India, which locates at the southern part of the Asian continent, is a relatively poor country compared with those developed countries. However, in recent years, the software industry in India boosts rapidly, which is comparatively a high-technology industry. The sales of Indian software grew over 60% annually between 1991 and 2000, which is about $6 billion at the end of the century. Most of the sales come from exporting software sources to U.S. big software companies, like Microsoft, IBM, etc. The total cost of exported software was $4 billion in 2000, which makes a lot of people feel surprised. Furthermore, as estimated by the India’s National Association of Software and Service Companies, the total software revenues generated by Indian software companies will increase to $87 billion in 2007-2008.

Now Let’s discuss why India had such a great success in the past 10 years.

First of all , let’s take a look at the comparative advantage theory. The comparative advantage mentions that a country should develop products that it can produce most efficiently, and buy goods from other countries that cannot be produced efficiently. When applying it to India, it does explain part of the facts. As the software engineers in India are abundant and of good quality, by the comparative theory, it will do good to India to develop software industry and export software to other countries. Also the average salaries of these engineers are low. The average salary of an software engineer is about $?? / hour , which is xxx lower than that in the U.S. As a result, the average cost of software is relatively low. However, comparative advantage theory cannot fully explain why India was so successful. Why must it be India? We know that there are also many good programmers in China. Why did China not export software? So we will try to use another theory to explain this phenomenon.

The second theory we use is Heckscher - Ohlin theory. Heckscher – Ohlin theory argues that the pattern of international trade is determined by differences in factor endowments. It predicts that countries will export those goods that make intensive use of locally abundant factors. Then we have a look at India. India has a population of around 1 billion. If we follow the theory says, India should produce things that are labor intensive. At the same time, the infrastructure of India is poor too. Internet coverage is not large , and even the popularity of computes is very low too. So, it is obvious that Leontief Paradox appears, which means that Heckscher- Ohlin theory fails to explain this case.

As the previous two theories cannot give us an explanation why India had such a great achievement, we will use one of the new trade theory : the Porter’s diamond , developed by the famous professor Michael Porter from the Harvard Business School. Michael Porter argued that the success of an industry in a particular country cannot be analyzed by just one factor. He argues that when analyzing a industry in a particular nation, four factors should be considered. They are firm strategy, structure and rivalry, demand conditions, factor endowments and related and supporting industries. Let’s apply these four points to the software industry in India. First we take a look at factor endowments. Porter suggested that factors should be divided into two kinds : basic factors and advanced factors. Of these two factors, advanced factors are much more important in today’s business environment. In India, though the infrastructure is poor and general education level is low, the important mid-class and highly educated students occupied the largest part of people in this industry. This is a result of the great support to university education by the Indian government. At the same time , the Indian government emphasized on developing engineering. This makes the whole industry have a power to develop in a rapid pace. Then let’s have a look at demand conditions. As the whole world is talking about “digitalization”, the demand for software is becoming greater and greater. The large software companies are working hard to meet the demands. However, programmers in the developed countries, such as England, the U.S.A, are of very high salaries. They need to use the least money to hire the most programmers. So India is the best choice for them. There are many good but cheap programmers in India. So many software companies are willing to establish their branches in India and hire programmers to work for them. Software firms in India also have a great influence on the development of the industry. For example, TCS , India’s largest software company , has an alliance with Ernst & Young , one of the four biggest accountant companies . TCS is responsible for maintaining the systems for all Ernst & Young global clients. The cooperation between these two companies shows that Indian software companies have the ability of producing software for developed countries. These companies are also trying to get the ISO standards, in order to raise the reputation of Indian software industry. There are also some important factors to make India’s software industry successful. English being their native language helps people to communicate with foreign investors. Regional barrier does not appear because optical communication helps to “deliver” the software from India to other countries, and to maintain them by just sitting in front of the computers. The above factors made India became an important force in the global software industry.