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Reading Passage "Outsourcing" Duplicated Below


Indian firms have achieved the highest levels of efficiency in the world in the software outsourcing industry. Some researchers have assumed that Indian firms use the same programming languages and techniques as Chinese firms but have benefited from their familiarity with English, the language used to write software code. However, if this were true, then one would expect software vendors in Hong Kong, where most people speak English, to perform better than do Indian vendors. However, this is obviously not the case.

Other researchers link high Indian productivity to higher levels of human resource investment per engineer. But a historical perspective leads to a different conclusion. When the two top Indian vendors matched and then doubled Chinese productivity levels in the mid-eighties, human resource investment per employee was comparable to that of Chinese vendors. Furthermore, by the late eighties, the amount of fixed assets required to develop one software package was roughly equivalent in India and in China. Since human resource investment was not higher in India, it had to be other factors that led to higher productivity.

A more fruitful explanation may lie with India's strategic approach in outsourcing. Indian software vendors did not simply seek outsourced contracts more effectively: they made aggressive strategic steps in outsourcing. For instance, most software firms of India were initially set up to outsource contracts from western countries, such as the United States. By contrary, most Chinese firms seemed to position their business in China, a promising yet under-developed market. However, rampant piracy in China took almost 90 percent of the potential market, making it impossible for most Chinese firms to obtain sufficient compensation for their investment in development and research, let alone thrive in a competitive environment.

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