Measured by the age of many industries, the computer software industry in India is still in its infancy. Yet, its growth and devel opment has caught the attention of the world market so much so that India is now being identified as the major powerhouse for incremental development of computer software. The reason for this attention is not the actual size of the industry but its rapid growth rate over the nineties and its projected growth rate in the decade of the new century. According to the Delhi-based National Association of Software and Services Companies (NASSCOM), India's quasi-governmental software industry promotion organization, the software industry in India was worth Rs. 243.5 billion or US$ 5.75 billion in 1999-2000, whereas ten years back its worth was not more than Rs. 3 billion or US$ 150 million1. Although India's domestic software market is burgeoning fast, the most important factor that has driven this growth is the growth of the export market. While still a relatively small share of total exports, India's software export business is growing at an increasing rate2. In terms of Indian rupees, the compound annual growth rate (CAGR) for India's software export revenues over the past five years has, according to NASSCOM statistics, been as high as 62.3%, compared to 46.8% of CAGR for its domestic market revenue during the same period. With a modest beginning in 1984-85, software exports moved up to Rs. 25.2 billion or US$ 734 million in 1995-96 to Rs. 171.5 billion or US$ 4 billion in 1999-2000. It is now being expected that export revenue will grow to US$6.3 billion by the year- end of 20013.
The combination of events that has inspired the remarkable growth of demand for Indian software services in the world market, however, is a complex one. Cost is an obvious, although diminishing factor. As the Indian market, both domestic and export, has boomed, the wage gap between Indian software professionals and their counterparts in the developed countries has started to narrow4. Nevertheless, cost advantage remains substantial even today. In addition, worldwide interest in business process reengineering, the economic imperatives in developed countries of outsourcing, cost-efficient maintenance of existing mainframe systems and continuous development of new software for PCs have played significant roles. Finally, India's comparative advantage in the software industry, generated from its relative abundance of skilled software personnel, coupled with its rapidly improving communications infrastructure has played a key role in creating confidence among buyers of Indian software products and related services. As is evidenced by the rapid growth in theirdemand, Indian software engineers have carved out an enviable reputation in the world market for providing an unbeatable combination of quality software at a low cost; Indian software developers offer a cost advantage of 40% to 60% over their American counterpart5.
Motivated by its present growth trends and estimated future potential, this paper attempts to provide an analytical framework to evaluate the competitive strength of the computer software industry in India. Organizational structure and size of the industry are key factors determining the strength of an industry. Both these factors have been given close attention in this paper. Organization is discussed in terms of the industry's legal structure and its degree of concentration. The size of the industry has been analyzed by examining the relative significance of its domestic market and export market. In addition, the industry's strength in generating employment and its impact on national employment has been scrutinized at length. Based on the evaluation of the current state of the industry, its future opportunities and challenges have been summarized towards the end of this paper.
Analysis relating to the industry's structure and size in this paper is based on the reports of a preliminary survey conducted among a wide group of software related companies in India6. …