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Free «Development and Innovation in IT Industries in India and China» Essay Sample


The emerging markets of India and china have witnessed the highest rate of economic growth in the global economy in the last few years to an extent that they are almost at the competitive level with the developed countries. For instance China has been having a consistence growth rate of about 9% for the last one decade while India has averaged at 6%. Indeed, most of the transnational corporations, especially software companies are shifting their operation bases to these two countries attracted by the potential for growth, flexible regulatory framework and efficiency f production due to availability of low waged labour. The most fundamental issue in India is the risk and reward equation; it’s therefore easy for an entrepreneur in India to be paid a lot by an outsourcing firm, than could be received from an indigenous firm, thanks to the technological revolution in India from western world. Sagasti (2004 p 4) India accounted almost 80% of the entire world publications on science matters; however, to high income countries published of nearly 25 times as many as those published by the low income countries. Development of information technology in India has brought about tremendous achievements for emerging economy.



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From the mid1990s high technology in China has greatly progressed at an alarming rate. Even though there has been negative trend in the Information Technology and various frustrations within the stocks of IT, her industry has great potential of attaining or surpassing the status of most developed countries, taking into account that the current economy of china is almost at par with countries like Germany and France. Hung (2009) comments that high technology in China grew from 8.8% during 1995 to 13.9% in the year 2001. Large numbers of China exports include computer and the telecommunications products according to sources from China Ministry of Information which also indicates that the share of these products in the Chinese IT sector experienced a high growth between the years 1997 to 2003. This kind of information spearheaded China to be a major player in the sector of Technology. During the year 2004 the net profits from the IT industry was more than growth turnover speed but on the other hand sales and production in the industry improved as the same rates. This paper will discuss the development and innovation in IT industries in India and China and how these industries have contributed to the economic, social and economic development of these two countries.

Development of IT and Software industry in India and china

The software industry is seen as the main component of whole Information industry in India, with the availability of large manpower being the pillar of success of this industry. According to Arora and Athreye (2002) there are more than five hundred software firms in the entire country displaying monumental progress that the software industry has made. Lundvall et al (2006 p 322) argues that  India’s notion of innovation  and systems is aimed at getting the realization that India is to be regarded as a major hub of the successful economies resulting to systematic interaction in the different organizational policies. Software industry is said to have grown form just US $ 150 million in the 1992 to about 5.7 billion US dollars in 2000 and in fact sources say that there is no any other Indian industry that has performed that well amid the global competition.

Its believed that some the Chinese companies which design and produce their own products have enough inroads in the very fast growing domestic market, however china’s dominant growth as low-cost manufacturer offer very substantial advantages to the users in the rest of the World from the reductions on the IT sector department. The largest contributor of the progress in the China‘s Information technology sector is Taiwan. As from 1990, Taiwan industry in IT has dealt with many challenges of reducing profits and lack of enough professionals in the IT sector. One measure it took is to take a privilege of the many available human capital in terms of professionals who were readily available and the essence of low labor costs available in china. At the start of 1990, Taiwan IT firms started to move to interior of china, and currently the Taiwan investment in the china IT industry is evident.

India is also one of the major exporters of software with its total share of exports in the entire global market with sales growing at 50% between 1995 and 2000 (Arora, Gambardella, 2005, p. 7). Indeed, currently the software industry in India makes exports of software and other services to nearly 95 countries around the world. The employment statistics in both India and China reveal that the rate of unemployment has drastically reduced since the time when technology industry and specifically software began to take root in the countries and expectations are high that this trend will increase in the subsequent years. Stough (2005 p. 235) is on the view that the descriptions that are documented on the results of IT in India mainly focus on the Software exports.  Most importantly, the Government of India also played a bigger role in the development of its software industry. In 1986, the Indian government announced a new software policy which was then designed to serve as a catalyst and motivator for the software industry. Improvement followed in 1988 with the new world market policy and establishment of the all software Technology Parks of India scheme. Considering attracting foreign direct investment, the Indian government allowed foreign equity up to the 100% and all duty free importation on every inputs and products.

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The software industry represented the main part of the IT industry in India and which also assisted the IT sector to grow at a very good speed. The important measure to success is the ability of a country in its government and the private sector to be in apposition to use technologies at affordable costs. The sources also predict a very promising growth in the future whereby it is deemed to do much to ensure good progress is made. Behind the highly recognizable growth of India there are the science and technology policies that are based on the history and the philosophy. It has made possible and reinforced new scientific and technological development and innovation, although there is evidence that Japan and India have wide history of long history of the exchange such as the Buddhism. It’s therefore necessary to construct a stronger cooperation in matters of science and technology and new industry innovation aiming to make progress in the future.

For period more than a decade or more, most entrepreneur in India have had a dream of making a software product powerhouse, then moving away from the state of the labor–for –hire services model to create products that are more selling in the global market. Indian attempt to create the next item of SAP or the Oracle faced massive hurdles on the sales and marketing front due to poor policy and planning which saw much of the allocated budget being consumed by sales and marketing in expense of research and development.

 The success of the information technology in both china and India has been attributed to the high population that provided ready manpower and ‘hands off’ policies of government that allowed the firms to conveniently import software and hardware components as well as freedom to self-generate power when necessary despite their being steady supply of the same. The effect of this was the reduction of the prices of the IT products, a trend that has been witnessed in the last few decades.  Although the two countries, china and India may be viewed as competing forces with each claiming to be the power broker in Asia, their IT industry growth has been parallel due to the fact that while India is concentrating on software, China is mainly engrossed in hardware (e.g. computers, phones, DVDs and other IT products).

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Bhagwati and Calomiris (2008, p.167) have identified several factors that have facilitated the steady growth of software industry in India. The large domestic market including market size and customer base is said to be higher than for most countries including the US. Despite creating a high demand of IT, the market boasts of highly motivated and innovative entrepreneurs who provide intellectual capital to the Indian IT sector. Reliable low cost telecommunications has enhanced solving problems through telecom bubble thus contributing to the greatness of the industry in the entire India. Finally, enhancing a Culture that rewards innovation and risk taking which creates a precedence of good performance of the industry.

Arora and Athreye (2002) suggests that despite the steady trend in growth of software technology and various tools ,the development  of software is still labor intensive and requires fairly little capital .He further suggests that labor costs accounted for approximately 70% of all software costs in early 1990 with IT revolution taking hold in this particular year. Then demand for IT workers in those developing countries has greatly surpassed supply, but still this fraction of activities can be outsourced and are increasingly conducted far from the user organization. This outsourcing demand has created the basis of the initial growth of the software industry in whole India. Moreover scale economies are not a significant barrier to entry.

 National Research council (2006, p.64) reports that the explanation of the growth of software exports from India because lower labor costs is well known which also underlines a clear look for the future of these exports and software industry, once the surplus of trained labor is of course depleted the cost advantage is eliminated, making India less attractive as compared to China, for instance as a source of lower Value-added services and products. According  to Arora and Athreye (2002, p 273), another way of looking at the software that are exported is to determine if India does enjoy an underlying comparative advantage in the production of software as compared to the outside world .Then if such comparative advantage does exist ,both the complete cost advantage  and  favorable circumstances such the demand caused as a result of millennium, scare that can provide the experience and scale of output needed for dynamic learning process so as to positively influence  the growth of sectors productivity .In this perspective ,the future of Indian software and exportation is not fully bleak and increasingly  extent of productivity could compensate for the elimination of the labor cost benefit.

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Impacts on other developing counties

Most researcher have shown  that competition from other labor-intensive economies such as China and Ukraine where their economies have resulted in great reserves of many underemployed  engineers and scientist .most countries have been reported to  be investing heavily to establish English language skills to their engineers .Through these the current market share of these countries could be increased if only abundant skilled labor were the sole point of determination for success .but the success  in the soft ware industry also reflects a certain some level entrepreneur and managerial capabilities, as well as the importance of strong links with major market .In extent of India these expatriates who work in the high level technical and other important managerial in the western economies mostly in the US. These kinds of links assisted the Indian entrepreneur to respond fast to the growing demand in software services. This confirmed the ability to employ programmers, and arrange for and manage those outsourcing contracts. The challenges grew as the firms grew; successful industries developed the capabilities that proved to be sources of Indian’s competitive advantage. Jaffe, Lerner and  Stern (2005, p. 30) suggest the importance placed by American industries on the ability of the industries in India to mobilize large groups of developers at such a brief  notice .This also calls for the demands on the industries to develop enough expertise in recruiting, screening, training and eventually retain those professionals. Some sources say that Russian industries complain that getting foreign companies to undergo their hesitation of doing their business with the country is a major obstacle to offshore programming. Problems in quality control and proper control are also handicaps, even though a substantial cost benefits in sides of wages were associated .Russian trails before India in regard with a number of companies with the ISO 9000 of certification. In addition Indian firms are progressing on the productivity by improving their software development tools .The most recent entrants in the industry have also success associated at developing products.

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The growth of software and human capital formation

Even though India has large number of scientists and engineer, it also has one of the lowest rates of literacy in the world .A large proportion of employees in the sector of software firms are known to be college graduates as highlighted by a survey that was conducted of approximately 60 software firms from which about 80% of their employees had engineering degrees. This kind of preference for engineers was outstanding and of little consequence at the beginning of the industry, when demand and the annual supply was quite very small. Today over 160000 engineers from all disciplines are deemed to graduate every year .The trend sustained growth of the software had so far increased its workforce to nearly 250000 by 1999. These projections are always consistent depending on the evidence, wages in the software industry have gone up over 20% per year and attrition rates are always high.

During the year 199 the given sample of 100 industries, more than half of the firms, despite the age, size of the market orientation, showed the shortage of manpower and employee attrition to be part of the very many problems experienced, virtually all firms find problems to attract and retain talented software developers despite good wages that were substantially above Indian standard. Therefore it is found that public policy has responded with many improved  investments in all engineering colleges, but placing more emphasis on the information and Technology  in engineering curricula and on the coming up of new institutes of information technology. The well increased payoffs to human labor are also inducing large investment in the side of human capital .The average class inn India has always relied on the education, more so professional training such those in medicine or engineering as the means for economic advancement .But still with slowly the growing economy, all the returns in this investment have not yet been so high. Unfortunately the availability of public finances have limited the ability of  central and state government s to expand tertiary education, but still the increased growth of the software sector has developed a water shed. It is found that the most improved growing sector within the soft ware industry is the private training. Other proved major Vendors are Software Solutions Integrated, LCC InfoTech, Tate InfoTech CMC and many others. It is important that this is a private sector response to a market opportunity, namely the demand for training in specialized skills.

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In the US and other places, for the profit industries complete favorably with other public institutions for example the state and community colleges .In India ,the rapid development of the privately owned training institutes  proves to the changed  economic climate and the involvement of  entrepreneurship  into economically productive areas  away from just rent-seeking. This kind of change is also at least related indirectly to the increased growth of the software industry. The evidence is believed that until recently the excess reserve of trained engineering talent is fount to be important source of competitive advantage for Indian firms, sometimes it is provided a few incentives for the firms to economize on the utilizing of skilled engineering talent. Instead, the progress of the industry and high salaries have created an attraction not only the new graduates, but still managers, engineers and other many professionals from various industrial sectors. Besides this, the explosive outstanding growth of the software industry has caused increased recognition of the shortage of skilled engineers, software professionals and better managers. In addition, presented with good number of attractive options including job opportunities abroad the trained manpower are looking for money and more professionals and rewarding work environment.  

Contribution of the Software Industry

The kind of progress in the Software in India has promoted those related services industries; the most recognizable is the fast growing IT sector. Other services like provision of IT maintenance data entry and the customization services for the domestic users, all of these are gaining in the prominence, and estimates that software and these other industries probably accounted for many jobs in 1999 in the future that likely to have increased substantially ever since. However, software creates relatively some linkages with other sectors in the economy, but the economy has proved to be fast growing as an exemplar of both good organizational practices and technology. While Software in India earns only a fraction of the salary as compared to other countries, and it is about 20 times the national average. But this difference in the international wages makes software industries in India vulnerable to the loss of middle –level employees as compared to the west and still puts more pressure on the realized profits. Due to these problems they prompted to the software firms to explicitly introduce the use of human capital management strategies that should be comparable to the international rivals. They include the following: an increasing role by Software industries for personal investment in the Software training and education for their employees, organizational practices that are made to safeguard the interest and the loyalty of the employees, organizations innovations that are designed to diffuse and combine employee –specific knowledge  through different approach (most notably by flat hierarchies and those team approaches) and the use of embodied types of Software’s knowledge through the use of licenses and IPRs.

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Innovations of the Chinese industries in the IT sector

With the introduction of the open –door policy in the consultations in the year of 1979 strong efforts have geared to the serious improvements in the general performance .The entire government   have been good enough in matters to see the economy growing in the last 20years .It has come up with good plans, and then making these plans to better in the allocating the resources to the responsible industries. They also had National Science and Technology  strategies which were created which carried very basic and fundamental  policies to organize and hence develop the Science Technologies in  china .Every plan emphasized  the basic direction for a given particular period .Initially, china had a very low-cost production base and has the power for some time now ,particularly in the manufacturing of the hardware ,but experts say that china needs the technological improved innovation with adoption at a very progressive trend. China is said to have given a top sense in education and that development in economic and this has increased   thee input in order to promote reforms in education development. Much emphasis is put in strengthening basic education thus improving the standard s of education systems in the country .China has combined all its human capital with the relevant industrial in restructuring, economic rural development and maters of urbanization .Another well identified advantage is that china has a very large growing numbers of professional engineers who have enough training and IT experience in the US.

Development and research

One of the china’s pillars is manufacturing capability which boosts it’s economy ,by looking at the state of the economy  technology is found to pro vide further knowledge on the current and future firms capabilities  .The fast growth of the Chinese economy and the development of supporting technology has impacted to greater manufacturing worldwide .But the non availability of managerial expertise and some models in the IT sector ware the prime problems of china .They ware small numbers of managers with experience in whole market economy and many of the IT developers were not experienced ,due to this there existed proliferation in the small software firms which had no exposure to continue management  skills .In fact there existed little evidence on the ability to organize large scale and very complex projects of software influencing the development  of separate development teams .

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 Future challenges

The professionals in China are not proficient in English ,these problems does exist due to lack of much  emphasis on better and higher education  in the year of 1999.limited supply of the IT and management professionals has greatly affected the growth of  the industry of  IT in large perspective a and thus resulted in  the increase in the wages and costs .Education system in china has so far shown slow  improvement ,but still the system of education  inhibit the nurturing of new students with very innovative abilities ,and hence it is unable produce  enough quality and quantity of science and technology experts. It is there found that the fear of china bases from its political l system, an

China‘s growth and its military base projects fear in its neighbors of which all of them have advanced technology.


Therefore it is noted that the rapid advance of  Software exports that are made from India is a consequence of the country’s  comparative advantage  in the part of production of these services rather than the impact of complete advantage  in the manner of wage differences alone ,this advantage is based on the availability of large English –speaking and technically qualified experts as well as the immediate disadvantage in manufacturing due to poor investments in infrastructure in the past .These factors favoring   Indians Software exports are further stressed by the low domestic demand for similar types of products and services .Though there various advantage from specialization ,distribution of gains from such specialization however , remains are due to the structure of the Indian software industry that has ever since remains largely undifferentiated .

China is assumed to be largest in the world internet and mobile phone  producer  since its market is so big proving it the capability to  realize the world standards in both technology and quality ,china is going to be major  country in producing new and recent devices used in the internet. A research in set-top boxes and new devices of wireless emphasized the access of the internet will cause large growth in the china and its people. In last about two decades the outstanding development in the industries in china and India has put these two countries at the foe front in the IT sector. These industries in sector

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 of IT in china and India have became the main point for industry technology development that is available in these two countries and the kind of process in technology are in fast growth .The kind of present state of improved competitiveness in both India and China dwells on progressive in the technological knowledge and the human capital development in them. The industrial way of clustering ,information about markets ,skills of management ,Improved research and design ,sufficient financial resources and better international and local market s and the better functioning of these factors with some help from the government  has posed these countries much far a head.  But still the problems on the poor developed infrastructure, lack of quality in the research and development and the competition from outside can be of great challenge for further development of the IT in these two countries. The research have shown that since Indian and Chinese industries are focusing in the hardware and software  can simply join together to offer better solutions at the cost –effective  offering prices , an d thus eliminating the existence of the middlemen. That is if only economic cooperation by these two countries is to diffuse the present traditional problems.


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