CALCUTTA, India, Sept. 16 (UPI) -- In any information technology center in the United States, the mere mention of India's prowess in that sector can often inflame an already heated debate about companies sending work abroad. Soon Indians may say the same about China, if the rapid strides that China is making in IT services is anything to go by.
China, which India viewed mainly as an general economic rival, is starting to make inroads into software development services and integrated circuit design, and many are not so sure anymore that, as widely believed until recently, the Middle Kingdom is still sometime away as a rival IT services outsourcing destination to India.
And the most important person from India to acknowledge this is N R Narayanmurthy, the chairman of Infosys, India's leading 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 Narayanmurthy, whose company is listed on New York's Nasdaq market. He added that "China is doing a pretty good job in developing its software services industry and many tell me that instead of five years or so they could just take three years or even less to catch up with India."
Others agree. In a recent comment to an industry publication Outsourcing Essential, president and CEO of New York-based U.S. China Partners Inc., said that although India has been attractive, China is becoming more attractive.
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 IT services capabilities has 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. Many said "India has nothing to gain from a partnership and China is out to take our business."
Subsequently the 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.
But now, again, India is wary. "China has 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," said Sujay Chohan, vice president and research director at Gartner, India. "There are already some companies that are offering IT services globally, and China is making rapid strides there."
Fair enough. But how is it that China, historically known as the place of choice for outsourcing primarily manufacturing activities, appears so ready to burst onto the scene as an IT venue?
First, unlike India, China's has always been emphasizing on domestic software growth. That ultimately, say experts, would result in a robust software industry, which in turn would make it simpler to boost export volumes too. ConnectITChina, a Shanghai consultancy, estimates China's software outsourcing revenue will more than double, to $5 billion, by 2005. Gartner Inc. predicts that by 2007 China will pull in $27 billion for IT services, including call centers and back-office work, matching India.
Second, when China talks of IT, it encompasses software, hardware and the rest of the IT and telecommunication infrastructure. In contrast, when India talks about its IT prowess, it is still largely points to software exports alone.
Also, as says Naryanmurthy, "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".
Finally, there's the issue of costs; China's low-cost talent 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, last year Sweetheart Cup Co., a maker of plastic utensils for customers such as McDonald's and Wendy's International, hired consultancy E5 Systems of Waltham, Mass., to develop a system to track production processes at its 14 North American factories. E5 did the job in Shenzhen, where it has a joint venture. Sweetheart figured that it saved 40 percent by sourcing in China rather than India.
Of course E5 discovered another advantage of moving to China. The Chinese government has started offering various economic incentives as well. For instance, according to E5, it has received tax abatements, free rent and financial assistance for worker certifications, enabling the company to pass on its cheaper costs to its American outsourcing clients. India used to provide such inducements, too, but no longer does.
These are some of the reasons why Dion Wiggins, the Hong Kong-based head of research for Gartner, feels that, like many American companies, Indian companies must get into China as well - and quickly.
Wiggins added that these days, one of the top questions being asked of Indian software companies is: What's your China strategy? Companies need to offer China support. If they don't, customers will move to one that does, he says.
Like Wiggins Narayanmurthy too thinks 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. But his reasons are different. "Both from the market point of view because there are so many multinationals 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."
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 percent of China's IT services exports.
