Indian Software

Since the labor is so much cheaper in India than it is in the United States, more and more software industries move their companies over seas. It is also very easy to transfer software from one continent onto another due to today's technology. India has a comparative advantage over software because they specialized in this field, they do not need many resources to make it and they get the people to do it. Because of this they can export their product to other countries and buy some other product which they do not make. The comparative advantage theory explains the rise of Indian software industry to the fullest, and it makes a lot of sense why they grew so much over the past decade.

Heckscher-Ohlin theory believes that the comparative advantage depends on the resources the country has; meaning land, labor, and capital. This is the extent to which Indian software industry goes. They have very good resources and mostly important they have a cheap labor. Engineers do get paid a lot but labor force has a very low income.

Porter's Diamond goes in a different direction than Heckscher-Ohlin theory does. Porter believes that the reason industries do so well is because of the well skilled labor, home demand, and the firm's strategy which is really important, but in the Indian industry case does not resolve the question really. United States could use these strategies too and probably not achieve the same goal as Indians nation does. In my opinion Porter's diamond does not apply to Indian's software industry at all.

Comparative advantage theory gives the best explanation of the rise of the Indian software industry, because it makes sense for Indian country to specialize in this product since they are very good at it and it pays off to produce the product. Why some other country would spends millions of dollars into something when they can get it at a lower price from India. Countries decide what is in their best interest to give up in order getting something else. Since making software is not an easy process and India has mastered at this they will not give it up in order to produce something else.

Bibliography

Hill Charles, Global Business Today