Commentary: America faces a two-headed software dragon
Andy Mukherjee Bloomberg News
Tuesday, March 16, 2004
China has put together a software industry group it unofficially refers to as "Long Tou," which in Mandarin means "Dragon's Head." The name couldn't have been more appropriate.
Just as a dragon's powerful head leads the rest of its long body into battle, the 50-company group set up by the Science and Technology Ministry in Beijing will guide China's low-wage onslaught into computer software.
If the China Offshore Software Engineering Project, as the group is formally named, succeeds, hundreds of smaller companies could follow.
Forrester Research has forecast 3.3 million U.S. service-industry job losses between 2000 and 2015. If China becomes a strong competitor for those jobs, the number could go higher.
The question is, "Can Chinese software makers do it?" For a possible answer, look at what makes Indian software companies so successful.
Indian software developers typically have 60 percent to 70 percent of their people in India, where programmers earn a sixth of what code writers charge in the United States. The remaining 30 percent to 40 percent of employees work in the United States and Europe, where they bid for business and manage projects. The geographical dispersion of the work force leads to a 24-hour workday.
How do we know the Indian model works? Net income at Infosys Technologies, India's No.2 software exporter, was about $12,850 per worker in the year that ended March 2003.
In comparison, net income per employee at Plano, Texas-based Electronic Data Systems, the world's No.2 seller of computer services, was $8,150 in 2002, according to Bloomberg data.
Can Chinese companies replicate the Indian model? They are doing just that. Take Bamboo Networks, a Hong Kong-based, closely held company.
Bamboo is a five-year-old software developer, one of the 50 companies in the "Dragon's Head." It has 175 employees and does programming work in the southeastern Chinese city of Guangzhou. By comparison, Infosys had more than 15,000 employees a year ago, and is adding between 1,500 and 2,000 code writers and project managers in the current quarter.
Scale isn't such a big deal. Chinese software companies can grow just as fast as their Indian competitors did in the 1990s, as long as they can tap opportunities worldwide, while keeping a majority of their people in China, another low-wage country.
"While we're not an exact parallel, we're in very many ways similar to Indian software companies," says Gene Kim, 34, Bamboo's founder and chief executive. Kim says his priority is to increase the services his company offers to global clients, such as the investment bank Lehman Brothers Holdings, the consumer goods maker Procter Gamble, the computer maker Hewlett-Packard and the Japanese cellphone maker NEC.
Bamboo's Guangzhou unit received the highest quality certification given by the Software Engineering Institute of Carnegie Mellon University in December, two months after Newsky Technology Group became the first company in mainland China to win the Capability Maturity Model Integration Level 5 accreditation, the highest ranking.
Indian companies have routinely used certifications to make their mark. Manoj Srivastava, managing director of New Delhi-based Espire Infolabs, which won the CMMI quality recognition at the same time as Bamboo, said the award was evidence that "Indian organizations are constantly raising the bar in comparison to our biggest competitor, China."
Bamboo and Newsky show Chinese companies won't be pushovers.
They won't be held back by lack of manpower. India has a pool of more than 2 million engineers, 8.5 times the size of China's technical work force.
Still, college enrollment in China is rising rapidly, and more students are learning English.
Kim of Bamboo doesn't rule out an expansion into India. At the same time, Indian software companies such as Infosys, Tata Consultancy Services and Satyam Computer Services have already set up operations in China.
Ultimately, India and China may complement each other's strengths. Indian companies will use Chinese programmers for writing basic codes, wile Chinese software developers will use the Indian talent pool to recruit systems architects, project managers, and other top professionals, of whom there is a shortage in China. To cite just one example, Rajesh Rao, Bamboo's chief operating officer, is an Indian national who worked for five years at Infosys in early 1990s.
"India has a much deeper talent pool, but China is going to catch up," says Rao.
For the United States, it's time to get real about jobs outsourcing. India and China will be formidable sources of wage-cost advantage. And don't forget the Philippines, or countries in Eastern Europe. Protectionism will only lead to trade spats, which don't help anyone.
"No one said globalization would be easy," says Morgan Stanley's chief economist, Stephen Roach. "But in the end, it sure beats the alternatives."
Bloomberg News
iht.com |
