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Articles
Transforming Economic Development in Asia Through Powerful Local Software Ecosystems
Dilip Mistry
Dilip Mistry, General Manager, DPE, Microsoft APAC
It’s an exciting time to be an Independent Software Vendor (ISV). Much of my days are spent talking with government officials in Asia who, without exception, understand that a key factor for the growth and sustainability of their national economy and future export earnings is the establishment and support of a vibrant Information and Communications Technology (ICT) ecosystem—one in which key elements like capital, government policy and research and development are all nurtured.
The ICT industry has a significant impact on economic growth, as research by technology consultancy IDC makes clear. IDC found that, in 2005, information technology (ICT net of communications) accounted for 3.3 million jobs in Asia/Pacific (10 countries) of 13.1 million jobs globally (51 countries) [1].
Between now and 2009, IT spending globally is expected to rise from USD billion to USD billion—equivalent to 2.7 per cent of combined GDP. This will result in more than 3 million additional IT jobs, and (over the four-year period) generate some USD billion in new tax revenues for the 51 governments in the three regions.
By 2008 India’s software industry will employ four million people and account for eight per cent of GDP and 30 per cent of foreign exchange earnings.
Whether it is the Indonesian government’s recent establishment of an ICT Council to stimulate growth of the local ICT industry, or the Korean government’s goal to be a net software exporter by 2015—there is strong buzz about the miracle of great software being able to transform economies and high expectations on local software houses to drive a strategic national agenda.
The Indian government’s focus and investment in developing a commercial software and services sector is a wonderful example of spurring growth and leapfrogging. According to National Association of Software and Service Companies of India (NASSCOM) data, in 2002 the local software industry contributed less than one per cent of India’s gross domestic product (GDP). By 2008 India’s software industry will employ four million people and account for eight per cent of GDP and 30 per cent of foreign exchange earnings.
The potential impact of ICT, especially in Asia’s developing markets, is massive. Countries such as Vietnam, Cambodia and The Philippines tend to be at relatively low points on the productivity and economic growth curves. So modest infusions of ICT can reap large and rapid gains. Such leapfrogging is seen across the technology landscape in developing countries.
The Indian government’s focus and investment in developing a commercial software and services sector is a wonderful example of spurring growth.
The ICT Ecosystem In Asia, And How Software Drives It
The software industry’s impact on local economies, however, is immense. For example, in 2005 the software industry accounted for 38 per cent of total IT employment and 45 per cent of the total IT tax revenue generated for countries across the region.
Large enterprises, such as Microsoft, rely on more than 700,000 partner companies worldwide. Such companies also play an active role in supporting local software companies and helping them build skills, create new businesses and expand existing ones. For example, for every USD of Microsoft revenue in Asia-Pacific, another USD .29 is generated by partner companies selling or delivering products and services that run on the Microsoft platform. As a result, close to 90 per cent of Microsoft revenue is generated through its partners, which makes this a critical imperative for the company.
However, with expectations and opportunities come challenges. In Asia during 2005, investment in software accounted for a relatively modest slice of total spending on information technology, according to IDC—that is 14 per cent of the total IT spend in Asia/Pacific. The reality is that while many local software developers have the technical ‘know how’ to build application and services, many lack the business skills to determine competitive advantage in their targeted value chain, or the ability to design and execute software products and services and plan for international marketing and channel promotion.
Local software developers have the technical ‘know how’ to build application and services. But many of them lack the business skills to determine competitive advantage in their targeted value chain, or the ability to design and execute software products and services and plan for international marketing and channel promotion.
Build a High-Quality, Commercial-Grade Software Business
Underpinning Microsoft’s view of how great local ecosystems transform economic development is the goal of promoting self-perpetuating, independent innovation in local ICT ecosystems. Local ICT ecosystems are unlikely to thrive in the long run unless they (a) build on those innovations and/or (b) develop entirely new products and services that expand the market. This, in turn, is dependent on two factors:
Following is a good framework for any software engineer to think about the Intellectual Property (IP) and sales and marketing challenges they must overcome to succeed:
Local ICT ecosystems are unlikely to thrive in the long run unless they (a) build on those innovations and/or (b) develop entirely new products and services that expand the market.
Dilip Mistry's article was published as the Cover Story in the March issue of SDA India magazine. Click here to read the issue for FREE.
The rewards for companies who are able to understand what is valuable IP, how to design and build high-quality software and effectively market their offerings is huge. On 15 February during the Singapore 2007 budget, the Second Minister for Finance Tharman Shanmugaratnam, called out the company Heulab as a new breed of ‘global SME’. Started in 2002 by two National University of Singapore (NUS) graduates to create educational software on tablet PCs, today, the company employs 24 people, has a turnover of over USD million and counts over 140 schools in Singapore, Australia, Taiwan and Qatar as customers using their products to introduce creative learning in the classroom.
The Innovation Advantage, and How to Protect It
If we accept that ICT is a key driver of growth for Asia Pacific as a region, then the ‘fuel’ for its success lies firmly in innovation. It is the high risk and high return part of the ICT industry.
If we break the industry down for ‘risk/return’ then traditional, human-capital-intensive industries like Business Process Outsourcing (BPO) and call centres are on the left axis. As we move through the various segments of the industry the risk increases, through segments such as software development, packaged applications and then through to the more innovation-intensive segments like Web 2.0, communities and games development, nanotechnology, genetic and bio-computing. So there should be little doubt that if an economy wishes to be based in the ICT industry it will need to stage, encourage and protect its more risky and innovative inventors, since they are the high value segment leaders for the future. Simply copying the model from someone else will not be an option as more sophisticated IP protection regimes and technologies will also develop around them.
IP protection should be enforced in Asia’s developing economies to prevent people from copying innovations and ‘free-riding’ on others' investments in R&D. Effective IPR protection will also promote Foreign Direct Investment (FDI) and technology transfer by reassuring foreign companies that their investments and technologies will not be susceptible to piracy or compulsory licensing.
For innovation to thrive in Asia, local conditions must be supportive. Since 1980, the world’s greatest economic gains have been achieved by developing nations that aggressively opened their economies to foreign technologies and business methods and protected the intellectual property rights of their developers [2].
This is especially true for ICT—and in particular software, given its high dependence on ideas and innovation. Governments should play a key role in protecting Intellectual Property Rights (IPR)—not just the IPR of foreign multinationals, but those of the fledgling software ecosystems who are expected to deliver so much local good. Strong and enforced IPR protection enables inventors and entrepreneurs in Asia’s developing economies to prevent others from copying their innovations and ‘free-riding’ on their investments in Research and Development (R&D). In addition, effective IPR protection promotes Foreign Direct Investment (FDI) and technology transfer by reassuring foreign companies that their investments and technologies will not be susceptible to piracy or compulsory licensing.
In November 2006, during the APEC Summit in Hanoi, the Vietnamese government took the lead to strongly enforce IPR law, by mandating the use of licensed software across all government agencies. The Ministry of Finance was the first department to ensure compliance, by signing an agreement to ensure 15.000 copies of Microsoft Office are legal.
The OECD has estimated [3] that the total costs of piracy, counterfeiting and other IPR violations are equivalent to between 5 per cent and 7 per cent of world trade—an estimate that almost certainly understated the problem, given the clandestine nature of IPR crime. Assuming (optimistically) no increase in those percentages since the study was completed, businesses worldwide lost [4] as much as USD 770 billion to IPR theft in 2004—a sum equivalent to India’s GDP.
Conclusion: Carpe Diem!
Software is a key driver of successful knowledge economies. It enables local ICT industries to create additional wealth by customising existing software, producing new and related software, or providing services. This, in turn, drives growth in jobs, increased investment in R&D and innovation, and a vibrant ICT ecosystem. Software accounts for a relatively modest slice of overall IT spending, but has a disproportionately positive impact on local economies.
A successful commercial software business is a function of understanding of what is market-driven valuable IP, building an innovation-driven and leadership environment and developing and delivering high-quality software products—for those who effectively balance these priorities, the rewards are massive. This virtuous circle is an extremely powerful driver of economic development—but one that is sustainable only if local governments enforce strong IPR protection to build an environment where budding local software IP is able to flourish and deliver the jobs and growth that governments across Asia so crave.
The ICT industry has a significant impact on economic growth, as research by technology consultancy IDC makes clear. IDC found that, in 2005, information technology (ICT net of communications) accounted for 3.3 million jobs in Asia/Pacific (10 countries) of 13.1 million jobs globally (51 countries) [1].
Between now and 2009, IT spending globally is expected to rise from USD billion to USD billion—equivalent to 2.7 per cent of combined GDP. This will result in more than 3 million additional IT jobs, and (over the four-year period) generate some USD billion in new tax revenues for the 51 governments in the three regions.
By 2008 India’s software industry will employ four million people and account for eight per cent of GDP and 30 per cent of foreign exchange earnings.
Whether it is the Indonesian government’s recent establishment of an ICT Council to stimulate growth of the local ICT industry, or the Korean government’s goal to be a net software exporter by 2015—there is strong buzz about the miracle of great software being able to transform economies and high expectations on local software houses to drive a strategic national agenda.
The Indian government’s focus and investment in developing a commercial software and services sector is a wonderful example of spurring growth and leapfrogging. According to National Association of Software and Service Companies of India (NASSCOM) data, in 2002 the local software industry contributed less than one per cent of India’s gross domestic product (GDP). By 2008 India’s software industry will employ four million people and account for eight per cent of GDP and 30 per cent of foreign exchange earnings.
The potential impact of ICT, especially in Asia’s developing markets, is massive. Countries such as Vietnam, Cambodia and The Philippines tend to be at relatively low points on the productivity and economic growth curves. So modest infusions of ICT can reap large and rapid gains. Such leapfrogging is seen across the technology landscape in developing countries.
The Indian government’s focus and investment in developing a commercial software and services sector is a wonderful example of spurring growth.
The ICT Ecosystem In Asia, And How Software Drives It
The software industry’s impact on local economies, however, is immense. For example, in 2005 the software industry accounted for 38 per cent of total IT employment and 45 per cent of the total IT tax revenue generated for countries across the region.
Large enterprises, such as Microsoft, rely on more than 700,000 partner companies worldwide. Such companies also play an active role in supporting local software companies and helping them build skills, create new businesses and expand existing ones. For example, for every USD of Microsoft revenue in Asia-Pacific, another USD .29 is generated by partner companies selling or delivering products and services that run on the Microsoft platform. As a result, close to 90 per cent of Microsoft revenue is generated through its partners, which makes this a critical imperative for the company.
However, with expectations and opportunities come challenges. In Asia during 2005, investment in software accounted for a relatively modest slice of total spending on information technology, according to IDC—that is 14 per cent of the total IT spend in Asia/Pacific. The reality is that while many local software developers have the technical ‘know how’ to build application and services, many lack the business skills to determine competitive advantage in their targeted value chain, or the ability to design and execute software products and services and plan for international marketing and channel promotion.
Local software developers have the technical ‘know how’ to build application and services. But many of them lack the business skills to determine competitive advantage in their targeted value chain, or the ability to design and execute software products and services and plan for international marketing and channel promotion.
Build a High-Quality, Commercial-Grade Software Business
Underpinning Microsoft’s view of how great local ecosystems transform economic development is the goal of promoting self-perpetuating, independent innovation in local ICT ecosystems. Local ICT ecosystems are unlikely to thrive in the long run unless they (a) build on those innovations and/or (b) develop entirely new products and services that expand the market. This, in turn, is dependent on two factors:
- The ability to build wealth from ideas and innovations
- The ability to protect those ideas and innovations from theft
Following is a good framework for any software engineer to think about the Intellectual Property (IP) and sales and marketing challenges they must overcome to succeed:
- The Market Environment and its Analysis: just like building a house, anyone who wants to develop great software needs to formulate a detailed plan to ensure that any IP they create has a specific market need
- The Value Chain, Value Creation and Customer Loyalty: Michael Porter’s Value Chain Analysis provides a great framework to understand how your firm can generate value, understand loyalty and link to value creation
- Innovation and Leadership: the most important moment of analysis by any software company is understanding the dynamic tension between management approach, organisational culture and change management. How do you build sustainable innovation into the growth plan for your company?
- Developing and Implementing Strategy, the Business Planning Process: by this point, if the plan you’ve drawn up for your business has not effectively planned for high-quality services or solutions, then its back to the drawing board. A high-quality development environment and approach may be one of the biggest challenges for ISVs in Asia.
Local ICT ecosystems are unlikely to thrive in the long run unless they (a) build on those innovations and/or (b) develop entirely new products and services that expand the market.
Dilip Mistry's article was published as the Cover Story in the March issue of SDA India magazine. Click here to read the issue for FREE.
The rewards for companies who are able to understand what is valuable IP, how to design and build high-quality software and effectively market their offerings is huge. On 15 February during the Singapore 2007 budget, the Second Minister for Finance Tharman Shanmugaratnam, called out the company Heulab as a new breed of ‘global SME’. Started in 2002 by two National University of Singapore (NUS) graduates to create educational software on tablet PCs, today, the company employs 24 people, has a turnover of over USD million and counts over 140 schools in Singapore, Australia, Taiwan and Qatar as customers using their products to introduce creative learning in the classroom.
The Innovation Advantage, and How to Protect It
If we accept that ICT is a key driver of growth for Asia Pacific as a region, then the ‘fuel’ for its success lies firmly in innovation. It is the high risk and high return part of the ICT industry.
If we break the industry down for ‘risk/return’ then traditional, human-capital-intensive industries like Business Process Outsourcing (BPO) and call centres are on the left axis. As we move through the various segments of the industry the risk increases, through segments such as software development, packaged applications and then through to the more innovation-intensive segments like Web 2.0, communities and games development, nanotechnology, genetic and bio-computing. So there should be little doubt that if an economy wishes to be based in the ICT industry it will need to stage, encourage and protect its more risky and innovative inventors, since they are the high value segment leaders for the future. Simply copying the model from someone else will not be an option as more sophisticated IP protection regimes and technologies will also develop around them.
IP protection should be enforced in Asia’s developing economies to prevent people from copying innovations and ‘free-riding’ on others' investments in R&D. Effective IPR protection will also promote Foreign Direct Investment (FDI) and technology transfer by reassuring foreign companies that their investments and technologies will not be susceptible to piracy or compulsory licensing.
For innovation to thrive in Asia, local conditions must be supportive. Since 1980, the world’s greatest economic gains have been achieved by developing nations that aggressively opened their economies to foreign technologies and business methods and protected the intellectual property rights of their developers [2].
This is especially true for ICT—and in particular software, given its high dependence on ideas and innovation. Governments should play a key role in protecting Intellectual Property Rights (IPR)—not just the IPR of foreign multinationals, but those of the fledgling software ecosystems who are expected to deliver so much local good. Strong and enforced IPR protection enables inventors and entrepreneurs in Asia’s developing economies to prevent others from copying their innovations and ‘free-riding’ on their investments in Research and Development (R&D). In addition, effective IPR protection promotes Foreign Direct Investment (FDI) and technology transfer by reassuring foreign companies that their investments and technologies will not be susceptible to piracy or compulsory licensing.
In November 2006, during the APEC Summit in Hanoi, the Vietnamese government took the lead to strongly enforce IPR law, by mandating the use of licensed software across all government agencies. The Ministry of Finance was the first department to ensure compliance, by signing an agreement to ensure 15.000 copies of Microsoft Office are legal.
The OECD has estimated [3] that the total costs of piracy, counterfeiting and other IPR violations are equivalent to between 5 per cent and 7 per cent of world trade—an estimate that almost certainly understated the problem, given the clandestine nature of IPR crime. Assuming (optimistically) no increase in those percentages since the study was completed, businesses worldwide lost [4] as much as USD 770 billion to IPR theft in 2004—a sum equivalent to India’s GDP.
Conclusion: Carpe Diem!
Software is a key driver of successful knowledge economies. It enables local ICT industries to create additional wealth by customising existing software, producing new and related software, or providing services. This, in turn, drives growth in jobs, increased investment in R&D and innovation, and a vibrant ICT ecosystem. Software accounts for a relatively modest slice of overall IT spending, but has a disproportionately positive impact on local economies.
A successful commercial software business is a function of understanding of what is market-driven valuable IP, building an innovation-driven and leadership environment and developing and delivering high-quality software products—for those who effectively balance these priorities, the rewards are massive. This virtuous circle is an extremely powerful driver of economic development—but one that is sustainable only if local governments enforce strong IPR protection to build an environment where budding local software IP is able to flourish and deliver the jobs and growth that governments across Asia so crave.
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