In the footsteps of the Silicon Valley? Indian and Irish software in the international division of labour

This paper analyses the development of software in India and Ireland. The development patterns of the software industry in Ireland and India clearly show both the advantages and disadvantages of being a follower. The most obvious advantage is the ability to sustain growth without a broad based set of technical capabilities, at least initially. With the leaders creating and defining markets, and possibly even the business models, and the policy and technical infrastructure required, many uncertainties are greatly reduced. Moreover, in many instances, multinationals from the leading countries can catalyse growth and may even, as in Ireland, account for a substantial part of the initial growth. On the other hand, relatively narrow sources of competitive advantage imply that the firms in the follower industries tend to be similar in capabilities, with competition among them transferring the bulk of the benefits to customers overseas. Sophisticated and well established competitors located in the leading clusters stand in the way of followers moving up the value chain, leaving innovative firms to search for new niches, and ways to link to lead users. Moreover, clusters in the followers lack the thick vertical and horizontal links, that are important for knowledge spillovers, innovation and growth. However, our analysis, which s draws on the evidence collected in India and Ireland through two surveys of domestic firms and foreign-owned firms, also suggests that early success, narrowly based though it may be, can lay a foundation for future growth that is based more on innovation. JEL classification: F23, J2, O12, L86