http://gkerosi.hubpages.com/hub/The Trends in Globalization of Software Industry
There were some unusual developments in the emerging economies in the 1990’s. The strange growth in the software industry in those countries was never anticipated. This is a field which is labeled as high tech and normally a preserve for the developed world. This was not just a simple growth of the industry, it was remarkable growth. India has always played a key role in this phenomenal growth of software industry. In this country, software industry was nearly not there in the beginning of 1980. It is quite impressive to discover that the industry currently supports the livelihood of over 450,000 people. It is experiencing an annual growth rate of between 30% and 40%. This is growth in both employment and revenues over a period of 10 years. There are other countries which have experienced some remarkable growth although not as much as India. These countries include: Israel and Ireland. They have achieved a double digit growth as well.
We will take a look at the factors that are contributing to such remarkable growth as well as the lessons that can be learnt of these case studies if any. You will also note that the three countries mentioned above are known to import a large part of their products to other countries. The advanced economies are the major beneficiaries more especially the United States of America.
This is why many people in the US are debating on the merits and demerits of outsourcing to the economy.
The software industry has seen fast growth in the following emerging countries: China, Ireland, Brazil, Israel and India. Many reports have clearly pointed out that the growth in some the countries has been promoted by a ready export market in the USA and other developed countries. The industries in Israel, India and Ireland are fueled by the exports. On the other hand, Brazil and India have grown due to the large domestic market demand.
There are many differences in the number of people working in the software industry in the countries already mentioned before. In 2003, India’s software industry had provided employment to 250,000 people. We can compare that to the 2000 employment data for Brazil and China. Brazil had 190,000 while china had in employment 160,000 people. The two countries figures were lower than those of India which stood at a quarter a million individuals. Ireland was note left behind; its software industry had employed 28,000 people only. Out of that number, 15,300 people were working for the Multi-national Corporations in the country while 12,600 were working for the local companies in Ireland. The number was further reduced to 15,000 people in employment in Israel software industry. All these numbers are nothing compared to the situation in the US where over 1 million people were working in the software industry. The industry was generating $200 billion in sales per annum. On the other hand, Japan was not left behind. Software industry in that country of the rising sun employed 534,000 people who generated $85 billion in sales. The largest software producer in Europe, Germany, had provided employment for 300,000 people who were receiving revenues in excess of $40 billion annually.
Despite the data provided above, Israel is leading in sales per employee. It is then followed closely by Ireland. In the year 2002, India recorded $50,000 as sales per employee.
Research & Development is the major driver of the Israel software industry growth. In other countries such as India, Brazil and China, the software development is focused on value addition. To be specific, Indian industry is service oriented in nature. Ireland software industry juggles in between research and values addition. There are a few firms in Ireland which are product oriented as well as other firms which work as consultancies.
The software sales in these emerging economies are making a great impact in the economy. In China and Brazil, the industry contributes 1.5% to GDP. In Israel the figure is larger at 3.7% while in India it is 2.5% of GDP.
The growth rates of the software industries in the developing countries are very impressive. In some countries such as India, they are as high as 40% every year. There is also a general growth in the number of firms engaged in software industry. In 1990, there were about 100 firms engaged in this industry. The number grew to 797 firms in the year 2000. In Brazil by the year 2001, there were 685 firms. The firms were even fewer in 1996. There were only 210 firms.
Determinants of Success in Software Industry
There are two major factors which influence the software industry. As indicated earlier some success is brought about by the export demands or developments-led models. India is the best example where the software industry is driven by the export forces. The software programmers from India are virtually rented out to work for their clients. That means they are managed by the client company. Most Indian firms have an edge when it comes to costs. The US firms are very expensive to hire their services if you have a tight budget. These software firms from India have also avoided competing with large corporations such as: Anderson Consulting, EDS and Computer Science Corporation among others.
The services offered by the Indian firms are on high demand in the developed countries. This is how they have been able to learn how to manage large scale projects. It will be a good idea for me to mention some of the largest projects that Indians have managed successfully. The Y2K and Euro conversion projects are two prominent examples in this category. This is a clear demonstration of the level of competence of the Indian firms.
The Ireland industry did not depend on exports as for the case of India. In this country, demand for software products originated from the MNCs. A large number of local software firms were initially established as programming houses for the subsidiaries of Multinational Corporations working on information technology based in Ireland. The MNCs were both a platform to access the foreign market as well as a great source of revenue.
The software industry in Israel is said to have minimum reliance on exports. The industry was promoted by the fast accumulation of skills by the university graduates as well as the faster expansion of military R & D and the military efforts to expand its capability in the software industry. That means that there was an immense demand for software technology. There were also people who were highly skilled to supply the required products and services in software industry. To crown it all, the Israel software industry found a stable foundation on the Israel Hardware industry which offered employment for 55,000 people in 2002 alone. This is a great source of expertise as well as demand. This is a great contrast, considering that India started from the international arena. There are many sectors which play a key role in promoting the software industry in most countries such as telecommunications, banking, retail automation and customer electronics among others. These sectors have played a key role in promoting the software industry in China. The governments in these countries under focus have also played a key role in promoting the software industry. The central and regional governments have always favored the local software vendors for the provision of the computer software as well as operating systems.
Supply of skills and availability of Human Capital
All the countries whose software industry is doing well have one thing in common: an excess supply of human capital. They produce a large number of technology and software engineers. These professionals are made available due to the demand from the market. The engineers in these countries are more than the respective countries’ industrial sector can accommodate.
The countries are stilled involved in investing in science and technology. In the Asian countries such as Taiwan, South Korea and Singapore there are plenty of well established software firms that provide a lot of opportunities for the software engineering experts. That is why the start-ups in the software industry are unable to attract any engineers to work for their firms.
India experienced a fast growth in the number of accredited software engineers to approximately 340,000 in 2003. This number was 60,000 back in 1987.
The development of software industry in India has greatly benefited from both the private and public efforts. The India Council on Technical Education indicates that up to 80% of all the accredited admissions of engineering students at the undergraduate level in 2003 were 340,000 and were funded from private sources. The private colleges are at the frontline in provision of software engineering education. The majority of the privately funded colleges were established back in 1990s. Despite this expansion, there are some people who are raising concerns about the quality of programs offered at these institutions.
The role of the Diaspora in software industry
The human capital flows has played a great role in software industry. Brazil and China have played a great role by supplying software experts to the United States. These two countries have a large population of its citizens in the developed countries. The immigrants are highly skilled with some of them having up to 13 years of schooling in U.S. These people are from China and India as well as Brazil. There are about 400,000 Chinese, 300,000 Indians and 60,000 Brazilians.
The software industry has grown fast in the past two decades due to many factors. The need for outsourcing by the developed countries has real promoted the industry in India and China. The domestic demand has played a monumental role in Israel and Ireland among other nations. This is the trend that we expect for many years to come. Outsourcing of software services is very fashionable considering that it reduces costs in a considerable manner.
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