Transcript India’s R&D policy and the growth of software industry in

India’s R&D policy and the growth of
software industry in comparison with China
Mohsin U. Khan
National Institute of Science Technology and
Development Studies, New Delhi-110012
Technology import policy of India
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Period of liberalization until mid sixties.
Period of tight regulations from then until the
end of seventies.
Period of relaxation of regulations from then
until the end of eighties.
Regulations were then relaxed and th policy
became once again liberal.
Industrial policy resolutions
1.
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Government of India adopted Industrial Policy Resolution
Act. (April 1948)
Private sector development of Industry.
Reserve for development of exclusive industries in public
sector. (The manufacture of equipment viz telephones, telegraph and
wireless apparatus excluding radio receiver sets one of the six major
areas of industrial activities so reserved)
2.
3.
The Industries (Development and Regulation Act of 1951)
In 1956 Parliament adopted Industrial Policy Resolution
(IPR 56).
Cont.//
4.
The Monopolies and Trade Restrictive Practices Act
(MRTP Act) 1969.
(The industrial groups with assets of Rs 200 million and above
would be allowed to undertake activity only in specific group of
industries)
5.
The Foreign Exchange and Regulation Act. (FERA)
1973.
(Restricts the Indian activities of the companies having more than
40% foreign equity to the same group of industries as the MRTP
houses. Net payment in foreign exchange increased from Rs 412
million in 1977-78 to Rs 1848 million in 1980-81)
Cont.//
6.
Industrial policy as a whole was reviewed in 1973, 1977 and
1981
(Industries with the investment of Rs 50 million now don’t need the
license if their annual requirement of imported raw material does not
exceed four million rupees or 15% of the production whichever is less.)
7.
8.
In 1983 government announced certain special tariff and
tax concessions for the electronics industry.
In March 1984, the IPR 56 was amended.
(The manufacture of Telecommunication equipments such as private
automatic branch exchange (PABXs), telephone instruments, teleprinters
and data communication equipments for installation. Also jointly with the
public sector with 5% investment by the government the private sectors
now manufacture switching and transmission equipments).
Technical knowledge acquired
A common view of this issue :
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Indian firms have not acquired full depth and
breadth of knowledge and information that
would enable them to master and assimilate the
technology effectively.
Limited technological content of the
collaboration results from the efforts of
suppliers firms to minimize the knowledge and
expertise they make available.
Technology policy statement of 1983, emphasized
the need to plan collaboration agreements in
ways that would ensure effective transfer of
basic knowledge, know-why important inputs to
the importing firms for subsequent absorption,
adaptation and up-gradation of the initially
acquired knowledge.
Why India gone for liberalization in 1991
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India’s economy grew at the rate of about 5% during
1980s.
Domestic inflation gone up to 17% in 1991.
Foreign exchange reserves reduced to $ 1.2 billion
barely sufficient to pay for two weeks imports.
Central government fiscal deficit as a percentage of
GDP touched the all time high of 8.4%.
Current account deficit widened to $ 8 billion (2.6%
of GDP)
Policy changes since 1991
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Drastically reduced number of industries
reserved for public sector.
Abolished industrial licensing except for a short
list of industries related to security and
strategic concerns, hazardous chemicals.
The restrictions imposed by MRTP Act on large
firms expansion, merger, amalgamation and
take over etc..have been abolished.
Cont.//
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The protection provided to the small firms
being reduced.
Now TNCs are free to decide whether they will
use imported or local raw material.
Now TNCs are free to use their brand names.
Now TNCs can increase the permissible extent
for foreign equity from 40 to 51 percent
Response of TNCs
Gross flow up
From Rs 5.3 billion in 1991
to Rs 38.9 billion in 1992
to Rs 88.6 billion in 1993
to Rs 141.9 billion in 1994
to Rs 2.4 trillion in 2004
Electronics policy measures (1981-1988)
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2.
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Policy on electronics components (1981).
Industrial and licensing policy for color television
receiver set (Feb. 1983).
Measures to accelerate the rapid development of
electronics (Feb. 1983).
New computer policy (1984).
Integrated policy measures in electronics (1985).
Policy on software exports, software development
and training.
New computer policy (April 1988)
Growth of electronics industry
Sixth Plan (1980-85)
 Seventh Plan (1985-90)
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25%
30%
Software revenues
During 2003-04 the industry grew 28.2%
to touch $ 15.9 billion (12.5 billion
exports and $ 3.4 billion domestic
market).
 Nasscom estimates software exports and
ITES to grow at 30-32% in 2004-05. That
would take the industry to $ 20 billion
mark, of which export will amount to
16.3 billion.
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The money makers, Nasscom ranking
as per revenue
Rank Company
Exports in 2003-04
Rs in crore
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1
TCS
5,963 ($ 1 billion)
2
Wipro
5,881 ($ 1 billion)
3
Infosys
4,761 ($ 1 billion)
4
Satyam
2, 623
5
HCl
2,400
Cont.//
US continues to be major market for
Indian software services with a share of
70% while Europe accounted for 23.5%
in 2003-04.
 The number of 500 companies that have
been outsourcing their requirements has
also been steadily growing with as many
as 254 outsourcing their requirements
from India.
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Cont.//
The IT industry added over 100,000
jobs in 2003-04, taking total
employees in the sector 810,000. Last
fiscal, ITES-BPO added 65,000 jobs
and software and allied services
created 40,000 jobs.
Cont.//
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One of the major reasons that Indian software exports
is gaining recognition across the world is because of
quality certification. Out of 23 SEI-CMM level 5
certified companies world over, 15 are from India. This
number is expected to grow as there are several
companies that have already reached to level 4.
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Another encouraging sign is that small office segment
of the market has grown by 70% in 2003-04. Besides
large corporate market like ERP segment grew by
23%,e-commerce solutions by 300% CAD/CAM
market 41% and banking by 70%.
Cont.//
The number of software exporting
companies has grown to a record. At
present it is 1,250 and expected to grow to
1660 mark next year.
 Number of software companies logging
exports to Rs 100 crore now stands at 37.
The top 25 exporters accounted for 61%
of the export resources in 2003-04
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Projections for India’s IT industry
According to Nasscom-McKinsey report
Annual revenue for IT industry in 2008 will be around
US $ 50 billion.
Thus a number of opportunities to be created
 Potential for 2.2 million jobs in IT by 2008.
 IT will attract Foreign Direct Investment (FDI) of US $
4-5 billion.
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China Vs India
Attribute
China
India
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Population (in billion) 1.3
1.03
literacy rate
82%
54%
Area
9.6 bn sq km
3.3 bn sq km
Total GDP
$ 1 trillion
500 bn
GDP growth (CAGR)
10%
6%
Per capita GDP
$ 735
$ 495
Total exports (in bn)
$ 249
$47
Share in world trade
3.4%
0.8%
China Vs India
IT industry figures
Calendar
2001
2001
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IT spending as % of GDP
1.10%
1.68%
IT industry turnover
$46.1 bn
$ 12 bn
Hardware exports
$ 26.4 bn
$ 0.4bn
Software exports
$ 1.2bn
$6 bn
Installed PC base
22 million
7 million
PC Penetration/1000
13.2
3.5
Internet user base
22.5 million
3.5 million
International Bandwidth
7.5 Gbps
1 Gbps
Telephone lines
175 million
34.5 million
Telephone lines/100
8.6
3.4
Mobile phones
136 million
5.7 million
China’s economic policy reforms
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China’s economic reforms started a full 25 years ago
while in India they started a decade later in 1991.
Deng Xioping kicked off economic reforms when he
suggested that tens of thousands of small and medium
enterprises be thrown in private waters to swim or sink
For most of the last two decades China’s economy has
grown double digit growth with an average CAGR
(Compound Aggregate Growth Ratio) of 10% in the last
decades.
In the last decade China has paid special interest to high
technology industries.
From exporting toys and textiles, China has today grown
to be major exporter of IT hardware, overtook Taiwan in
2000.
China’s software story
China’s software growth is currently hampered by
number of factors:
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China Media Intelligence (CMI) estimates that out of
5,000 software companies 55% of them have less than 50
people. Another 42% employ 50-100 people and there are
only a handful of companies with an employee strength
of 1000 people.
CMI says Yongyou the largest domestic player in software
development. The country’s largest company Oriental
Software has a little over 1300 people compare that to
26,000 at Infosys and 24,000 at TCS.
Cont.//
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Some of the top companies had obtained CMM
certification, a large number of middle level companies
had not even heard it.
Lack of comfort with English language and the cultural
confusion that comes with it made China’s software
industry immature.
India has at least five year lead in software outsourcing.
India has surpassed Ireland as the prime outsourcing
destination of the world. The Indian companies have won
a reputation of low cost high quality software delivery.
Dynamic techno-management
capabilities
Resource exploitation capabilities
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Technological learning
Outside technological sourcing
Human resource exploitation
Resource focusing for the target
Managerial integrating capabilities
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Task force team integration between R&D and production
Concurrent development system : Managing multifaceted activities
Production technology management
Interfaces and consensus building among functional department
Top management leadership and involvement
Cont.//
Path navigating capability
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Planned management
Fitting into changes in environment
Joint R&D activities
Korean electronics export growth
From meager of $ 89 million in 1971 to $ 20.638
billion in 1992 an increase by a factor of 232
 Between 1988 and 1992 Korean market share
increased :
From 7.5% to 17.7% in US
From 7.8% to 18.1% in Europe and
From 23.6% to 33.7% in East Asia
(Exclusive of Japan)
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Cont.//
Semiconductor export is the largest item in
electronics export
From $ 7.8 billion in 1993 to $ 11 billion in1994
 During the seventies electronics exports
CAAGR was 43% while for other sectors
CAAGR Was 35.6%
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