Arora Gives Seminar at International Monetary Fund

The "I"s Have IT?

India, Ireland, and Israel have become major exporters of software services over the last decade. During a seminar at the Fund, a visiting scholar discusses if other emerging market economies can follow this path to export earnings and growth.
 
The software industry is eyed by many emerging market economies as a pathway to export earnings and economic growth. At a talk at the IMF yesterday, Carnegie-Mellon University’s Ashish Arora said that the success of software exports from the “I” countries—India, Ireland, and Israel—reflected as much “good luck” and “trust in entrepreneurship” as successful government policies or better human capital.
 
The information technology (IT) revolution in the 1980s opened a window of opportunity that could potentially have been exploited by many countries, Arora said. The “I” countries were able to take better advantage than others because of three factors:

• Many of their “reserve army of underemployed” engineers and scientists had migrated to the United States and the United Kingdom. Through working in companies in these countries, this diaspora gained an appreciation of the business practices of the people who were to become their customers.
  
  
• The software companies in the “I” countries had freedom to experiment. This trust in entrepreneurship by policymakers in these countries was important, Arora said. “It is forgotten that Indian software giants like Infosys made huge mistakes in their early days, but they were allowed to learn and adapt.”
  
  
• Good luck played a role as well. “India and Ireland in particular,” Arora said “were lucky that they embarked on major economic reforms and liberalization” around the same time as the IT revolution permitted a “decoupling of the hardware and software sectors.”

Quizzed on whether other countries could emulate the success of these three countries, Arora said that “there is no reason why they should not be able to do so, but the firms in these countries have a head start.” He joked that “providing business services is no different from having a good plumber. Once you form a relationship with someone who you know will be there to fix your problems, you tend to continue the relationship.”   However, the IT industry offers several niches that can be successfully occupied by newcomers from other countries, Arora concluded. Brazilian companies, for instance, are exploiting their “better hardware capabilities to gain a technical edge” over rivals in other countries.    The talk was attended by Fund and Bank staff and experts drawn from private companies, think tanks, and embassies.