The Chinese software industry is small and underdeveloped, compared with its computer and other information technology (IT) hardware industry and compared with India’s software industry. Yet, current status is not necessarily a good guide to future prospects, as China’s recent history amply demonstrates. An important difference between the Chinese and Indian software sectors is the former’s close links to domestic users, notably industrial and commercial users. This has fostered intensive learning in the area of product development for a large and rapidly growing domestic market. India’s software sector, lacking such a dynamic domestic user sector until very recently, has thrived on exporting software services.

Does the underdeveloped domestic user base constitute a long-term liability for India vis-à-vis China? Not necessarily, if Indian firms can play to their own strengths in process control and project management, perhaps forging alliances with Chinese companies strong in ...