Producing software and IT services for export requires greater capabilities. Relatively few developing and transition economies have successfully managed to enter this market. The most prominent exception is India, which has emerged as a leading exporter of software services. Many other developing and transition economies that have built domestic software capabilities are actively seeking to promote the internationalization of their software industries. The introduction of new platforms for online work (such as oDesk and Elance) is lowering the threshold for export-oriented service production as it enables individual programmers and developers to participate in international projects.
The production of application packages involves high barriers to entry and intense competition. As few places are insulated from foreign competition, domestic firms have to compete with imported proprietary software, often developed and disseminated with the backing of sizable budgets for research and development, advertising, sales and marketing. On the one hand, as such packages are often expensive to buy there should logically be an opportunity for local companies to develop cheaper solutions if they have the necessary expertise. On the other hand, however, due to their high cost, such packages are often copied and distributed at low or no cost, reducing the demand for domestically developed alternative solutions.
Widespread use of unlicensed, proprietary software may in this way hamper the opportunities for developing a domestic software industry. The main opportunity to move into software products typically lies in the development of applications tailored to local conditions (for example, business culture, legal framework and languages). The greatest potential development gain from software is also likely to materialize through its contribution to enhanced efficiency of productive activities, public services and engagement of citizens.
The kind of capabilities needed differs depending on the stage of the value chain. They also vary across different segments of the software industry. For firms in developing countries with nascent software sectors, the process of technological learning required to close the gap with more advanced countries will initially involve a considerable amount of adoption of software techniques developed abroad.
A common starting point in low-income countries is for enterprises to start by becoming the local representative of a foreign software vendor and obtain knowledge about that particular software. Building capabilities over time requires an on-going learning process during which new competencies and skills are acquired, typically by interacting with clients, peers and through various networks.
Source: The Information Economy Report 2012, The Software Industry and Developing Countries, UNITED NATIONS PUBLICATION (Chapter 1, page 7)
“The Information Economy Report 2012 provides an in-depth analysis of software industry developments in developing countries. It underlines the importance of focusing not only on the export opportunities offered by the sector, but also on domestic needs. Using new data, it makes a fresh assessment of the software performance of different countries, highlights key drivers in the evolving software landscape, reviews selected country cases and proposes concrete recommendations to policy makers in developing countries. I commend the report to Governments and development partners working to create an information society for all.” BAN Ki-moon, Secretary-General United Nations