the case of software products for mass use for example. Creating such
a product starts identifying a felt need (say, for a browser once
the internet was opened up to the less computer savvy or for a web-publishing
programme once the internet went commercial). The persons/firms identifying
such a need must work out a strategy of generating the product, by
hiring software engineers, at the lowest cost in the shortest possible
time. Once out, the effort must be to make the product a proprietary,
industry standard. This involves winning a large share of the target
consumers, so that the product becomes the industry standard in its
area. Once done, the product becomes a revenue generating profit centre.
The investment required is the sums involved in setting up the company,
in investing in software generation during the gestation period, and
in marketing the product once it is out so as to quickly win it a
large share of the market. Needless to say, while entry by individuals
or small players are not restricted by technology, they could be limited
by the lack of seed capital. This is where the venture capitalists
enter, betting sums on start-ups which if successful could give them
revenues and capital gains that imply enormous returns.
are, however, two problems here. The first is one of maintaining a
monopoly on the idea during the stage when the idea is being translated
into a product. The second is that of ensuring that once the product
is in the public domain it is not replicated by competitors who win
the market before the originator of the idea consolidates. It is here
that a feature of 'entrepreneurial technologies'
the easy acquisition and widespread prevalence of the knowledge base
needed to generate new products - considered an advantage for small
new entrants actually proves a disadvantage.
are two aspects of technology that are crucial in this regard. First,
their source. Second, the appropriability of the benefits of a technology.
As mentioned earlier, in industries with routinised technologies the
source of technology was in significant part the activity of incumbent
firms themselves. On the other hand, in the case of entreprenurial
technologies the sources were in the public domain. This was where
the advantage lay for the small operator. But once a technology is
generated based on some expenditure in the form of sunk costs, there
must be some way in which the innovator can recoup these costs and
earn a profit as incentive to undertake the innovation. In the Schumpeterian
world this occurred because of the 'pioneer profits' that
the innovator obtained. The lead time required to replicate a technology
itself provides the original innovator with a monopoly for a period
of time that generates the surplus which warrants innovation.
often this alone is not enough to warrant innovation and in the software
sector lead times can be extremely low, especially if the competitor
invests huge sums in software generation, reducing the lead time substantially.
It is for this reason that researchers have defended and invoked the
benefits of patents and barriers to entry in production, which allow
innovators to stave off competition during the period when sunk costs
are being recouped. Unfortunately, neither are the status of patents
and copyrights in the software area clear ( as illustrated by the
failure of Apple to win propietary rights over icons in user interfaces),
nor are their barriers to entry into software production.
has had two implications. First, the importance of secrecy in the
software business. The 'idea' behind the product must be
kept secret right through the development stage, if not competitors
can begin rival product developments even before the original product
is in the market. A feeble attempt to institutionally guarantee such
secrecy is the now infamous 'non-disclosure agreements'
which prospective employees, financiers and suppliers are called upon
to sign by the innovator who is forced to partially or fully reveal
his idea. Secondly, even after the product is out, since the threat
of replication remains, it is necessary to strive to sustain the monopoly
that being a pioneer generates. This requires 'locking in'
users with the help of an appropriate user interface which they become
accustomed to and are reticent to migrate away from, and locking in
producers of supportive software with an appropriate 'applications
programming interface'. It should be obvious that sustaining
monopoly to recoup sunk costs can indeed be difficult.
strategies did help the early start-ups, resulting in the jeans-to-riches
stories (Microsoft, Netscape, etc.) with which Silicon Valley abounds.
But more recently it has become clear that start-ups undertake innovative
activities only to create winning products that the big fish acquire.
This is because of the possibility of easy replication and development
of an original product, which can be done by dominant firms with deep
pockets that allow them to stay in place and spend massively to win
dominant market shares. In the event, the likelihood that a small
start-up would be able to recoup sunk costs, clear debts and make
a reasonable profit is indeed low. Selling out ensures that such sums
can indeed be garnered.
this feature of the software products market, it is not surprising
that small players (such as Netscape and Vermeer Technologies that
delivered Frontpage) are mere transient presences in key areas even
in the developed countries. To expect developing country producers
to fare better is to expect far too much. The latter can merely be
software suppliers or outsourcers for the dominant players.
is disconcerting is that even as outsources India still remains a
lower-end supplier of IT-enabled services. This involves not just
body-shopping in the form of temporary export of software professionals
to undertake specific jobs in large projects designed and executed
in the West, but the sale of cheap skilled and not-so-skilled labour
services whose output is transmitted via modern commucation technologies
to sites where those services are required. That is, there are a whole
host of services that can now be provided without having to move the
person supplying the service to the point where the service is being
delivered. Typical examples are a range of backoffice services and
possibility of such service delivery has helped India circumvent the
obstacle to service exports created by immigration laws in the developed
countries. That is, a large part of software exports is not very different
from the exports of nursing, carpentry, masonry and other such services,
except for the fact that unlike those exports, the presence of the
service provider at the point of sale is not required in the case
of IT enabled servcies.
in this light, conceptually, India's software thrust of the 1990s
is not as spectacular as it appears. It is substantially a technology-aided
expansion of the of the waves of migration by services providers of
different descriptions: doctors, nurses, and blue-collared workers
of various kinds. An expansion of that kind cannot be the basis for
the redressal of international inequality that it is made out to be.
But that is not all. Even in quantitative terms this development is
not spectacular. The 'net foreign exchange revenue' to the
country from migration of the old kind, captured by the volume of
remittances into India, is in the range of $10-12 billion. The gross
foreign exchange revenue from software exports is just $4 billion.
The real question is, whether India can continue to exploit the possibilities
of arbitrage generated by differences in software and IT-enable service
costs between onsite sources and offshore centres, so as to more than
triple its current gross revenues. That possibility is threatened
not merely by the emergence of alternative offshore centres, but also
by a reduction in the onsite-offshore cost differential. It is for
this reason that industry-insiders keep emphaising the importance
of moving up the value chain in software production. But
that movement is possible as structurally constrained as the effort
at increasing sophisticated manufactured exports from the developing
to the developed world was.