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China means $11bn for Indian software
industry
By Indrajit Basu
KOLKATA - "Join 'em if you can't beat 'em,"
seems to be the new tune Indian software industry is now
humming about China.
Right from April last year,
when delegations from China kept visiting India with
open arms to partner with the Indian software industry,
which, according to them, would have been a win-win deal
for both, many saw it as a threat. "India's software
sector has nothing to gain from partnering with China,"
said skeptics, adding that they saw China's advances
"clearly as a threat and that they [the Chinese] are
here to take our business." And some international
experts, like Jesse Parker, executive director of the
Edward R Murrow Center for International Information
& Communication at Tufts University in the US,
thought that there were reasons for the Indian software
industry to feel threatened. China has proven that it
can build credible and successful businesses in new
segments very rapidly and in every parameter, and
barring those in the software arena, China scores higher
than India.
But now, paradoxically, there
appears to be a new realization; while China appears
keenly bent on entering the global software services
market, its domestic market is throwing up opportunities
for Indian software vendors to enter.
According
to global IT research firm Gartner, the size of the
Chinese software development market is expected to grow
from $1.8 billion in 2002 to $27 billion in 2006, a year
in which it will also equal the revenues from global
software development done by Indian software vendors.
Gartner also says that by 2006, the Indian software
industry can harness 40 percent of the Chinese software
development market, which translates to an $11 billion
opportunity for the country's software sector.
Looking at it from a different perspective, by
partnering with China, the total available market size
for Indian software industry could shoot up to $38
billion (that is $27 billion plus the $11 billion China
market) by 2006.
According to Hong Kong-based
Dion Wiggins, research director at Gartner, this is
significant enough to create a shakeout in the Indian
software industry, and, if the top Indian software
vendors do not establish their presence in China by
2006, they will not remain in the top.
But that
may not be the real reason why Indians software firms
have woken up to the China opportunity. According to
Neeraj Vedwa, vice president Nucleus Software, an Indian
software outfit currently active in China, "There are
opportunities because local software companies in China
are only able to supply half of their domestic software
requirements."
Gartner says that out of
3,000-odd software companies in China today, the
majority have less than 50 employees, according to
industry sources, and fewer than 10 have above 1,000
employees. And, while India has a current IT
professional base of 550,000 against a demand of about
450,000, China has a base of a mere 150,000 against a
demand of over 350,000. Thus, if Indian software
companies set up tents there, in all likelihood, most
large scale projects will get outsourced to them.
"There is an opportunity to give cost-effective
IT solutions in application development, systems
integration, and ERP [enterprise resource planning]
implementation," says Ranjit Pisharoty of India-based
Vetri Software, a mid-tier outfit that is also serious
about China, adding "there is a huge market waiting to
be tapped where skill sets appear to be almost non
existent".
However, the Indians know that the
$11 billion bonanza isn't going to be come easy. "That's
because," says Joydeep Dutta Gupta, head of outsourcing
practice at PricewaterhouseCoopers, "our software
companies have a dismal track record of penetrating
non-English speaking countries." But pro-industry
experts like Gartner's Wiggins think that Indian
companies can easily overcome this issue by becoming a
local company there. Which means that Indian companies
will have to appoint a Chinese CEO, management, sales
team etc. Or, even a joint venture with a Chinese firm.
Most Indian companies, including top names like
TCS, Wipro, Satyam, Infoys and Mphasis, that have
already established a presence in China, have either
bought over an existing Chinese company, gone into a
joint venture with a Chinese outfit, or roped in a local
consultant.
And according to Wiggins, a China
presence has almost become imperative for top Indian
software companies for yet another reason. Since most in
the Fortune list are either trying to or already have
established a presence in China, Indian software
companies providing outsourcing services to such
companies are under similar pressure. "One of the top
questions that Fortune 1000 companies ask is whether
Indian software vendors have a China strategy," says
Wiggins. Meanwhile, smaller Indian companies that have
crafted a China strategy are already getting rewarded.
For instance, recently, Munich-based Siemens Mobile
Acceleration, a wholly-owned subsidiary of the Siemens
Information and Communication Mobile Group, put
approximately $1 million in Mobile2win, a small
Internet-based services company which has been operating
in China for the past year. According to Dietrich Ulmer,
president, Siemens Mobile identifies promising startups
and it chose M2W for its attractive China plan. Wiggins,
therefore, thinks that the opportunities for Indian
software enterprises in Chinese markets outweigh the
threats. "It's not whether China is a threat to India,"
he says. "India and China need each other, and both can
benefit from the relationship; It's whether China and
India can work together to create a unique, sustainable,
cooperative advantage."
Wiggins adds that if
domestic demand can't be met, China can't focus on
exports and Chinese educational institutions are not
producing enough talent to meet further growing demands.
For India thus, "This is a short-term [three to five
years] problem and an amazing, never to be repeated,
opportunity for Indian IT firms to gain a foothold in
and shape the Chinese domestic and export market."
Fortunately, India software vendors are already
paying heed.
(©2003 Asia Times Online Co, Ltd.
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