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Japanese open doors for Indians in
China
By A Ganguly
BANGALORE
- As business flows from the United States continue to
stay cramped, tracking a slowing economy, Indian
software services vendors are looking east to sustain
their growth momentum.
And China, with its vast
domestic market and cheap engineering talent, is
steadily emerging as a favorite destination among Indian
software companies who seek a foothold in the
billion-topping nation. Moreover, China is currently
often been seen as a "favorable" platform to deliver
services to Japanese clients, due to its closer
proximity to the island nation.
Post September
11, as concerns over security of data gained momentum
across the globe, corporations who generally outsourced
their software needs to third party vendors insisted on
a solid backup for data and drew comfort from the
proximity of developers to the clients.
Japanese
corporations that ship work to Indian companies such as
Infosys Technologies, Wipro Ltd and MphasiS increasingly
voiced their concerns over the distance between the
client and the code writers. Moreover, China, with its
strong government-supported initiatives to develop
information technology, is rapidly gaining ground across
the technology domains spanning the services portfolio
of global software vendors.
"China makes sense
for Indian players to gain business in that region,"
says Ganesh Duvvuri, IT-analyst with the Mumbai-based
Alchemy Shares and Stockbrokers. Companies such as
Bangalore-based Mascot Systems Ltd have announced a
tie-up with Chinese partners, in this case Haihui
Software, a 300 engineer-strong outfit that exclusively
services one big Japanese client. Mascot said that such
a link was aimed at carving a large piece of the
Japan-to-China IT outsourcing pie for itself. Mascot has
also tied up with a Haihui subsidiary (a 23-people
office in Wuxi, 120 kilometers from Shanghai) to
increase its own footprint in Shanghai. Now the company
is set for its third stage of acquiring small Chinese
firms dotting the China IT services landscape mainly
working for Japanese customers, according to Mascot
chief executive officer Gerhard Watzinger.
Similarly, mid-sized software maker MphasiS Ltd
recently announced its intention to buy financial
software maker Navion. This Chinese firm, a captive unit
of global financial giant Capital One, would be used by
MphasiS as a base to cater to its Japanese clients.
Close to 85 Chinese engineers would come onboard
MphasiS, post-acquisition. "This gives us a gateway to
the Far East," MphasiS chief financial officer Ravi Ramu
said. The Navion development center in Shanghai would be
treated as an alternative offshore development center,
as any of MphasiS' existing similar facilities in the
Indian cities of Bangalore, Pune and Mumbai.
The
chairman and chief executive officer, Jerry Rao, had
also said that the new center would additionally offer
customers the option of choosing their offshore
development location. However, the Chinese center is
likely to primarily cater to the Japanese market, as
there is a "comfort factor" of proximity to write codes
for Japanese clients. MphasiS derived 12 percent of its
revenues for the July-September quarter of the current
fiscal from the Japanese market.
It can be noted
that India's largest listed software firm, Infosys
Technologies, also toyed with the idea of setting up a
center in China, but to date nothing concrete has
emerged. Wipro Ltd, another biggie, operates in Japan
through its subsidiary Wipro KK, but does not undertake
any development work there.
Hrishi Modi, senior
investment analyst with ASK-Raymond James, comments that
most of the significant IT projects outsourced to China
were from Japan. And approximately 150 small companies
in China were involved in offshore efforts for Japanese
customers. Since no big time offshore Chinese vendors
catered to Japanese markets, there was ample scope for
Indians to step into that vacuum and make use of Chinese
expertise to gain business, said Modi.
Chinese
centers could also be used to somewhat offset the
pressure on billing rates that Indian vendors face when
competing for new business in the US and West European
markets.
For example, a technical consultant
with about five years experience would expect to be paid
a salary close to US$10,000 per annum. His Chinese
counterpart would be available for $2,000. As compared
to the Indian entry-level engineers' $6,000 pay, the
Chinese starter is paid on an average close to $500 per
annum. Indian companies occupying space at the new tech
park in Wuxi - 120 kilometers from Shanghai and an
exciting 18-minute journey by magnetic train - get fully
equipped office space free for the first year and
subsidized in the second year, provided that they deal
closely with the local government.
However,
acquisition in China is different from the global
buy-out practices. Takeovers in China hinge on asset
valuation and acquiring specific assets rather than a
whole firm. Each firm is stripped down into three key
components - people, contracts and infrastructure. So a
potential buyer can choose to buy either or all of these
assets of a firm.
Entering China is also risk
mitigation and a cost advantage factor for Indian
technology companies. The key to doing business in China
is to involve the local government where the business in
a particular province is being done when setting up
operations. According to analysts, business in China
continues to be lucrative as long as the foreign entity
offers something back to the Chinese people in terms of
opportunities for their local talent.
(©2002
Asia Times Online Co, Ltd. All rights reserved. Please
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