Ownership, size, and efficiency: evidence from software companies in India

Purpose – The purpose of this paper is to discuss the trends in relative efficiency of software companies in India during 1999-2008 by applying input-oriented data envelopment analysis (DEA) model. Based upon the PROWESS Database of Centre for Monitoring Indian Economy (CMIE), the efficiencies were estimated for the Indian, multinational and group companies. Also, relationship between efficiency and size is examined. Design/methodology/approach – The study applied DEA to measure relative efficiencies of software companies and two different DEA models, CCR and BCC, were applied to evaluate the relative efficiency of the sample software companies in India. Comparisons of efficiency scores based on ownership were carried out by applying ANOVA and t -statistics. Findings – The mean overall technical efficiency (OTE) of the software industry in India during 1999-2008 was low at 0.477. The mean pure technical efficiency for the industry for the study period was found to be 0.654 suggesting that software firms, on an average, were wasting 35 per cent of their inputs. It was observed that the Indian-owned companies have relatively high OTE score as compared to foreign owned and group owned companies. The mean OTE score of PI companies was found to be greater than the other two categories. In terms of, size it is observed that medium sized companies performance better. Practical implications – Software companies can use DEA to examine their performance against the best performers in the industry. Software industry in India, which is doted by large number of small firms in the lower part of the size pyramid, needs to increase their size to improve their efficiency. Originality/value – Research on measurement of service sector export oriented industry efficiency is limited. This paper is one of the few published studies examined service sector performance. This paper fills the gap in the literature by applying DEA in software industry in India and compares performance in terms of ownership and size.