Bangalore vs BayArea - Part II

In my previous blog entry we looked at some serious threats to the Indian Software Economy, if India continues being just an Offshore vendor supplying IT personnel based on hourly billing. For now, it has a cushion/buffer period because the threat is a little distant in time. However, this revenue model is organic in growth and cannot be sustained for many years. Over a period of time the value proposition will cease to exist, as profit margins start declining because of global competition, and worst its heavily dependent on countries like USA to provide them with business.

Threats to US Software Economy
The US Software Economy on the other hand has its own set of threats to handle right away. While the past few years have seen rapid adoption of Outsourcing and particularly Offshoring to lower cost destinations like India, the question that is most frequently asked by every programmer here in the US (including those on H1) is "Just how seriously can I compete with some other programmer in a country like India who is delighted to do essentially equivalent work for a fraction of the price that I work for ?"

Well, the harsh truth is they CANNOT. Its one more thumb rule of globalization, the international market always sets the "price of programming". Hence the threat is very real and immediate. So what are the options for companies/programmers. Can they lower their prices to stay competitive ? Its a no brainer that US programmers/companies simply CANNOT lower their prices to the point that countries like India can.

So to retain their dominance in technology and software US companies and programmers will have to look at avenues to change the economics of software itself, and look for business value in other parts of the "Software Value Chain".

Approach
Here are some of the options that US companies can adopt to still retain their supremacy. Mind you these are just options (not solutions, so adoption of these options will have to be deliberated and have bearings on political, social climates as well).

1. US Companies can promote free software process, by good licensing agendas and hence commoditizing software. Since the "free" price cannot be undercut, new products coming out of developing countries like India essentially have no seemingly greater value, hence the nature of business essentially shifts to different parts of the value chain, like managing business contracts and not software development as such, and this US certainly has a better control on.

2. US can try to Reform Software Patents, mostly eliminate any further patents on Software, and open up patents on "Business methods" instead. (First to file rather than first to invent). We have already seen most Senior executives advocating this. This can only help US companies, and tear down the competitive barriers in other countries by using its political muscle, thus normarlizing those markets at a rapid pace.

3. US companies can invest in raising the standard of living in India for example, in effect over a period of time the "value differential" between dollar and rupee will be lost, and India can lose its "low cost" tag.

4. Impose Tariffs on software products written outside of US. This might not sustain in the Globalization Era.

So with these (and may be many more I can't currently think of ) options, US can still make it difficult for other countries to challenge its technology dominance and to an extent alleviate some of its current threats.

Tomorrow or my next blog entry : There are however bigger issues looming large on US, which is "Graying of America" and the end of the "Bay-Boomers Era". How can India take advantage of this, and will the ever growing Indian youth population prove to be its boon in this struggle for dominance. Stay tuned for more !