International Business Assignment:

Transcription

1 International Business Assignment: Country: INDIA India now has become synonymous with Information Technology (IT). Its software developers and IT products/services are only the second after the United States. In fact, more and more IT jobs are outsourced from the United States to India that makes IT job markets in the United States are suffered. What are the secrets that make India can emerge as a leading IT country among other countries especially in Asia? Using the Porter s Diamond Model. The Information technology industry in India has gained a brand identity as a knowledge economy due to its IT and ITES (IT-Enabled Services) sector. The IT ITES industry has two major components: IT Services and business process outsourcing (BPO). The growth in the service sector in India has been led by the IT ITES sector, contributing substantially to increase in GDP, employment, and exports. The sector has increased its contribution to India's GDP from 6.1% in to 6.4% in According to NASSCOM, the IT BPO sector in India aggregated revenues of US$88.1 billion in FY2011.The top seven cities that account for about 90% of this sectors exports are Bangalore, Chennai, Hyderabad, Mumbai, Pune, Delhi, Kolkata, Coimbatore and Kochi Export dominate the IT ITES industry, and constitute about 77% of the total industry revenue. Though the IT ITES sector is export driven, the domestic market is also significant with a robust revenue growth. This sector has also led to employment generation. Direct employment in the IT services and BPO/ITES segment was 2.3 million in and is estimated to reach nearly 2.5 million by the end of financial year Indirect employment of over 8.3 million job opportunities is also expected to be generated due to the growth of this sector in Generally dominant player in the global outsourcing sector. However, the sector continues to face challenges of competitiveness in the globalized world, particularly from countries like China and Philippines.

2 India's growing stature in the Information Age enabled it to form close ties with both the United States of America and the European Union. However, the recent global financial crises has deeply impacted the Indian IT companies as well as global companies. As a result hiring has dropped sharply, and employees are looking at different sectors like the financial service, telecommunications, and manufacturing industries, which have been growing phenomenally over the last few years. India's IT Services industry was born in Mumbai in 1967 with the establishment of Tata Group in partnership with Burroughs. The first software export zone SEEPZ was set up here way back in 1973, the old avatar of the modern day IT park. More than 80 percent of the country's software exports happened out of SEEPZ, Mumbai in 80s. Government initiative in India's domestic IT Market The Indian government has established a National Taskforce on IT with an aim of formatting a durable National IT Policy for India. Endorsement of the IT Act, which offers an authorized structure to assist electronic trade and electronic operations. Major investments in India's domestic IT Market According to Andhra Pradesh Government the state's SEZs and Software Technology Parks of India (STPI) will witness an investment of US$ 3.27 billion in the next few years. VMware Inc, San Francisco-based IT firm is looking forward to invest US$ 100 million by 2010 in India. EMC Corporation's total Indian assets is expected to reach US$ 2 billion by 2014 Future of Indian IT Industry The Indian IT sector persists to be one of the flourishing sectors of Indian financial system indicating a speedy expansion in the coming years. As per NASSCOM, the Indian IT exports are anticipated to attain US$ 175 billion by 2020 out of which the domestic sector will account for US$ 50 billion in earnings.

3 In total the export and domestic IT sector are expected to attain profits amounting to US$ 225 billion along with new prospects from BRIC nations and Japan for its outsourcing operations Know we will see whether Porter s Diamond Model can explain the primary causes of India s competitive advantages in the information technology sector. Porter s Diamond Model explains that there are four determinants of national competitive advantage. Those components are: Factor Conditions, Demand Conditions, Related/Supporting Industries, and Firm/Industry Structure/Strategy. Factor Condition: we all know that India is one of the largest pools of the best engineers and highly educated people. India has a long history in producing smart and bright engineers from its education system. India s strong emphasize in math in its basic education has leads Indian to be very competent in engineering field especially in information and computer field. In addition, most universities are highly focused on quantitative skill and engineering is considered the best field, no wonder if India has produced the best engineers among other nations. This intellectual capital is the Factor Condition in the Porter s Diamond Model, specifically, the advance factor. India can provide world class intellectual capital with very low cost. The intellectual capital is the biggest determinant of India s success in IT. Combined with its high population, India can provide lower costonly 40 to 50% of the cost spent by the US companies with the same or even higher quality.

4 o INDIA has created its own important factors such as skilledresources and technological base for expanding BPOs / KPOs o INDIA is upgrading / deploying resources over time to meetthe demand. o -new innovations. new methods has given thelocal industry the comparative advantage. Demand Condition: it began with the demand of some US companies such as American Express and General Electric. It was when some of US companies began its Business Process Outsource (BPO) plan. The global competition made global company looked for other alternative to cut cost and stay competitive in global market. The alternative was found; they had to find other parties that could provide same products/services with lower cost. Then, India came up as the place of alternative for outsource given its intellectual capital. By that explanation, it does not mean that there are no demand of IT related product and services in India. Computer hardware and software must be really needed in India due to combination of high enthusiasm in technology and its high population. But it is clear that the India s success came not from home demand but from US demand. Indian engineers have been for years working for US companies, especially in IT sector. With the growth of IT industry, there has been developed a sort of strong Indian connection in Silicon Valley. According to Anna Lee Saxenian, an associate professor at the University of California at Berkeley whose research is a study about Silicon Valley s immigrant, that of an estimated 2,000 startups in Silicon Valley 40% are Indian-spawned. The Indian connection in Silicon Valley, the intellectual capital in India and the trend of outsourcing in current global competition altogether bring India a great competitive advantage. o A more demanding local/ global market has given INDIA the international / national advantage. o A strong trend setting local market has helped local firms anticipate global trends. Related/Supporting Industries, and Firm/Industry Structure/Strategy:

5 It is not really convincing that those are the determinants of India s success. Electricity, road, and communication in India are not good enough for supporting India in global competition. Rivalry and Indian s firm structure are also not a determinant. Again, just like the Demand Condition it does not want to say that these other two determinants do not exist in India; they exist, but simply do not the primary causes of India s success. If there are a lot of improvements in current infrastructures or Indian companies management, those are just helping India stay competitive not the primary reasons of India s lead in IT. From all those description, it can be concluded that India s success secrets are its Factor Condition (i.e. the intellectual capital and Indian connection in Silicon Valley) and the trend of outsourcing (Chance). It seems it does not fit with Porter s Diamond Model as Porter explains that Competitive advantage based on only one or two determinants is possible in natural resource-dependent industries or industries o local competition has created innovations and cost effectiveness. for the INDIAN BPOs o this has also put the pressure on local suppliers to lift their game. o local conditions have affected various firms strategy. o local rivalry have forced firms to move beyond basic advantages. o examples INFOSYS, WIPRO AND TCS [ TATAS] Sustainability: It is interesting to see from another perspective. We can compare India with another nation that also has a great pool of bright engineers and educated people: China. The advantage that supports India dominance in IT is its familiarity with English language given it occupied by the British Empire for hundred years. This is supported by Landes writing. He discusses some differences in countries development from historical point of view; especially the differences between South America, North America and China. From the reading it can be concluded that there are important influences from the historical and socio-cultural of a particular country to its development. Religion, belief and ancient civilization can be determinants of nation competitive advantage. India has an old history of civilization that creates Hinduism and Buddhism which people always pay high appreciation for Vidya (Sanskrit language for knowledge). This is a strong foundation for the creation of Indian intellectual capital.

6 In conclusion, India s success secrets are its Factor Condition (the intellectual capital and Indian connection in Silicon Valley) and the outsourcing trend in global competition (Chance). The India s success in IT does not entirely fit with Porter s Diamond Model that can be predicted as Indian s success will not be sustainable or it is Porter s Model that need revision. It may necessary since Porter does not put high attention in historical and socio-cultural perspective.as shown in Landes explanation the historical and sociocultural background of a nation can shape and create the basis of a nation competitive advantage.