Kolkata:

When Indian Commerce Minister Arun Jaitley announced concessions for the information technology and software segment in the Export Import Policy announced on 31 March 2003, he seemed to have read the writing on the wall — give a push to embedded software products on a war-footing.

Jaitley said: "To promote the growth of software exports in the area of embedded programmes, procedure for the import and re-export of the hardware including automobiles in which such programmes are embedded for testing and development will be greatly simplified in consultation with the ministry of finance. Henceforth, such hardware for embedding up to the value of $10,000 will be allowed to be imported duty-free and permitted to be disposed of after testing subject to certification by Software Technology Parks India (STPI)."

Of late, a lot of interest has been generated in the embedded software market, and industry experts are pointing out to the fact that despite being a world leader in IT services, India lags behind in software products, having captured only a meagre 0.2 per cent of this $180-billion world market. Within this there is a worldwide market of $21 billion in embedded software, and holds a world of opportunities to do business.

What is embedded software?
An embedded software system is a combination of hardware, microcode, drivers, an operating system and an application that delivers functionality within traditional non-computing devices such as personal digital assistants, mobile phones, industrial automation, automobiles, office automation and consumer electronics. The embedded system and software markets are expected to grow at a healthy 16 per cent compounded annual growth rate (CAGR) in the next three years.

A number of multinational firms are setting up huge development centres in the country like Intel, Texas Instruments, ST Microelectronics, Motorola and Cadence. Coupled with this Indian IT majors such as Wipro, TCS and HCL Technologies are focusing on this sector. According to Nasscom, over 60 per cent of the top global independent software vendors are already leveraging India for maintenance services and new product development.

The enabling factors in India arise out of leveraging the existing design and programming capabilities while outsourcing the actual development of chips to external silicon wafer manufacturers. A significant percentage was contributed by embedded software development out of the total contribution of $1.2 billion in 2001-02 from the research and development and technology sector.

Nasscom feels that the embedded system space can be exciting for Indian companies. There are four factors that have been taken into consideration. Out of these three will contribute to the growth of services in the industry. These include:
1. Rising software content. Software content in many traditional non-computing firms is rising.
2. Rapidly evolving hardware. Each time there is an upgrading of hardware, it calls for a significant software input.
3. Lack of protocols. Most industries lack one standard protocol/platform (like MS DOS in the PC industry). As a result, original equipment manufacturers (OEMs) need to ensure all devices are compliant with all major protocols.
4. Lack of software skills in OEMs. OEMs face a huge challenge in attracting and retaining high-quality software talent. This coupled with increasing need for services is likely to result in a large number of OEMs and suppliers looking for third party services providers to augment their software development capabilities.

Evidently, the IT industry is delighted with the commerce minister''s policies outlined in the Exim Policy. Says Nasscom president Kiran Karnik: "The new policy has taken a major positive step by introducing a scheme for the promotion of exports of services and also does away with procedural deterrents which were hampering Indian software companies conducting work in cutting-edge areas such as embedded software. The removal of procedures for the import and re-export of hardware with regard to embedded software for testing and development is a positive step that will promote software exports in this area."

Besides embedded software, which seems to be the most buoyant of the emerging software segments, software products do hold a lot of promise but yet remain a weak area in the Indian IT set-up. This is primarily because the core skills in a product play are fundamentally different from the IT and IT-enabled services (ITES) sectors, and Indian companies have not paid focused attention to the unique aspects of the product market.

India''s core strengths lie in lower costs of development, a large pool of entry and mid-level talent and quality management processes. However, success in the products business requires sizeable investment in sales, marketing, and branding, a sizeable pool of high-end architectural, design and testing skills and flexible and dynamic development environments. Also, the dual shore models have really not developed in the same level of strength as the IT services global delivery model.

On the face of it, it may seem okay for India to forget the product opportunity. But, strategically, for the future it may seem to be a good idea to explore the opportunities in offshore product development, development and delivery of specialised components, products acquisition and enhancement and shrink-wrapped product development — all emerging areas in products besides embedded software. The fortunes made out of IT services and ITES must be re-invested in these vital areas for better future projections.

Indian companies need to leverage skills in these spheres when the global competition gets too hot in the IT and ITES segments, owing to further development of Chinese, Filipino and South Asian talents in the IT services and ITES.

Warns Talat Hasan, chairman and CEO of the Silicon Valley-based Sensys Instruments: "Good times may run out in the near future for India IT services and ITES segments. Indian IT today is very vulnerable, as it is not developing unique software products on its own. There is not much intellectual property development in India.

"What Indian IT companies are doing is routine service and customised software development for US companies. Once the US companies pull out these contracts, there will be no IT left in India. There is a huge threat from China and other Southeast Asian countries. Once these countries start offering the same services at lesser costs, what will happen to India? India should start developing new products and not merely provide cheap labour."

The trend is, therefore, clear. Software product development is no longer an option for Indian IT entrepreneurs. It is fast becoming a necessity.

(Copyright 2002 Asia Times Online Ltd. This article first appeared on www.atimes.com, and is republished with permission.)