Risk Management in Software Outsourcing-A Portfolio Analysis of India's Case Based on Software Export Market Constitution

Article excerpt

India, famous for its software outsourcing service, has achieved high growth rates in software exports in recent ten years. The figure of Indian software export destination shows that the US has been the dominant destination for more than a decade. The US is overall India's largest customer in this sense. In other words, Indian software export is heavily dependent on the US market. Risks exist in software outsourcing market not only for outsourcers but also for software outsourcing service vendors. Thus, risk awareness and risk avoidance, in a word, risk management is undoubtedly very crucial for the sustainable development of software industry. From the perspective of risk management, this paper provides to give some suggestions for software outsourcing service vendors by means of the portfolio analysis of India's software export market constitution. Though it is a simple two-market portfolio analysis model, the implications are significant for raising outsourcing service vendors' awareness in risk management, future market strategy and industrial development.

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

The success story of Indian information technology (IT) industry and IT-related service industry is now acknowledged well. Majority of the success in the sector can be attributed to the conspicuous growth and achievement in software exports. India's leader role in providing software outsourcing service has been gaining increasing appreciation. According to a report from National Association of Software and Service Company (NASSCOM, 2007), service and software exports remain the biggest contributor with 31.3 billion US$ to the total revenue of IT industry as 47.8 billion US $ in 2007. India, famous for its software outsourcing service, has exactly achieved high growth rates in software exports for many years. In order to give a comparison, total revenues of the IT industry and software exports in the last four years are demonstrated in Figure 1. Then, the service and software exports over the last decade are demonstrated in Figure 2.

It is obvious that India's exports in software and service have increased rapidly. With contribution to over 50 percent of India's total IT industry's revenues, they have been playing a crucial role for the development of India's IT industry. India's competitiveness in exports of software and outsourcing service has drawn the keen interest for many researches leading to intensive discussions. In research about location attractiveness index on making offshore decisions (A.T. Kearney, 2004), the factors making countries attractive as potential locations for outsourcing were compared and India remains the top player in 25 countries with the highest score in "People skills and availability" which was evaluated from cumulative business process experience and skills, labor force availability, education and language and attrition rates. It is no doubt that important factors like lower cost, good quality, and abundant human resources with excellent IT skill and fluent English communication ability have become the general attractiveness of India when it comes to outsourcing to India.

The beginning of developing IT industry and the achievement were not a sudden decision and a surprising result. Since the 1990s, with its liberalization and deregulation, India has made significant progress in its economic growth. To promote the activities of IT industry and increase IT adoption has been an important national policy for India to compete in the global economy. Software, as a decisive sector in IT, its importance with the ubiquitous characteristics as rapid diffusion and application has been recognized all over the world. Thus, the Indian software industry as a successful example under its economic reforms, has attracted the world attention. Software outsourcing has been the key trump card for total exports and revenues of the Indian IT industry. To most extent, its conspicuous growth in software outsourcing has been with the synergy effect of the progress of the American IT revolution, as the US is the main export destination for India (Sakakibara, 2001). …