Increasingly, centers have been given
control of key components of software
applications and in some cases have
been responsible for design and development of entire products.
This was not so for all software. Indian software development centers were
most likely to have design control in
software projects for which there was
a large local market. For example, we
found significant autonomy for software projects that involved software
development and testing tools and for
mobile applications. The Indian market for both of these products is large.
illUstration by stUart bradford
A key determinant of the location of
development activities in software is
the location of the user. This is particularly true with business software, which
is often bundled with a set of business
rules and assumptions about business
Growth in emerging economies
translates into more lead users, and,
thus, more local innovation. Already
we have seen this in areas such as software tools, mobile technologies, and
In many cases
for that matter,
security software, but there is evidence
in other areas as well. For example, i-flex, which began as an offshoot of Cit-ibank developing products for banks
in India, has leveraged its success with
Indian banks to banks in other emerging markets, and in banks in developed
economies as well. In other words, as
the distribution of users shifts, so does
the locus of software innovation.
This should come as no surprise.
Historically, some of the most significant examples of business software—
such as IBM’s SABRE airline reservation and SAP’s ERP software—have
arisen through close collaboration between software firms and their users.
Since knowledge of business needs is
frequently not well codified, such collaboration will often be most effective
when performed by firms that are in
close proximity to one another.
We see the same pattern today. Conditions for development of innovative
new software products (and software
firms) are propitious when they occur
in proximity to potential lead users. A
good example is Israel’s longstanding
strength in security software, which
arose in part due to the advanced needs
of the Israeli defense forces.
Our patent data also illustrated the
importance of proximity to users. Most
software innovation occurring outside
the U.S. is found in U.S. multinational
firms. One can see this by looking at
the country of assignee for patents in-
feBRuaRY 2009 | vol. 52 | No. 2 | CommunICatIons of the aCm