The document discusses the rise of the Indian software industry. It analyzes the industry's growth using theories of comparative advantage and Michael Porter's Diamond model. Regarding comparative advantage, India specialized in software where it had lower costs compared to other nations. Porter's Diamond attributes like skilled labor and English language skills also gave India advantages. Prospects for future growth remain positive if India leverages opportunities like a growing domestic market, though threats from competitors like China increasing R&D exist. The industry must focus on lower cost, higher quality software to maintain its competitive edge.

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Punjab group of
colleges, Lahore:
ASSIGNMENT NO. 02:
SUBMITTED TO: Ma`am. Sidra:
SECTION: MB4:
SUBJECT: Business Strategy:
SUBMITTED BY:
1. Zaman Imtiaz L4F16MCOMOO35
DATE: 10 May, 2018
Punjab College of Commerce M.com Campus 2C Muslim Town Lahore:
TABLE OF CONTENT:

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Questions
No.
Topics Pages No.
01) To what extent the theory of Comparative advantage
explain the raise of Indian software industry? 01
Theory of comparative advantage 01
comparative advantage of Indian software industry: 01
Example: 01
02) Use Michael Porter’s diamond to analyze the rise of the
Indian software industry. Does this analysis help explain
the rise of this industry?
01
Michael porter’s diamond: 02
Factor endowments: 02
Demand conditions: 02
Relating and supporting industries: 02
Firm strategy, structure, and rivalry: 02
03: (a) What are the prospects for industry going forward? 02
03: (b) What are the opportunities, what are the threats? What
must software firms do to exploit the opportunities and
counter the threats?
02
Opportunities to Indian it industry: 03
Threat to Indian it industry: 03
To become a dominating it industry: 03
QUESTION:
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01) To what extent the theory of Comparative advantage explain the
raise of Indian software industry?
THEORY OF COMPARATIVE ADVANTAGE
David Ricardo has developed theory of Comparative Advantage. Which was later developed by Huckster-
Olin. They all argued that all countries have different factor endowments of labor, land and capital inputs.
Therefore, Countries should be able to specialize in and export products that they can efficiently produce.
Comparative advantage says that international trade happens when there are differences in the price of
production.
COMPARATIVE ADVANTAGE OF INDIAN SOFTWARE INDUSTRY:
The raise of India's software industry, in my opinion clearly explains major part of the theory of
comparative advantage. On the first part according to the theory, India has been able to
specialize in those goods (software) that it produces more efficiently and at the same time
exports it to the countries were software is produced less efficiently. (E.g. US, Europe and
Australia). From the viewpoint of the developed countries, (which outsource) are importing
goods, which there produce less efficiently. Therefore, this theory mostly focuses on the
development of the global economy, where every country can gain benefits in trade. The
Economic gain from trade the theory of comparative advantage suggests that trade is a positive
game in which all countries that participate realize economic gains.
EXAMPLE:
As in the case of India and U.S., according to M.C. Kinsey projected of the year ago that India
would generate $ 17 Billion in outsourcing revenues, employing 1.1 million by 2008. Which is
huge economical rise for a country like India. This also translates into $ 60 Billion in benefits to
the American economy arising from cost savings, new revenues, repatriated earnings and labor
redeployment. Given the exponential growth experienced by the India based service centers over
the past years, the revenues could reach $25 billion, corresponding to economic benefit to the
global economy. This is indeed a phenomenal contribution to global GDP .Free trade the basic
message of the theory of comparative advantage is that potential work production is greater with
unrestricted free trade than it is with restricted trade.
02) Use Michael Porter’s diamond to analyze the rise of the Indian
software industry. Does this analysis help explain the rise of this
industry?
MICHAEL PORTER’S DIAMOND:

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Michael Porter explain that the environment in the local firms compete shaped by the attribute
promote the creation of competitive advantages. These attributes are factor endowments, demand
conditions, relating and supporting industries, and firm strategy, structure, and rivalry. All these
attributes are explained in the figure which is called Porter’s Diamond.
FACTOR ENDOWMENTS:
According to Indian software industry, there are two things, 1) Skilled labor 2) English as a
working language giving an edge to compete in software industry.
DEMAND CONDITIONS:
The demand of the Indian software is remarkable as compared to the software developed in other
countries. Two out of every five global companies now source their software services from India.
RELATING AND SUPPORTING INDUSTRIES:
As a testament to growth, many foreign software companies are investing heavily in Indian
software development operations including Microsoft, IBM, Oracle, and Computer Associates,
the four largest US-based software houses.
FIRM STRATEGY, STRUCTURE, AND RIVALRY:
Indian companies are also starting to make forays into the application and shrink-wrapped
software business, primarily with applications aimed at the domestic market.
They are now investing heavily in training and leading-edge programming skills.
03: (a) what are the prospects for industry going forward?
The 21st century tale so far clearly indicates promising prospects for the Indian IT industry going
forward. It should, however, not be a cause for complacency. Although, India is perhaps the only
country (besides the US, of course) that has an established presence in all parts of the global
offshore services value chain, competition is emerging in each segment form different quarters.
Secondly, the advent of disruptive technologies (e.g. Social media, Mobile devices and
applications, Analytics and Cloud Computing – SMAC for short) are causing market upheaval
and business uncertainty. There are opportunities as well, such as advantages offered by Tier 2
locations but these require supportive policy frameworks and conducive business environments.
03: (b) what are the opportunities, what are the threats? What must
software firms do to exploit the opportunities and counter the
threats?

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OPPORTUNITIES TO INDIAN IT INDUSTRY:
There is a vast untapped domestic opportunity in the country. India spends less than 1% of its
GDP on IT. This is significantly lower than the global average of 2.5%. The contribution of
Internet to the GDP in India is expected to increase from 4.1% to 5.6% in 2016 with an annual
growth of 22% to reach a size of Rs 11 lacs crores by 2016, said the report.
 R&D and engineering services.
 Growing global IT spend and offshoring due to cost consciousness.
 Large, multi-year outsourcing deals.
 High-end consulting, business solutions.
 Rapidly growing domestic market.
 Leverage global alliances.
 Globalization and inorganic growth.
 Niche application products.
THREAT TO INDIAN IT INDUSTRY:
China is a powerful country which has increased their IT powers in order to compete with other
countries. India is a developing country, so the biggest threat to Indian IT industry is from China
IT industry because they provides software at cheaper rates which most of the peoples and
companies prefer. Other threats to Indian IT industry are as followings;
 Most of the good software professionals are not working for Indian IT industry which is
the biggest drawback for the industry.
 Government of China invests millions of dollars in research laboratories and
development programs in the IT industry.
 Sustain cost attractiveness.
 Increasing margin pressure.
 Growing MNE presence due to proven offshoring model.
 Changes in immigration regulations.
 Management of new paradigms and disruptive trends.
 R&D based differentiation.
TO BECOME A DOMINATING IT INDUSTRY:
Indian IT industry can dominate in IT industries and also can obtain their comparative advantage
for a longer time period if they concentrate on their opportunities and making strategies to
overcome the threats which are discussed as above. Most imported focusing on that software
which have following characteristics;
 Cost cheaper.
 Higher quality.
 More Secure.
 Less to zero Viruses.
 Developed Hacking solutions.