Unraveling the success of India’s IT-ITES industry: Can India sustain this success?

Abstract:In this paper we propose how India can sustain the success of its IT-ITES industry in the coming years. India has established itself as a global leader in the information technology-information technology enabled services (IT-ITES) offshoring industry. Different factors have been responsible for this success. While factors identified from the information systems (IS) and international business (IB) literature are adequate to explain the past success of India's IT-ITES industry, they are not adequate to explain whether this success can be sustained in the long run. This paper uses the endogenous growth theory and the economics of ideas to conclude that innovation and technological growth are keys to sustaining this success over time. The paper also highlights policy options that will harness innovation and technology growth in India.Keywords: Offshoring, IT-ITES industry, endogenous growth theory(ProQuest: . denotes formulae omitted.)INTRODUCTIONInformation technology-information technology enabled services (IT-ITES) offshoring has played a significant role in providing measureable economic benefits for some developing nations, which has helped alleviate poverty in those nations. India, one such developing nation, has successfully created a thriving IT-ITES industry to become the global leader. Headlines highlighting Indian's economic growth from 2000 to 2010 abound in magazines and newspapers published around the world. The explosion of the services sector, especially the IT-ITES industry, has contributed significantly to this growth in the last two decades. As companies in the United States and Europe continued to outsource their IT-ITES operations, India benefitted from this industry trend. The Indian IT-ITES industry, which was practically nonexistent before the mid-1990s, has now become a major player on the world scene. National Association of Software and Service Companies (NASSCOM), the apex body of the IT-ITES industry in India, reports that the total revenue from the IT-ITES sector will grow to US$76 billion (Figure 1), and direct employment by the sector is expected to reach 2.54 million by the end of fiscal year 2011. The revenue generated by the IT-ITES industry accounts for 6.4% of India's GDP, and India's share of the global outsourcing market stands at 55%, according to NASSCOM. Thoppil and Ahmed (2012) report that the industry is expected to expand approximately 11% to 14% in 2012. It is evident that India's IT-ITES industry has witnessed significant success and is the world's top offshoring destination.The data in Figure 1 clearly indicates that India has successfully consolidated its position as the favored destination for IT-ITES offshoring. This research addresses the question: Can India sustain the success of its IT-ITES industry in the future? To answer this question we provide a multidimensional analysis of the issue using interdisciplinary research from the information systems, international business, and economics disciplines. The paper reviews the international business (IB) and information systems (IS) literature that help explain the factors that may have contributed to the success of the Indian IT-ITES industry. The main contribution of the paper lies in using the endogenous growth theory and the economics of ideas to address the issue of sustainability in the future.The paper is organized in the following manner: the following section titled Research Foundation reviews the information systems and international business literature to identify factors that contributed to the success of Indian IT-ITES industry. The authors argue that these factors are not adequate to answer how India can sustain the success in the future. In the next section section titled Sustaining India's Success the authors borrow from the economics discipline to describe how theories in the discipline can be used to answer the research question that this study addresses. …