The Internet's role in offshored services: A case study of India

Using India as a case study, this article analyzes how the Internet influenced its export-oriented software industry. We show that prior to the Internet, domestic entrepreneurship was the key factor for the industry's origin and growth. The industry suffered from relatively low value-addition. As a result, domestic firms, though they were industry leaders within India, were followers of the global leadership provided by transnational firms. With the arrival of the Internet, there was a rise in the level of domain expertise. We show that the Internet facilitated the transfer of domain expertise for foreign firms more than it helped the acquisition of domain expertise by domestic firms. While the value-addition of the industry increased as a result, industry leadership began to pass to foreign firms. The strategic lesson for other countries trying to rapidly develop an export-oriented software industry is unambiguous: exclusive reliance on domestic entrepreneurship will usually result in the domestic industry falling behind its global competitors, while granting unrestricted entry to transnational firms will lead to the domestic firms losing industry leadership in most cases.