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Indian software industry - Where do we stand?

Our discussions with Ram Ramamoorthy, Country Business Manager, Hewlett Packard (India) Ltd.

An overview

The Indian IT industry is brimming with intellectual capital. While a medium-sized software development organization in the USA talks of tens of programmers, its Indian counterpart talks of hundreds and thousands. According to our estimates, the average employee size of an Indian software and services export organization exceeds thousands. However, a western organization employing professionals on this scale would be an industry leading behemoth.

The average size of a software exports company has grown by 25% over the year. Both profitability and average revenue have also grown between 30% and 50% but the marginal increase in productivity has not gone up much; it is at 12 to 15 lakh per employee, or $35,000 per employee per year. They seem to be operating on economies of scale rather than value creation.

A quick look at some of the causes:

  1. Training: The software export companies averaged 5,500-plus days of training per organization in an year. However, when averaged across the employees of these organizations, it amounts to six days per person per organization, only a few days higher than their domestic counterparts. Whereas, MNCs operating in the domestic IT industry set aside at least two weeks for training per employee per year; may be more on management and seminars. However, the point is that Indian software companies allocate less time for manpower training.

  2. Rapid Expansion: Indian software companies have to cope with high employee attrition rate and at the same time, address the manpower shortage associated with business growth. Very often we hear, 'Our company has a lower attrition rate than the industry, we have only 18%, they have 25% attrition, the industry has 12%...and so on. The industry combats the result of both issues at the same time; may be by making compromise on the quality of manpower that it takes in.

  3. Nature of the jobs executed: Many of the Indian software companies execute coding and other implementation oriented jobs as sub-contractors for other companies from the West. Highly lucrative and productive assignments such as solution design and architecture or product conceptualization are in the hands of the companies that own the customers in the overseas market.

Currently, Indian software companies are going through a phase of recognition by global community. In the just concluded CeBit fair in Germany, the German Chancellor announced that German companies should look at utilising Indian software talent for accelerating their industrial growth. More and more companies like GE are setting up their design centre in India. There is an excellent opportunity for Indian software industry to move from a status of ‘software coolies’ to ‘software masters’. With such as an upward movement, the productivity of Indian software industry will surely go up.

Disclaimer: The opinions expressed by Ram Ramamoorthy are in his individual capacity and do not reflect his organisational views

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