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Indians take IT battle into Dragon's
den
By Tony Allison
Incredibly, the first ever commercial airline
flight between India and China only took place in March
this year - hardly the lack of contact that one would
have expected between the world's two most populous
nations, with a combined citizenship of more than 2.5
billion.
Yet the absence of direct air links was
a symptom of the deep mistrust that characterized
relations between the countries, stoked by geo-political
and cultural differences, the low point of which was a
brief but brutal border war in 1962.
In recent
years there has been a considerable thaw in ties, to the
extent that New Delhi and Beijing now extol one another
as partners. Chinese premier Zhu Rongji even went as far
during a recent visit to India to describe the two
countries as the "two greatest and wise nations", and
the nations are both actively committed to improving
bilateral relations in every field, especially in trade,
which for two such large nations is projected as a
miserly US$4 billion for 2002, up from $3.6 billion in
2001.
And more specifically, Zhu said that
together China and India could dominate the world's
information technology markets. "You are number one in
terms of software, we are number one in terms of
hardware ... together we can make the world's number
one," he said.
While the remarks were widely
welcomed in India, they also set off furious debate on
whether China, given too much "friendly cooperation"
from India, might grow into a software powerhouse at the
expense of the very country that helped it on its way.
India recently surpassed Ireland as the prime
software-outsourcing destination of the world - a
position that it wants to retain - and Indian companies
have won a reputation for low-cost, high-quality
software delivery.
And as concerns of a China
threat began to get out of hand - with arguments based
more on a warped sense of nationalism than savvy realism
- the leading grouping of software companies, the
National Association of Software and Service Companies
(NASSCOM), in April undertook a detailed study of the
Chinese information technology market by sending its
vice-president, Sunil Mehta, to China to gauge
first-hand the seriousness of the threat. It is now
working on an agenda for the Indian software and service
industry to maintain its competitive advantage.
But as concern in India continued, NASSCOM
president, Kiran Karnik, was driven to comment recently,
"Do not get overawed by the China threat. But let us not
get too complacent either. If we had looked at the
rear-view mirror over the past two years, we didn't have
much global competition from any other country. Now, we
are beginning to see China. But look at it this way - in
which other industry do you factor in a potential threat
of four to five years and start acting on it? China does
not pose an immediate threat to the Indian software and
services industry, since its IT industry is currently
busy addressing domestic needs. In any case, engaging
China rather than ignoring it would be a better
proposition for Indian companies to retain their edge
over China."
By the numbers
China is
the largest IT market in the Asia-Pacific region after
Japan, and its share is expected to go up from the
present 28.3 percent to 38.5 percent by 2006. China
spends 1.1 percent of GDP on IT against India's 0.7
percent. China's IT industry turnover touched $46.1
billion in 2001 against India's $12.9 billion. India is
expected to top $46 billion by 2006.
China's
turnover is built mainly on hardware exports of $26.4
billion, compared to India's paltry $425 million.
However, in software exports India is way ahead of
China, with a figure of $6 billion during 2000-01,
against China's $1.2 billion out of its total software
market of $3.5 billion.
However, inspired by
India's success in the software sector, China has set an
ambitious target to capture about 3 percent of the world
software market by 2005. "China aims to boost its share
of the world software market from the current 1.2
percent to about 3 percent by 2005," the president of
the China Software Industry Association, Chen Chong, was
quoted by Xinhua news agency as saying earlier in the
year.
Stating that software and related services
would be worth $30 billion in China by 2005, Chen said,
"If the country's ambitious plan could be realized,
Chinese software businesses would hold over 60 percent
of the domestic market and post exports of $3 billion
annually."
China would focus on basic software
and critical technologies, business management, social
services software, e-commerce, engineering and key
technologies, educational and home software and
infrastructure building, Chen said.
|
India |
China |
| PCs |
6.4m |
16.3m |
| Internet users |
9.8m |
30m |
| Mobile
phones |
6m |
165m |
| IT
market (value) |
$12.9bn |
$30bn |
| Hardware exports (value) |
$525m |
$26.4bn |
| Software exports (value) |
$6bn |
$1.2bn |
IT services. This market in China was
estimated at $845 million in 2000, accounting for about
5.2 percent of total IT spending. This figure will
likely grow at 50 percent per annum through 2005 and
reach $10 billion by 2006. The services market pales in
comparison with China's strong hardware sector because
Chinese customers prefer to buy services such as IT
planning and consulting as part of their hardware
purchases.
Training. In 1999, China had a
net addition of engineering and science graduates of
300,820. The number of people employed in software firms
is between 200,000 and 300,000. In India, the figure is
closer to 1 million. China has 33 specific IT
universities/colleges, each producing 1,000-1,500
professionals a year. China is aggressively training its
people in English. Government estimates say that about
20 million people are undergoing English-language
training. The top 10 universities have received over
$200 million in funding from the Ministry of Education
and are encouraged to have research and development
alliances with international firms and academia. By
comparison, India spends $17 million annually on its
technology institutes.
A strategy for India
in China
NASSCOM says that Indian companies
should look at opportunities in areas such as banking,
securities, telecom, energy and utilities, since most
Chinese companies lack significant domain expertise or
project management skills in these sectors. There is
good scope for enterprise applications and solutions
such as enterprise resource planning (ERP) and supply
chain management (SCM) as the trend of global companies
to set up manufacturing bases in China would accelerate
the demand for these applications.
Indian
companies could also form joint ventures with Chinese
software firms to enter that market, where billing rates
are more attractive than in the Indian market. Indian
firms could also set up software development centers in
China to serve their multinational clients.
The
Manufacturers Association of Information Technology
(MAIT) suggests that "India should leverage China as a
strong partner and build linkages with Chinese companies
to combine the strengths of the two countries. China has
made impressive progress in the hardware sector. China
is good at low value, high volume technology business,
while India is good at high value, low volume business.
If we keep a distance from China, we are going to lose
out on a big opportunity to access the huge Chinese
market. Almost 250 of the Fortune 500 companies are
currently in China, and would prefer Indian technology
companies to take care of their service requirements,"
MAIT said. According to a McKinsey survey, 80 percent of
the top 40 global IT services firms have a presence in
India.
Indian companies engaged in manufacturing
low value items for the domestic market, such as
keyboards, cabinets and switches, do face a threat,
though, from China, with one industry watchdog saying
that "over 90-95 percent of these items will come to
India from China in future".
Following its visit
to China, NASSCOM drew up a five-point strategy for
Indian software companies. It calls for:
Improving productivity through OFT (organization of
functions and tasks), capacity utilization, better mix
of service lines, standardization of processes and
development of component libraries;
Innovating pricing models (risk-reward share),
delivery models (global development centers), service
mix (network management, systems integration, technology
services);
Setting up temporary alliances for customer access,
bidding for large, complex projects and striking
permanent alliances to add service lines or rationalize
industry capacity;
Collaborating with academic institutions to develop
leading-edge software methodologies and component
libraries, to update curricula;
Skill upgradation to further strengthen project
management, domain, language and software engineering
skills.
"The possibilities and advantages of
cooperation and collaboration with China far outweigh
any concerns about competition. A well-thought out entry
strategy into the Chinese market will further help boost
India’s software exports," NASSCOM says.
It adds
that China’s software industry is currently very focused
on catering to its domestic IT market. And contrary to
the widespread belief that China can offer cheap labor,
its average wage costs are comparatively 15 to 20
percent higher than in India. And for software
specifically, "software professionals are paid at least
30 to 40 percent higher salaries as compared to India",
says NASSCOM. However, hardware and infrastructure
equipment is cheaper by 20 to 25 percent in China as
compared to India. "A do-it-yourself PC [known as
assembled PC in India] in China can be procured at Rs
25,000 to Rs 28,000, while the same would cost around Rs
35,000 in India," NASSCOM said.
Concludes
NASSCOM's Kieran Karnik, "China is strong in hardware;
their facilities, their abilities and their costs are
such that they are already dominant in a large part of
the manufacturing arena. India is a major leader in
software, we have a lot of things going for us -
quality, productivity and of course cost-effectiveness.
If we marry the two, I think particularly in certain
areas like embedded software, like consumer durables
which use a lot of computer technology within them,
where manufacturing quantities are large and cost need
to be low and the software needs to be cleverly
designed, I think the possibilities are immense."
NEXT: Why China?
Additional
reporting by Anil Sharma in Jaipur
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