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The Basic Characteristics of Skills and Organizational Capabilities in the Indian Software Industry

The Indian software industry can be considered one of the 20th century’s most surprising economic developments, with India apparently coming from nowhere to become a major supplier of labor and software development services to the US and the rest of the developed world. The story has hinged on the US software industry’s rapid growth and its excess demand for skilled software professionals. India possessed a surfeit of scientifically trained talent whose skills were easily adaptable to the needs of the software industry. The story of the Indian information technology (IT) industry is characterized by the evolution of capabilities. The first stage consisted of body shopping—the mass shipping of talent across oceans. But this model is being supplanted by the emergence of India-based organizations that are organizing that talent within the country. In addition, the continual emergence of new sectors and trends in software is leading to new waves of unfulfilled demand for software.

This paper will review the state of the Indian IT industry, in particular the skills and organizational capabilities that were developed, and the potential problems and requirements going forward, particularly with regards to an innovative economy. This is done through a combination of empirical interviews, theoretical analysis and review of the (somewhat limited) extant literature. A preliminary framework is developed consisting of three parts: the economics of the “new economy,” skills, and organizational capabilities. The level of skills is the main factor credited for India’s success. However, as India’s IT industry matures, economics could prove useful in understanding the broader constraints and phenomena at work, mainly at the inter-firm level. The organizational level is also important in examining capabilities, which can be seen as the summation of skills and more.

The research questions that this paper seeks to address are:

  • Why and how did India succeed in developing its IT industry?
  • What was the role of skills and organizational capabilities in that success?
  • What are the challenges facing the industry (and what implications can we draw on this issue from previous analytical work)? In particular, what transformations do organizations have to undergo and what skills are lacking?

Discussion of these questions offers policy pointers on how the Indian experience might be translated into guidance for other emerging economies.

Section 2 reviews and constructs some frameworks that are used in the analysis. Section 3 briefly summarizes the software industry’s growth and present situation, including India’s position relative to other countries. This relies on a brief review of the literature and known facts on the past and current states of the industry. Section 4 looks at the future state of the industry, where it is headed and how various kinds of firms are transforming to meet the challenges. In section 5, we examine the types of skills needed to make this transformation, the skills that have been found lacking and their relationship to organizational capabilities. Section 6 provides a brief review of some of the relevant “new economy” concepts and what they imply for the software industry’s prospects. Section 7 identifies some of the more outstanding questions for further research. Section 8 concludes with an examination of the degree to which this success story appears to represent a new paradigm of development, or whether these phenomena can be explained in the context of the existing model of East Asian development.

The views expressed in this paper are the views of the author/s and do not necessarily reflect the views or policies of the Asian Development Bank Institute nor the Asian Development Bank. Names of countries or economies mentioned are chosen by the author/s, in the exercise of his/her/their academic freedom, and the Institute is in no way responsible for such usage.

Download this Research Paper [ PDF 455.4KB | 39 pages ].







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