd but has applied to the government to buy the rest – forbidden until premier Narisimha Rao assumed power. Profits from software exports are 100% income tax-exempt, companies no longe
r pay customs duty and royalty payments on imported software, and technology can be imported without there being any export obligation. Veritas’ link to its offshore team is presently via a variety of leased lines, but not satellite, which it expects to have by next year. India has recognised that to capitalise on its resources, high-speed links are essential and in 1989 the government gave its backing to the concept of satellite links to the US and Europe. And plenty of companies are taking advantage of it: Texas Instruments was one of the first US companies to establish such a link, which it did with its offshore group in Bangalore. And while US companies are beating a path to India to set up joint ventures, a number of Indian programmers have realised they too can capitalise on interest in their skilss and have established companies to offer offshore programming. One such company is Hyderabad-based Satyam Computer Services Ltd, the first Indian company to use private satellite networks. Its president, Srini Raju had worked in the US for a number of years before helping to establish the company in 1986 when Satyam started life as a body shop: its break as an offshore software developer came in 1988, when John Deere & Co, the US mid-western farm machinery manufacturer, hired it to clear a backlog of work in its software department. Since then Satyam has grown at 50% a year and has just opened a technical support office in the US, in Iselin, New Jersey, the better to service its US customers. Raju admits that the distance and time difference between India and the US cannot be ignored, but it can be accomodated.
Pictures of programmers
Satyam likes the US company to be involved, at some level, in the day-to-day management and sends the Americans dealing with the company pictures of the programmers working on the contract. A large part of Stayam’s current work is updating systems for the year 2000 and translating applications into high level languages. Satyam has development centres in India’s Silicon capital, Bangalore, as well as inHyderbad, which will eventually be home to 600 software engineers. This year it has signed a deal with Dun & Bradstreet Corp to form Dun & Bradstreet Satyam Software Private Ltd, based in Madras, which will satisfy 25% of Dun & Bradstreet’s software requirements. By the end of next year it will be the largest joint venture ever undertaken by an American and Indian company in the software exports sector. While Satyam is still primarily an exporter, older companies in the field are turning their attentions to the domestic market, which last year stood at $160m. Exporting software is going to be a money-maker for some time yet, but the figures suggest that Indians are buying hardware and software, and are willing to buy home grown products.
