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 processes.

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
innovation cannot
be defined.
for that matter,
sometimes
software cannot
be defined.

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

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