India’s emergence as a major exporter of software services in less than a decade and a half has excited debate about the causes of its success and ignited hopes for similar success in other industries. The subsequent growth of exports of other business services appears to validate the belief of some observers (including myself) that India’s software success would have broader benefits for the Indian economy. Despite this, there is a perennial undercurrent of concern about the prospects of the Indian software industry. On one hand, Wages for software professionals have risen year over year and employee attrition remains a persistent problem. Indian exports continue to be mostly serviced with a modest technology content and there is little evidence of successful product development. On the other hand, we have our not-so-friendly-neighbor china competing to trounce our industry.

The Chinese software industry is small and underdeveloped, compared with its computer and other information technology (IT) hardware industry and compared with India’s software industry. Yet, current status is not necessarily a good guide to future prospects, as China’s recent history amply demonstrates. An important difference between the Chinese and Indian software sectors is the former’s close links to domestic users, notably industrial and commercial users. This has fostered intensive learning in the area of product development for a large and rapidly growing domestic market.India’s software sector, lacking such a dynamic domestic user sector until very recently, has thrived on exporting software services.

Does the underdeveloped domestic user base constitute a long-term liability for India vis-à-vis China? Not necessarily, if Indian firms can play to their own strengths in process control and project management, perhaps forging alliances with Chinese companies strong in product development and with a sophisticated domestic customer base as a means of penetrating an increasingly important regional market. Whether such tactical alliances could evolve into something more strategic, with Indian-Chinese joint venture companies competing with multinationals in certain global market niches remains, however, a question of speculation.

Certain Chinese government policies and institutions  notably, publicly financed research into Chinese language software, translation engines, security systems, etc. appear to have generated a significant number of software spin-offs, in some cases as derivatives of hardware by-products from government research laboratories. While India’s software industry relies heavily on its human capital on the elite regional institutes of technology, it would seem to have no counterpart to China’s public R&D support for innovative software products. Perhaps it should and that remains an important question to be addressed.

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