Chips in the Software Basket

A point that is often lost in the tremendous growth of the IT industry in

India is the fact that there are many other facets to this industry. When we

talk about growth and success in the current context, we are talking software

exports. The IT industry always had many other components and with convergence,

the dividing lines between segments are rapidly getting blurred. These segments

also offer huge growth opportunities and could deliver the same kind of results

with some attention. To take two of them–the international (and for that

matter domestic) markets for chips and software products are equally huge and

growing.

Consider chip manufacturing. The chip is the powerhouse of the future even in

its rather unimpressive 4 sq cms (or smaller) size. This market was worth $ 200

billion last year and growing (not withstanding the present slump). Billions of

dollars are spent on the design and the setting up of manufacturing capabilities

of these postage stamp size creators of the electronic world. And while chips

are used in diverse geographies and products, they are manufactured in huge

quantities in Asia.

Toshiba is the world’s largest chip maker while Samsung is the world’s

largest producer of memory chips. While these are the quantity producers, the

most visible chip vendor of course is Intel. It has a huge brand presence that

has been built up over years. Similarly, the software product market is huge.

Worldwide end user spending on software is expected to go up from $ 169 billion

in 1999 to $ 343 billion in 2004 as per IDC. Many software products are

conceptualized and marketed by US companies but their origins may lie elsewhere.

These global brands determine world standards and dominate mind and market

shares.

India’s efforts in these two markets have been meager and wayward. Even as

it celebrates its success in software development, it would be prudent not to

lose sight of the fact that this success is in one corner of a huge playing

field. This is a playing field in which India has just not made its presence

felt. In fact, India’s software and services exports this year will be around

US $ 9 billion. That is just the area between the wicket keeper and first slip.

The cricket field is still wide open. Not that there are no reasons for this

small coverage. But the future will demand a presence in more than one area of

core strength. If manpower, technology and brands are the wealth and power

creators, then India has been playing in only one of the three so far. Many

would argue that financial returns are much higher for those who control the

brands and the technologies as compared to those who supply the manpower.

So what can be done? As far as technology development is concerned, India can

contribute in large dollops to electronic design and development–in the IT

sector or elsewhere. Like software development, these are also skill based jobs

and it should be possible to transpose and create the skill requirements to

design and development areas. If software development has grown by leaps and

bounds, there is no logical reason why the same cannot happen for for design.

What is required, is the marketing of these capabilities and sustained efforts

over 5 — 10 years. Those with short memories must remember that software

development efforts from India started in the 80s and the spectacular results

came a decade or more later.

Chip manufacturing is a highly capital intensive industry and probably needs

Government support to take off. Japan, Korea, Malaysia, Taiwan–countries which

have positioned themselves well in this market–have all benefited from

Governmental support and leadership. Their own markets are not large enough to

take up all the production, so they export to the world. In Korea, one company

Hynix Semiconductor reportedly provides 4 % of all exports from Korea. China is

in the process of setting up a dozen fabrication plants for chips which will

give it a huge leadership position. Setting up these plants needs megabucks and

efficient infrastructure. Since these are not labor intensive there are no

intrinsic benefits that countries like India have. But why can’t India create

hassle free manufacturing zones from where imports and exports can streamlined

effortlessly.

That means creation of infrastructure and wooing of international

companies/finance to set shop there. The present slump notwithstanding, the chip

industry in likely to keep growing over the next few years.

There are similar possibilities in software. Software products are as much

the creation of marketing muscle as technological excellence. While it maybe

difficult to compete with the Microsofts of the world, there are many other

opportunities that do exist. A few Indian companies have reached the revenue

levels from where they can hope to become product marketers. It is not likely

that we will create brands like Windows but surely we can hope to create brands

like Mcafee? There is a vast talent base that can create such products. It must

be admitted that our existing capabilities may just be enough to create raw

products. Testing and marketing skills will have to be learnt as we go along.

But apart from the learning curve, there is nothing else missing.

Now is the time to plan for the next decade and more. While the Government’s

efforts to steer clear of the business world are welcome, it should ensure that

the pendulum does not swing to the other extreme. There are many essential roles

that Governments do play and if a blueprint for electronic excellence has to be

made and implemented, it would need the support of the Government and its

agencies.

For a variety of reasons, now would be the right time to make a move on this.

We have tasted some success and that always helps in taking the next step

forward. A few Indian companies have become international brand names and these

could be leveraged for a new set of products and services. There is a whole new

world emerging and it is in these situations that new initiatives can succeed.

It would be prudent not to put all our chips in the software basket.

Shyam Malhotra is Editor-in-Chief of

CMIL, the publishers of Dataquest