This has resulted in an unusual situation in the PC market in countries like India, where there are a few international brand names like IBM, Compaq, Dell, and HP, selling at a premium, while there are a number of cheaper and exclusively national and local brands. It needs to be noted that, barring a few exceptions like Acer and Samsung, most international brands originate in the developed countries. These branded products service a premium market which is willing to pay a price for the reliability of branded products and for the assurance of quality after-sales service that come with them. But as the PC market grows and brings into its fold a large number of small businesses and home users, price becomes an issue among a large share of consumers, creating a separate market segment serviced by small assemblers. In India for example, during the first six months of 1998-99, PC assemblers accounted for a 53 per cent share of units sold in the Indian market and 45 per cent of the value of that market (Chart 4).
Chart 4 >>
 
However, most of these assemblers were extremely small in terms of the number of unirts produced (Chart 5). This must mean that the margins in this extremely competitive market must be extremely small. On the other hand, as Table 1 shows, the branded products market was dominated by international brands, with only few Indian players like HCL, Zenith, Wipro and Vintron. In fact with liberalisation, many of the larger domestic players like Wipro have become sales agents for international brands like Acer and Apple, rather than producers of PCs themselves.
Chart 5 >>
 
Needless to say, with imported components accounting for a substantial share of the value of PCs assembled by both the international players and domestic assemblers, the domestic linkage effects of the growth of PC sales could only be limited. Much more employment is likely to be created by the growing demand for maintaining and servicing the installed PC base (estimated at 4.3 million). Further, besides low overheads, one of the advantages enjoyed by domestic assemblers was allegedly their ability to avoid payments of a range of duties, especially customs duties. However, as India's opportunities for software exports have grown, there has been substantial pressure on the government to liberalise imports of computer hardware and reduce import tariffs substantially. With the government having succumbed to this pressure, a part of the competitive advantage of assemblers has been eroded so that we can expect the share of the larger international players to increase substantially. This would be all the more true as the market for 'higher end' products like notebooks and servers increase (Chart 6). In the event, not only would the linkage effects of the growth of the PC market be minimal but whatever value is added domestically would accrue in the hands of large international firms.
Chart 6 >>
 
These features of the PC market, which would be even more true of the peripherals market, indicate that, in the wake of liberalisation, the emergence of a strong indigenous industry that engages world markets is not likely in the hardware segment. Thus, if the case that India is likely to emerge an IT powerhouse which invades developed country markets and challenges developed-country players is valid at all, it can only be true of the software segment.
 
However, while the aggregate figures on software exports are indeed remarkable, a closer look indicates that a few players operating at the lower end of the value-chain in software production account for much of these export revenues. The IT sector's software revenue in 1999-00 amounted to Rs. 24,350 crore, of which Rs. 15,890 crore came from the export market. Around 1250 companies were involved in activities that helped garner this export revenue. However, only 37 of them had an export turnover of more than Rs.100 crore. The top 5 exporters (TCS, Wipro, Infosys, Satyam and HCL) alone accounted for 29 per cent of total exports. And the largest exporter, Tata Consultancy Services, garnered revenues of Rs. 1,820 crore from the export of software services. The export sector is dominated by a few players.
 
What is noteworthy, however, ia that even the big exporters obtained little by way of revenues from frontline software products or higher end consultancy and software generation services. To quote a senior executive from the Indian software sector: “India, somewhere down the line, has to make up its mind whether it would be a quality software developer or concentrate on quantity…If you look at the typical structure of the IT services provided to any of the global companies – on the bottom layer is outsourcing, above it software development, on top of that is technology development and higher up is networking services and, finally, IT consulting. As you move up, you get higher billing rates, higher revenues, higher gross margins and, thereby, high profitability because the complexity of the transaction is higher.” According to industry insiders like Naraya Murthy of Infosys, this move up the value chain has hardly occurred and is not India's priority. In a recent interview Murthy said Indian software expertise in customised services had a long way to go in quantity and quality before focusing entirely on other fields. ``Yes, moving up the value chain is a good idea. We are at it ourselves - about Rs. 20 crores, which is just 8 per cent of our total business and not the main,'' he said. There are others, line Vinay Deshpande of NCore who feel that while software services should not be sneered at, the contract should be properly designed. ``If the job is just another cover for body shopping, then there is little technology that accrues to the contractor… Except a few, such contracts mainly mean deputing engineers from here. The parent company does not get any fresh infusion of technology in this case. I strongly believe that even in service industries, contracts should be such that there is technological upgradation.'' He feels technology thus acquired could then be leveraged to develop indigenous products for, in the long run, the money is in developing products.
 
The difficulty is that the move up the value chain may not be a matter of pure choice, but structurally limited. While there have been instances of Indian companies delivering high-end products, like the banking and e-commerce software product, BankAway, from Infosys, the industry generally accepts that much of the exports from India consists of low end outsourcing and IT enabled services. This limited success in terms of the composition of exports may be because there indeed are barriers to entry into higher end software.