Thoughts on Developing a Software Industry

Developing the software industry for developing nations can be frustrating. Most underdeveloped nations lack the domestic market to initiate the industry, the financial support that firms in the industry need, the local talent to support the industry and the needed infrastructure to support the industry. All of this translates to limited capabilities to drive the development of the industry.
There have been different approaches on how to develop the industry. India and Ireland develop their industry by focusing on an export oriented approach. With this approach a nation develops software targeting foreign consumers, forgetting their own local market. The energy of the local developers is focused on bigger markets with bigger financial opportunities. The Brazilian and Israeli approach is based on import substitution, focusing on their domestic market and on niche markets. With this the development of the industry contributes to the development of the society. In the particular case of Brazil they developed their industry with the use of FOSS so that both the government and the local market could break their dependence from foreign software.
Brief software history
Before IBM introduced their System/360 computer architecture software that ran in one model of hardware would not run in another model, even if it was from the same company. At this time everyone had access to code since porting of the software was not possible. It was not until the introduction of system/360 architecture that porting of software between different hardware was possible, even with this new architecture software was encourage to be shared and to be collaborative. The concept of FOSS did not exist at this time, but no one thought on proprietary software, since the programmers of that time felt that through collaboration the optimum way of coding could be achieved. In 1978 IBM started to confront competition from other companies that were mimicking their hardware architecture and using the IBM software for their own profit. To block the competition from using their software and to find a way to maximize their profit, IBM introduced the concept of copyright into their software. From 1983 on IBM, who had accomplished to copyright all their software, stopped providing the source code along with the executable of the software (Capek et al. 2005).
Many people did not like the new concept of proprietary software and thought that limiting the freedom of the software for the users was a crime against humanity (Williams 2002). Richard Stallman was one of the biggest opponents of proprietary software. He felt that software should be free but not in a matter of price but of liberty. Stallman argued that Software must have the freedom to be used for any purpose, to be shared and to be modified for any improvements or adaptation. With this mentality Stallman created the free software foundation and created the ground rules of what free and open source software is through his GNU Manifesto. In 1989 Stallman created the GNU General Public License (GPL), as a legal way to protect free software. The GPL created a mechanism for free software to proliferate and to prevent it on becoming proprietary. The GPL allows the sharing and modification of the code, but any new modification has to be licensed with GPL, meaning that any modification will still be free and anyone can have access to it. The GPL created a copyright to protect the concept of free software, with this utilizing a tool that proprietary software use to secure their survival (Coleman 2004).
Proprietary Software vs. FOSS
The difference between proprietary software and open source software cannot be appreciated by running the software or by just looking at the executable. The difference comes from the perspective of accessibility to the code. Open Source code provides the source code of the software along with the executable of the software. If the user experiences any problem and wishes to modify the software to fix the problem, he is free to do so. In the case of proprietary software this is not possible.
Many believe that only specialist should work with the code. This trend of thought ignores the benefit that the average user can perceive, even if they would not know what to do with the code. The use of proprietary code limits the development and the update of the software for the user, meaning that when the owner of the copyright software decides to stop the support for the software no one will be able to fix any bug, causing the user to either migrates to another software or stays locked in a software that will not be supported any more.
Another problem that proprietary software has is that most of the software that is used is custom made, making it difficult for proprietary software to charge accordingly to the value of their product. This is why some companies developed packaged software, and try to insert as much features as possible (Bessen 2002). The problem with this is that some of the features are not needed by the final user and some of his needs might not be covered by that packaged software. With the use of FOSS this is not a problem, since the software can be access for free and modified, allowing the user the possibility to adapt the software to their needs and submit the changes so that others with similar needs can benefits.
One of the disadvantages that FOSS has over proprietary software is at the starting point of a project. Proprietary software has a support of starting project based on the needs it wants to tackle; the owner of the software will allocate the needed resources to develop the project. In the case of FOSS if it is lacking a support from a specific actor it might have problem allocating initial resources. Most of the developers that support FOSS projects are reluctant to work at the begging stages unless it has a particular benefit for them.
The organizational structured of FOSS projects can be different from one project to another, just like in proprietary software. Rivalry between projects can also occur and questions on the others work can emerge. For example, the KDE[1] questioned the utilization of C as the programing language for GNOME[2], arguing that with that language then the reutilization of code is difficult and the usage of memory is inefficient (Coleman 2001).
Another way that organization can be different between projects is in the way that patches and new features codes are accepted for new releases, the amount of gatekeepers they might possess and how new developers are accepted to the project. In the case of Apache, one of the biggest and most successful FOSS projects, developers must be nominated by a current member and a voting by all members must be conducted to finally accept a new member. This means that in order to become an Apache developer, the hacker must prove his capacity before applying. In the case of GNOME, also a big and successful FOSS project, member acceptance is easier and faster because they have a more open policy for new members.
FOSS has transcendent from the exclusive use of individual that advocate software freedom and independence from big corporation. Now is also being used by big corporation - like IBM, Google, Red Hat, etc. - because of its agile capability on adapting to new situation and the frequent updates to fix any bugs. FOSS can provide a reliable platform that is tested and fixed with more frequency than any proprietary software. IBM has invested heavily in FOSS and has hired many developers to work on their FOSS projects. One of the main reasons for IBM to adopt FOSS has been to shift their business model towards a service-based model, and provide a better solution to its customers with the usage of FOSS.
Approach A: FDI to develop the local talent
Attracting foreign companies to develop the production of software in a country has been a strategy used by some countries to initiate the development of their software industry. Successful industry like the Irish software industry (Cochran 2001; O'Malley & O'Gorman 2001) and the Indian software industry (Abraham et al. 1998) started with this approach.
The governments that promote this approach believe that by attracting FDI it will bring the financial support that the nation is lacking to initiate the industry; it will bring the cutting edge technology that has been developed abroad, with the possibility of producing knowledge spillover; and that it will develop the local talent eventually becoming to the quality of developed nations.
One of the main difficulties that underdeveloped nations have on attracting FDI for the industry is on demonstrating the talent of the local workforce. Most of these nations do not have the talent needed for the foreign companies to establish their company. In most of the cases if a company decides to establish in an underdeveloped nation they will bring their own talent to fill the important position in the companies. Another issue that not having an educated workforce cause, and an issue briefly discussed in section 2, is that underdeveloped nation have difficulty on taking the advantages of the benefits caused by positive externalities, such as learning by doing, knowledge spillovers, R&D leapfrogging as well as technological leapfrogging.
The case of Jamaica and Barbados
Abbott (2005) analyzed the creation of Indusa in Jamaica with US investment. A group of entrepreneurs was looking for a place to establish a new firm that would be dedicated to developing software for third companies. The firm wanted to establish in an underdeveloped nation closed to the US, which had reliable telecommunication infrastructure and preferably an English speaking workforce. The group decided on establishing in Jamaica because it had everything they were looking for. The local workforce did not have the skill the company needed, and as a solution the company created an alliance with the Jamaican government to create a software training program that not only trained Jamaican students in the latest programming technologies but also in technology that was aligned to the needs of Indusa. The curriculum for the program was created with help of foreign universities located in the US and the UK.
Indusa brought their top manager from developed countries where the industry was developed and had a strong competition. With this they managed to bring the expertise that was lacking in Jamaica and that could not be trained in a short time; still more than 85% of the employees of Indusa were from the local community (Abbott 2005).
The main focus of the company was to export their software to financial companies located in the United States, but they also introduced their products and services to the Jamaican market.
They supported the local community by training and hiring their workforce. They also introduced to the Jamaican society local developed software services that where of the same quality as those of developed nations.
Not all FDI outcomes are positive and Hopkins (1998) mentions the story on how Barbados managed to attract a US based firm called PRT to establish their operation in the small country. Barbados offered a low tax rate to the company and a paradisiac location for their developers to live and their customers to visit.
PRT had facilities in India for the development of software for their customers. Many of their customers refused to travel all the way to India when they had to meet the developers, and because of the strict regulation of US migration it was almost impossible for the Indian developers to travel to the US. The managers at PRT saw Barbados as country they could relocate their software developing facilities. Barbados is only 4 hours away by plane from New York and has a tropical climate that many can enjoy along with their white sand beaches.
The infrastructure in Barbados was decent, it had reliable power supply and reliable telecommunications networks, it was close to the United States and the main language was English. Same as Jamaica, Barbados had the problem that the local workforce did not have the talent needed by PRT to develop the quality of software that their customers required. To fix this PRT decided to bring developers from outside of Barbados and just hired a minimal amount of employees from the local community, a different strategy than that of Indusa. PRT only focused their product to the US market and neglecting the Barbados market from the software developed in their own land.
Barbados provided a low tax rate to PRT and in return they hired foreign talent and sold their product in foreign markets. With the development of the software industry of Barbados in this fashion, I wonder what positive aspect did the Barbados government or society perceived?
Approach B: FOSS to break dependence
Initiative to mandate the exclusive use of open source software in government have been proposed in many developing countries as well as in some developed countries. The proposition for using FOSS is being seen as a way of globalization from below (Schoonmaker 2007) and is getting traction in countries with strong history with socialist movements (Festa 2001).
Governments are using FOSS to cultivate their domestic software industry, and both the Chinese and the French government are using this tactic to develop it (Bessen 2002). Interesting stories of using FOSS for this purpose have come from Latin counties such as Brazil (Duarte 2002; Schoonmaker 2009), Peru (Chan 2004) and Argentina (Dorn 2003).
The media argues that one of the main reasons for governments to push for open source is because of budget reason (Festa 2001). Those who argue in favor of this lack the vision of understanding that some underdeveloped nations wish to break their dependence on foreign software and prefer to invest in the development of the local talent. Not only can FOSS break the dependence on foreign software but also provides an attractive solution for governments to close the digital divide when they have limited budget for ICT.
Schoonmaker argues that the usage of FOSS can be seen by developing countries as a promotion of technical autonomy that can help promote the development of the local knowledge, skills and industry. This can make the country change from consumers of foreign software to producers of software solutions. With the use of FOSS the money that is saved on licensing can be invested in training, consulting and new equipment (Schoonmaker 2007; 2009).
Most developing countries are net importers of software and have no significant companies that develop software. This means that government that support the use of proprietary software are not benefitting the economy of their country as investing in FOSS could. If the government invests in FOSS then they are investing in the development of the local talent that eventually can develop software for export (Dorn 2003).
The cases of Peru and Brazil
When the proposition to mandate the usage of FOSS in the Peruvian government was made, many arguments floated. The supporters argued on the need for independence of the government from the products of big corporation from the developed north, particularly of Microsoft the biggest software provider to the Peruvian government; its opponents argued that if FOSS was so aligned to the needs of the government why would they need a law to enforced its use. Another argument was that the market was better on choosing the best technology. The supporters fought for technological independence and the opponents predicted a shutdown of the economy (Chan 2004).
FOSS provided more than just independence from foreign software. With the help of the international community that support the usage of FOSS the Peruvian legislator that proposed FOSS initially defended his proposition by arguing that the usage of FOSS would provide a more transparent government to the citizens of Peru by providing a more democratic and efficient government that could be monitor by its citizens (Chan 2004, Dorn 2003).
In the case of Brazil its government not only saw the usage of FOSS as a way to break their dependence from northern control, but also as a way to reduce the digital divide. The investment on FOSS represented an investment in technology with ethical and social responsiveness, since the sharing of the knowledge would allow socialization of technological development and would fight the privatization of it. Fighting the privatization of knowledge was crucial to reduce the digital divide and integrate the entire Brazilian society into the digital world (Schoonmaker 2009).
With the government being one of the biggest consumers of IT in Brazil, the shift to FOSS would represent a big market for the open source development. With that shift, Brazil could develop a software industry that would share and collaborate not only inside of Brazil but also with other countries.
The Brazilian government developed a program to manufacture computers in Brazil that would bring the cost of hardware down, with this securing digital inclusion to all its citizens. The result was that the people of Brazil could have an affordable computer with respectable performance so that they could have access to ICT. To reduce the cost and improve the freedom of information the government agreed on using FOSS on those computers. This program was called “computer for all” and all the computers sold under this program had a Linux operating system and more than 27 free software installed (Schoonmaker 2009). The government provided different financial plan for its citizens to buy the computer and most of the big banks of Brazil participated by providing loans under this program. The success of the program made Brazil to be an important player in the computer market worldwide and in 2007 more computers were sold in Brazil than Televisions (Schoonmaker 2009).
For some government FOSS has fulfilled the requirement of their political agendas but it has come for a price. One of the biggest problems that underdeveloped nations have faced with the usage of FOSS is that most of the governments do not have the capabilities to develop open source and it might take some time for the local talent to develop the necessary skill to compete with software corporations from developed countries. This has caused disadvantage on the implementation of some open source projects.
FOSS and the involvement of the government
Some argue that creating a law that mandate the use of FOSS is not the right thing to do. Stanco (2003) argues that FOSS will win based on merits over proprietary software most of that time and that that type of change on the procurement of software is not beneficial for the people. He continues by indicating that if an indigenous software industry wants to be created with the use of FOSS, the politics should not be introduced in the procurement policy but on the educations policy. Only through education can this policy be sustainable and a production of better developers and software can occur.
The survival of FOSS will not be secure by the intervention of the government. FOSS is sustained by innovations that are created by the collaborative environment of open source. Some practitioners believe that a software industry is sustainable if solidarity, cooperation and competition exist. On the other hand if business practice eliminates the user by abusing the monopolistic power instead of fostering competition with collaboration, then they are unsustainable and have high probability of failure. Agreeing with the latter both Bessen and Coleman acknowledges that one of the biggest problems for the software industry, and particularly for FOSS projects, is the current patent system (Bessen 2002; Coleman 2001; 2004). Most of the FOSS projects do not have patent register under them, but the software industry has become a patent battlefield where companies are creating patent portfolios to prevent competition, to negotiate or to prevent lawsuit. Unfortunately most FOSS projects don’t have the resources to create extensive patent portfolio so they are having trouble in competing. This patent war is not only causing damage to the FOSS community but to the entire industry since is decreasing the innovativeness of the industry.


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[1] KDE is a free software community that created and maintains a desktop environment and graphical user interface that runs on major operating systems.
[2] GNOME is a desktop environment and graphical user interface based on FOSS and a competitor to the KDE project.

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