Indian IT groups see attack on China as best defence
By Khozem Merchant
Published: February 11 2005 02:00 | Last updated: February 11 2005 02:00
China loomed large at India's showpiece technology gathering in Mumbai this week, where Indian companies expressed concerns that they may soon be eclipsed by Chinese rivals.
Indian executives insisted a key way to counter the rising threat was to exploit aggressively the huge opportunities in China's technology services market.
This mix of fear and opportunity is encouraging an increasing number of Indian IT companies to set up operations in China.
"Our fears are valid. Each day we see China attacking its IT weaknesses and studying our model. We too should attack [their market]," says Kishore Kapoor, who heads the Asia-Pacific unit of i-flex Solutions in Mumbai.
Later this year i-flex, which designs the world's best-selling banking software, will join about a dozen other Indian services and product companies which have nascent marketing or software services and development operations in China.
Indian executives say this movement of Indian IT skills into China is being encouraged by Beijing - following a period marred by mutual suspicion.
Until three years ago, according to a senior industry official, civil servants in New Delhi would "obstruct" Indian IT companies' plans to expand into China; Chinese companies' attempts to enter India were made equally difficult. Officials privately argued that passing on Indian IT know-how to China would help an economic rival.
"We now have a mature attitude of competition and growing collaboration. It's a welcome portent of change," says Mr Kiran Karnik, president of Nasscom, the Indian IT industry lobby group that organised this week's industry gathering. Last month, for example, a Chinese delegation visited Indian companies in Delhi and Bangalore, and such an event is becoming regular.
China's aim on these study tours, says Ketan Patel, a banker with Goldman Sachs, is to learn about India's successful offshore technology services industry. "China is building many Silicon Valleys, producing anything from micro-electronics to optical technology, and they'll soon challenge the Bangalores [India's IT capital]," he warns.
Until then, India's IT industry will continue to command a wide lead over China.
China's IT sector has expanded by an average 42 per cent a year since 1997, earning revenues of $6.3bn (€4.8bn, £3.4bn) in 2003. In the 1990s India's industry expanded by more than 50 per cent each year until the dotcom bust in 2001. This week it will cross a milestone when revenues reach Rs1,000bn ($23bn) from IT services, hardware and call centres from April last year.
India's software exports are set to total $16bn and business process outsourcing, or call centres, will expand 40 per cent to nearly $5bn this financial year, to which ends on March 31.
India's impressive lead is unlikely to be narrowed soon, says McKinsey, the business consultancy. In a recent report it says the Chinese industry's structural flaws "show that it will be many years before [it] poses a threat to its rival".
Foremost is the Chinese industry's severe fragmentation. The top 10 Chinese companies have just a 20 per cent share of the home market. Only a few of its 8,000 companies employ more than 2,000 staff; most employ fewer than 50.
In contrast, India has fewer than 3,000 IT companies, with the top five accounting for 60 per cent of industry revenues. The elite, such as TCS, Infosys and Wipro, have attained the highest standards and count most Fortune 500 companies among customers.
One consequence has been that global companies entering the Chinese market have taken with them their established Indian IT partners. This has given Indian companies a painless entry into China and some are now venturing forward alone.
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