U.S. at Global Software Risk

Low-cost, high-quality competition from developing countries like China and India could threaten the U.S. software industry in world markets

Global competition may soon slam into the $55 billion U.S. software industry as hard as it hit the U.S. auto industry in the 1970s or the semiconductor business in the 1980s, industry officials are warning.

A number of developing countries, including India and China, are fostering development of software industries that can mass-produce high-quality software for as little as 10 percent of the cost of U.S. products, said Capers Jones, chief executive officer of Software Productivity Research Inc., Burlington, Mass.

"Any country with bright people and a good work ethic can get into the software business," said Jones.

One country fitting that formula is India. Since 1991, the Indian government has led the pack of developing countries for a share of the fast-growing software business. The Indian government has created what it calls Software Technology Parks, where Indian and foreign firms are bolstered by tax and regulatory breaks, guarantees of fast-track government decisions and a steady electricity supply, said Ravi Thapar, a diplomat at India's consulate in San Francisco.

As a result, AT&T, Motorola, Texas Instruments Inc., Hewlett -Packard Co. and other companies have set up software-production centers in India. Not surprisingly, the country's software exports rose almost 50 percent last year to $330 million.

One advantage for India: 1.5 million well-educated, English-speaking software experts among its population of 950 million, said Jones. Another advantage: prices. Indian software costs $125 per feature point, a five-element composite measure of software productivity and quality. Only Chinese software is cheaper, at $100 per feature point, he said.

In contrast, the U.S. has 2 million software experts, or almost 14 percent of the world's 15 million total, he said. U.S. software averages out at $1,000 per feature point. European and Japanese software registers about $1,500.

Cost is not the only factor; AT&T Corp. created a software center in India because it couldn't get what it needed from U.S. companies fast enough, said Stephen Chen, AT&T's strategic planner for software.

The firm established other software centers abroad, including a plant in China with 1,200 employees, another in Taiwan with 850, and another in Ireland with 2,500. "The fact that they are off-site is practically invisible to us, if you set up the right communications," said Chen.

Motorola Inc.'s software center in Bangalore, India, is the only one of its kind to have supplied documents showing it has met the maximum Level 5 quality standard generated by the Pentagon-funded Software Engineering Institute, Pittsburgh, Pa. In contrast, 90 percent of the 230 software sites examined by the institute are below Level 3.

Motorola's Indian software experts are "excellent ....they are very cost-competitive [and] will produce a lot in a short amount of time," said Ann Miller, chief software engineer for Motorola's satellite communications division. Company officials plan to use the Indian center to build critical software elements for the ground portion of Motorola's emerging 66-satellite Iridium communications network. Motorola is also opening a software center in Beijing, China.

As U.S. companies move software production offshore, foreign companies are setting up front-offices here to win work for their home-based software centers.

The largest Indian software company in the United States is Tata Inc., a conglomerate that includes Tata Consulting Services. The firm has 38 overseas offices, including 10 in the United States, which generate annual software revenue of more than $100 million, said Ramanathan Ramanan, director of Tata's office in Silver Spring, Md. Tata's customers include AT&T, American Express Co. and IBM's Federal Systems Company, owned by Loral.

Although foreign software is growing in strength, its impact has yet to be felt, said industry officials. In 1994, 85 percent of software used in the United States was built domestically, compared to 96 percent of a much smaller quantity produced in 1985. In 2005, the figure may drop to 75 percent if trends continue, Jones said. U.S. companies supply 40 percent of the worldwide demand for software, which is growing at 10 percent a year, matching the productivity growth of software experts.

To avoid the ordeal the U.S. auto industry underwent or the trauma suffered by the computer chip industry, U.S. software companies and experts must "improve quality and do the kinds of things [needed] to beat the competition," said Doug Jerger, vice-president of the American Software Association.

"American programmers seem to be pretty good. It is the managers that cause the problems," said Jones. Managers must try to improve their poor track record in estimating costs, planning schedules, reusing software and guaranteeing quality, he said.

Although investment in new software technology will help, U.S. companies must shift their focus from individual software programmers to software teams, and must improve management of development, said Ed Yourdan, a New York-based consultant.


Reader Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Our databases track awards back to 2013. Read More

  • Navigating the trends and issues of 2016 Nick Wakeman

    In our latest WT Insider Report, we pull together our best advice, insights and reporting on the trends and issues that will shape the market in 2016 and beyond. Read More

contracts DB

Washington Technology Daily

Sign up for our newsletter.

I agree to this site's Privacy Policy.