Playing catch-up in the hardware game

  The hardware business has had to pay a price for India's success in the field of software exports

India may be a world leader in the software export business but it is generally accepted that it lags far behind in the hardware business. This may appear puzzling at first glance, but it is actually quite obvious why this is so. In some sense, the hardware business has had to pay a price for India's success in the field of software exports.

Barriers to entry

The field of semiconductors and electronics appears to be intensely competitive it actually has very high barriers to entry. For one, the costs are very high, inhibiting the easy entry of firms into the business. Fabricating a chip is not like making potato chips; there are significantly large economies of scale involved, which is what makes the business highly capital intensive. Related to this is the fact that a chip designer cannot act like a commodity supplier, in that he/she is typically making this for another upstream integrator of components. This implies two things. First, a chipmaker is necessarily a participant in a wider cluster of activities in which the chip is only one part. But even more important is the fact that the chipmaker's nature and extent of business is governed by the nature and extent of the larger ecosystem in which he/she is only a cog. This has important implications for the way in which the electronics hardware business develops in a country. The most important of these has to do with the manner in which the state acts.

Elements of state policy

There are two significant drivers of state intervention in the hardware business – the nature of the policy support and the role of defence electronics. Historically, policy support for the hardware sector, couched in the “infant industry protection” logic, has been a pillar for the development of electronics in South Korea, Japan, Taiwan, Israel, and of course the U.S.

A striking feature of this list is the fact that the regimes in these countries were all also longstanding strategic military allies of the U.S. It is well known that the field of defence electronics has played a crucial role in the dissemination of technology. For instance, Qualcomm, the manufacturer of a wide range of chips, owes much of its success to the fact that it played a role in developing electronics for the U.S. defence forces in association with several other labs in several American universities.

It is not difficult to miss the point that public spending played a critical role in Qualcomm's success in the field. What this means is that state support in whatever form has played a crucial role in the development of technology. Its role is also important in the sense that it minimises the huge risks associated with the rapid changes in the field.

Cheap hardware for software

In India too, in the early stages of the IT revolution, the state provided a measure of support to the hardware industry. These were mainly in the form of tariff barriers to enable the nascent industry to grow. However, for a range of reasons, this support was withdrawn, chiefly because of the pressure from the software industry, which claimed that since India's “comparative advantage” lay in software exports, the state ought to provide it with cheap resources.

According to the Task Force on Information Technology, constituted by the Union Government in 2009, the demand for electronics hardware is projected to grow from $ 45 billion in 2009 to $ 400 billion in 2020. Global demand in 2020 is likely to be about $ 2,400 billion by 2020, of which domestic Indian output is likely to be only about $ 104 billion — implying that India is projected to account for a measly 4.3 per cent of global production.


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