Indian software product industry - are we being unfair to them?

Abstract

Last two decades have seen a tremendous growth in the Indian IT sector. In year 2004-5 the total revenues were 124,039 crores with a 33 % year on year increase. Many of the companies like Infosys, Wipro and TCS have crossed the $l billion IT revenue mark and are growing at an extraordinary rate of 30%. While the initial inroads into the global market were made by the Indian IT services companies on the basis of cost arbitrage, they have innovated relentlessly on the front of project management, organizational structure and service offering to provide strong value proposition to their customers on a continuing basis. These innovations have helped the Indian companies to sustain their competitive advantage. While Indian services firms have grown, the more glamorous arm of Software Industry, the Product Industry, has eluded Indian software industry. Indian software product revenue is at Rs 2730 Crore, which is although a 44 % increase over 2004-5 but is still a miniscule part of the global product space. Only a few firms like i-Flex Solutions, Subex Systems and Tally have been able to make their mark in the market. Products made by Indian IT Services majors like Infosys and TCS have not been a mind boggling success. This failure has resulted in Indian IT industry being under heavy criticism for lack of innovation and technical expertise in the country. The criticism also arises from the fear that an end of cost arbitrage will result in services business being under heavy pressure.

In this report, we try to take a step back and look at the fundamental nature of software product industry. We then superimpose the analysis with the India specific context. Based on this, we analyze the performance of Indian software product industry and try to understand whether we are being over critical. In the end, we try to look into the future to find out how the competitive game will evolve in this space in future.