India has been often praised as the main development  center of Global Software skills. Some people attribute this to the genetic factors in the Indian race and some to the strong English based, memory dependent education system. We often talk of India becoming a global super power in the IT industry.

There is no doubt that these thoughts have emerged out of the past observations and performances of Indian software professionals in the Silicon Valley and else where. Every top IT Company in the  world including Microsoft, Oracle or Adobe would acknowledge the contribution of Indian software engineers to their success.

 A time has come however for top management personnel in the Indian industry and Nasscom in particular to reflect if the past glory of Indian software industry is any indication of the future trend. It is also necessary to reflect what would be the consequences on the Indian Economy when say an Infosys and Wipro start sliding down the stock markets  like the many glorious manufacturing companies in India during the last decade.

The first threat India has faced is the emergence of China   which has similar manpower strength like India. What China lacked is the penetration of English in the population and the IT education. Thanks to the short sighted policies of Nasscom and also some of our IT Educational giants including NIIT, India is itself contributing to the empowerment of China as a competitor in the global market.

After the 9/11 terrorist attack in USA, the security concerns have risen several notches all over the world and this is the second threat to the growth of Indian software industry. Today, no American Company would trust a non American Company for the development of critical software, in a manner in which they used to do in the past.

Despite the software skills, Indian software industry will therefore face some hurdles in continuing to make progress in the International Software development business.

Perhaps the recent ill treatment of Indian software professionals in several parts of the globe is an indication that Indian software skills are no longer considered indispensable. This should be taken as an early warning of the future trend.

The third and one of the most threatening aspects of the current development is the emergence of the IPR consciousness in the market place. The impact of this has not yet dawned on the Indian Software industry in full.

The IPR regime will affect the Indian software industry in three ways.

1.Super Power...How? 

The contract work which Indian software companies will undertake for their International clients will all be now one time "Fee Based Coding Work".

Once a "Solution" is developed for a Client based on his brief and his needs, the IPR in the product goes to the client. as a result if Indian software industry has a Rs 30000 crore revenue in an year, this will represent the "IP Wealth Created by India in favour of the International Clients".

If we need to be proud of our IT achievement, then we can perhaps  be proud of India being a Super Power in enriching the IPR of their International clients rather than enriching  the country.

2. Increasing Cost of IT

The Use of software tools and software itself in India will involve payment for IPR of International suppliers creating a regular drain of Indian wealth out of the country.

At present this impact has not been fully felt by the industry beyond the licensing of products used in Software development. If we take note of  the Patents being issued on several E-Business products and the components which are embedded in many of the licensed software products, the possibility of these latent IP protected products coming out to hit the Indian entrepreneurs cannot be under estimated.

The recent issue involving an embedded patent in Microsoft SQL server product should be an eye opener to the Industry.

Similar threats could surface in the Trade Mark and Copyright areas also escalating the cost of IT business in India and pushing some Companies to bankruptcy because of legal non compliance. 

3.Customers Turning into Foes

In the coming days, aggressive pursuance of IPR will  result in many customers of Indian IT companies turning their guns against them for breach of IPR.

For example a Banking Company in USA for whom the Indian Company has developed a Core solution may allege that the same structure or Coding pattern was used for a subsequent solution developed by the same Indian Company to an Australian Bank. In an International arbitration proceedings of this nature, it is more likely that the foreign Company with greater resources will always have an edge.

It would not be surprising if soon Indian IT Companies may be paying license fee for products part or whole of which they themselves had developed.

The Indian Company under seige may even find it difficult to carry on its regular business since the Dmitry Skylarov, Senthil Kumar and Arun Jain's incidents will make it difficult for the CEO s and top executives of the Company to travel freely beyond the boundaries of India.

As a result, the Indian IT Companies will not be able to develop more than one client in a given industry. There is therefore an automatic locking on of the business growth of the IT Company to the success of their clients.

The solution to all these emerging problems lie in a total revamping of the Marketing outlook of  Indian Software Companies.

The approach should be to

1. Develop own Intellectual Property and license it to the clients in the solutions as embedded components. 

2. Develop Products, build Brand Property, harness and protect the Brand property in the global market.

3. Shift focus from Contractual software development with maintenance to providing "Turn Key Services" on fee basis.

It is stated that today the share of products in the revenues of TCS and Infosys is around 5% to 7 %. If this is the trend in the top Indian companies, the industry average could be only around 3 %. This indicates that 97 % of Indian Software business is exposed to the risk of continued patronage from the Clients without any IPR protection.

This is an alarming situation for an industry hoping to be a "Super Power".

We therefore need some quick action by Indian IT majors so that over a period of next three years, at least the top 10 IT Companies should increase the "IPR Protected Component of their Business" (Whether as full  products or as Reusable Components) to at least 25 %.

I urge Nasscom to devote some attention in this regard.

(More on What Strategies need to be considered by IT Companies in this regard will follow in another follow up article)

Naavi

March 29,2003

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