Economist and Technology in India

Economist last week carried a commendable special issue ‘Technology in India and China’. The lead article ‘Howling at the moon’ talked of the Asian aspirations on moon mission.

China’s Chang’e 1 satellite, launched in October, began its first lap of the moon, marking another step towards a manned lunar mission. India, which hopes to circle the moon with its own satellite next year, matches China’s technological enthusiasm. India shall be taking up the feasibility study for landing on moon.

However, the main hypothesis of Economist is on the growing technological capabilities of both the countries and some advisory as usual how should both move ahead. According to Economist, ‘both countries believe they can succeed in high-tech markets that America, Europe and Japan have long regarded as theirs by right.’

The article ‘Running fast’ deals with nicely on the strength of China as well as India. It talks about India’s IT sector:

India’s ancient civilisations ushered in a “mathematical revolution” from the fifth century, when Aryabhata devised something like the decimal system. In the seventh century Brahmagupta explained that a number multiplied by zero was zero. By the 15th century, Madhava had calculated pi to more than ten decimal places. India’s genius, then as now, was in software not hardware. The heirs to Aryabhata and Brahmagupta, India’s digital ambassadors have won acclaim for their mastery of ones as well as zeros.

India produces more engineering graduates than America. But it has only 24 personal computers for every 1,000 people, and fewer than three broadband connections. India’s billion-strong population cuts both ways. As of now, India matters more to technology than technology does to India.
Leapfrogging or piggybacking?
India’s path has remained idiosyncratic. The skills demanded by its industries are those of a much richer country. This can be shown, roughly, by statistics, but more sharply by anecdote. General Electric’s technology centre in Bengalooru (formerly Bangalore) is working on advanced propulsion systems for jet engines. India’s Tata Consultancy Services (TCS) produces the software for Ferrari’s Formula One cars. India’s drug makers offer 60,000 finished medicines; only three countries produce a bigger volume.

Ganesh appears in some unofficial versions of the Mahabharata, a Hindu epic, as a scribe, whose quill pen breaks in his haste to record the poem as a sage recites it. Not to be beaten, Ganesh snaps off one of his tusks, dips it in ink and does not miss a line. Those virtues of determination and improvisation explain much of the success of India’s celebrated IT firms, such as TCS, Wipro and Infosys. Each firm has its epic tales of deadlines made and obstacles overcome. Their exports of IT services (which do not include other back-office services) grew by 36% in the last fiscal year to reach $18 billion, according to NASSCOM. IT services employed about 560,000 people. The big three have landed several deals each worth over $300m (with companies such as Skandia, General Motors, United Biscuits and British Telecom) and margins are still healthy. For example, Infosys reported an operating margin of 28% for the third quarter.

But some think India should be doing more with its intellectual resources. It should aspire to be the poet, not the scribe. India’s exports of its own software-or licensing of its own intellectual property (IP)-amounted to about $450m in the year ending March 31st, a tiny fraction of its service exports.

Services are labour-intensive; products require a bit of capital. It thus makes sense that India started out by specialising in the services. Add a roomful of computers and a company could get to work. But it is precisely the labour-intensity of services that must ultimately limit the industry’s growth. To double its revenues, a service company has more or less to double its headcount. That is expensive: wages of IT professionals are growing by 15% a year. TCS, for example, now has over 100,000 employees, having added over 12,000 in the most recent quarter.

Eventually, Indian firms will need to embody their brainwork in a patentable software product that can be copied and sold, over and over again.

What is stopping them?

Indian software firms often lack the wherewithal to push a product in the marketplace, and to survive the marketplace’s whims. Services yield predictable returns. Products, on the other hand, require a heavy outlay up-front, which may never be recouped if the package fails to find enough distributors, “channel partners” and customers. I-flex solutions, India’s biggest software-product success, survived its early years by running a services business on the side.

To make a successful product, a company needs to be close to its customers. But Indians do not use much software-they bought only $1.6 billion-worth last fiscal year-and when they use it, they do not pay for it. Piracy rates are as high as 72%. One company, Tally, has succeeded by writing accounting programs for small businesses in India and other emerging markets. It touts “the power of simplicity” and traces its origins to the efforts of its founder and his son to computerise their own company’s accounts in the 1980s. You can buy the silver edition of Tally’s ninth release for 11,232 rupees ($290). This compares well with foreign packages that are “atrociously expensive” and “require two or three PhDs to run.”

Meanwhile, the services firms themselves seem happy renting out IQ. Their aim is not just to add heads, but also to earn more revenue per head. India’s leading firms hope to move away from charging clients on the basis of inputs-“time and materials”-or even outputs-pieces of code. They want to charge customers on the basis of the gains their IT services can deliver, such as cutting their billing costs.

Scribes want to become better scribes. To become a poet, you probably need to be born as one.

But it seems logical to expect the big players of Indian IT sector getting into software-product as they can afford it. And many of the smaller entrepreneurs and startups must emulate Tally. In sheer number, it doesn’t seem India lacks talent, but its younger generation of entrepreneurs straight from the incubators of the institutes must be enthused to enjoy the risk of going in to software product business rather than money making BPOs only.

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