KOLKATA
- In most aspects, competition between China and India
has hardly been a contest. Be it China's manufacturing
prowess; its attraction as a destination for billions of
dollars of direct investment; its vastly superior
infrastructure; superior Chinese computers, toys,
textiles, shoes, household appliances; or even its
entrepreneurial spirit, China has always been on top,
while India is an also-ran, at best.
But in
terms of software services, it is a different story.
With world-class software companies like Wipro, Infosys
and Tata Consultancy Services, a huge English-speaking
information technology (IT) talent pool and
multinationals having made India their top choice for
outsourcing software development, back office and other
business process operations, India is way ahead of the
game.
Or is it? Many in India's famed software
services industry aren't so sure anymore that, as widely
believed even until recently, China would still need
five years or more to catch up to India's prowess in
software services, to emerge as an IT services
outsourcing destination rivaling India.
And the
most important person from the industry to acknowledge
this is N R Narayanmurthy, the chairman of NASDAQ-listed
Infosys, India's world-famous software company. "While
stressing its need to boost its infrastructure and
skills, China is closing in on India's lead in software
services and outsourcing fast," said Murthy, adding that
"China is doing a pretty good job in developing its
software services industry and many tell me that instead
of five years they could just take three years or even
less to catch up with India."
Infosys was the
first Indian IT company to be invited to set shop in
China, when Chinese premier Zhu Rongji visited Infosys's
Bangalore headquarters during his trip to India in
January 2002. Although Infosys did open an office soon
thereafter, it had to retreat in a hurry, following, as
Narayanmurthy says, "bureaucratic hurdles". But Infosys
went back to China in July of last year by opening an
office in the Shanghai-Pudong Software Park - the
country's largest software park - encouraged by the fact
that "China," says Murthy, "is changing its procedures
and rules very quickly too." Infosys currently has about
1,500 employees based there, and finds the business
environment congenial as well.
Indeed, from the
fear of losing out to a sort of sigh-of-relief to
acknowledgement of the fact that China's software
services too can match India's, the country's perception
of the Middle Kingdom's capabilities has justifiably
undergone many changes over the years. When China
announced about three years back that it wanted to
partner with India to gain a foothold in the global
software services arena, it sent shock waves across the
Indian software industry. While many said "India has
nothing to gain from a partnership and China is out to
take our business", quite a few pooh-poohed that threat
and said that China would need at least a decade to
catch up with India, due to the country's limitations in
the English language and a lack of project management
skills.
Subsequently, anxiety over China taking
a big bite out of India's software lunch subsided a bit
when India realized that China's progress in software
services wasn't really enough to pose a threat to India.
"About three years ago, when China articulated its
English language thrust, there was notion that China
would start catching up fast, on the language front as
well as on the process front; but in three years they
didn't make much of a progress, which sort of soothed
nerves," says Partha Iyengar, vice president of research
firm Gartner India.
But now, China's software
sector is looked on with respect. For instance, says
Sujay Chohan, vice president and research director at
Gartner, "Until recently, China's focus has largely been
on software for their domestic market and on providing
back-office support for financial service, telecom,
software, and retail companies in neighboring Asian
countries, like Hong Kong and Taiwan, where Chinese
operators can talk easily in their own languages, and to
some extent, even in Japan and Korea. But now they have
realized that the cream is in software services, which
is why they are definitely putting their resources to
develop and create a vibrant software services industry.
There are already some companies that are offering
services globally and China is making rapid strides
there."
For the record though, China's software
outsourcing sector is still miniscule compared to
India's. While India's software services exports - read
outsourcing revenues - is still rising by about 30% a
year, against the global average of about 6%, to touch
US$12.5 billion in the fiscal 2003-04, China's revenues
from exports of software services, according to
estimates, is less than a fifth of India's. The China
Daily, however, says that "China's software outsourcing
has just started". Connect IT China, a Shanghai
consultancy firm, estimates China's software outsourcing
revenue will more than double to $5 billion by 2005, and
Gartner predicts that by 2007 China will pull in $27
billion for IT services, including call centers and
back-office work. India's exports of software services
are expected to touch $50 billion by the year 2008.
Fair enough. But how is it that China,
historically known as the place of choice for
outsourcing primarily manufacturing activities, appear
so ready to burst onto the scene as an IT venue?
There are a few reasons for this, but Murthy
says essentially it is because "China is improving much
better on infrastructure and that they have gone out of
the way to invite software companies from across the
globe, including India". Then there's the question of
costs. China's low-cost talent, according to
BearingPoint Inc (formerly KPMG Consulting), is another
edge. Many find that India, despite being a powerhouse
in high-end IT services, is getting to be expensive for
latecomers. For instance, BearingPoint says it chose
Shanghai for its new software-development center because
there it can get software engineers 40% cheaper than it
can in India. Moreover, according to Cap Gemini Ernst
& Young, China has other language skills that India
lacks. Cap Gemini, which runs a back-office center in
the southern city of Guangzhou, says that the city
provides a steady stream of English-literate graduates
who are also good at Asian languages like Japanese,
Korean and Thai, which is a definite advantage over
India.
These are a few reasons why, then,
industry stalwarts like Murthy think that all Indian
software services companies, especially the large ones
like Infosys, can no longer afford to ignore China and
exclude the nation from their global plans. "Both from
the market point of view because there are so many MNCs
operating in China, and due to its huge domestic IT
market, corporations like Infosys must have China on
their radar screen," he says. "Furthermore, I think
China is also a market for talent because as a talent
source China is pretty good except the English part, but
they are improving very rapidly." Murthy added that "at
this point Infosys is just looking at MNCs in China, but
in the next phase the company will look at Chinese
companies as well."
Meanwhile, several big
Indian IT-services companies are already determined to
tap China for their own advantage. India's top IT
company, Tata Consultancy Services, for instance, has a
100-person software center in Hangzhou, near Shanghai.
Satyam Computer Services Ltd, India's fourth-biggest
supplier, has also set up a 27-person development center
there, with plans to expand. Mid-size Indian players
like iGATE Global Solutions and MphasiS Group have moved
in too, and Gartner predicts that eventually, Indian
firms will control 40% of China's IT services exports.
Nevertheless, there is at least one Indian
software industry faithful who still thinks that China
will never catch up with India. "China will always be
behind India in software services exactly like the way
India would be behind China on hardware," says Arun
Jain, chief executive officer of Polaris Software Lab,
one of India's top 20 software services exporters.
"China could have caught up with India only if India
remained complacent and did not move up the value chain,
but that is not to be. China has to ramp up its scale of
software services industry to India's size, which is
very complex. Few companies in the world can recruit
3,000 software professionals per quarter and have the
ability to turn them into software experts in another
quarter. I am not sure if China can attain that ability
to ramp up in next five to eight years. And by then
India would be in a different league."
A
consolation indeed, for India's smaller software
companies.
(Copyright 2004 Asia Times Online
Ltd. All rights reserved. Please contact content@atimes.com for information
on our sales and syndication policies.)
