Constructing comparative advantage: How India is moving up the global software value chain

The Indian IT industry has achieved higher value-added positions in the global IT value chain. This has important implications for considering opportunities for the South in the global economy, How private Indian firms and associations have moved firms up the global value chain was explored through the use of semi-structured interviews and business data analysis, Instead of relying on relatively lower labor costs, firms succeeded in: (1) building an international reputation for quality and delivery; (2) upgrading human capital; (3) overcoming market entrance costs and barriers; and (4) adding new markets and new clients. In doing so, firms constructed comparative advantage, by creating new advantages, upgrading existing factors and changing constraints, as opposed to taking resource endowments as given and somewhat fixed. Industry associations have assisted private firms by creating an enabling policy environment. Although often dismissed as narrowly representing the self-interest of a few large firms, Indian IT associations---for the hardware, software, Internet and telecom sectors---are representative of their industries and in broad agreement with the state as to industry objectives. Associations aid firms by intervening in the gap between stated policy objectives, written policies and their implementation to guide the state to remove impediments to growth and competition. Together, firms and associations' construction of comparative advantage targeted at a global value chain provides a concrete roadmap for countries of the South to navigate the global economy.