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Home > Business > Special

Why Indian IT cos are keen on China base

Bruce Einhorn, BusinessWeek | March 17, 2006

It's fair to say that Hari Natarajan is obsessed with Microsoft. A vice-president at Satyam Computer Services, one of India's biggest outsourcing specialists, Natarajan is in charge of the company's strategic-relationship unit with Microsoft.

Or, as he puts it, "I breathe, eat, and drink Microsoft every day." And what occupies the Microsoft-focused thoughts of Natarajan these days? Easy. Satyam and Microsoft are partners in a new joint venture designed to develop the software-services market in China. Right now, China isn't much of an outlet for Indian outsourcers like Satyam. But Natarajan and others at Satyam are determined to change that.

"This is a huge market with great innovation potential," Natarajan says. The local market is only about $1 billion, but that will probably grow eightfold in the next five years. "You don't see these kind of growth numbers anywhere else in the world," he adds.

A Major Shift

That's one reason Satyam and other Indian companies have been busy putting down stakes in China. Infosys has acquired 50,000 square meters of land in Shanghai and 300,000 square meters in Hangzhou, and is building new centers in both cities.

Tata Consultancy Services has reached a deal with Microsoft and the Chinese government to launch a new joint venture in Beijing this year. And on Mar. 1, Zhang Guangning, the mayor of the southern Chinese city of Guangzhou, visited Satyam headquarters outside of Hyderabad in southern India.

While there, Zhang and Satyam's managing director, B. Rama Raju, signed a deal to set up a Satyam operations center in Guangzhou.

All of this represents a major shift for India's information-technology leaders. Not long ago, China wasn't even an afterthought for Indian software executives, who looked pretty much in one direction: West.

And who could blame them? After all, companies in Europe and North America represented almost their entire customer base. Japanese companies didn't do much outsourcing, and what little they did wasn't sent India's way. Other Asian markets were similarly unpromising, and there was no business to speak of coming from China.

That's all changing. Increasingly, companies in Japan and South Korea are outsourcing. They're sending a lot of that work to nearby China, where it's relatively easy to find programmers who understand Japanese or Korean -- certainly a lot easier than finding people in India who can speak those languages.

Job Boom

With China attracting tens of billions of dollars in foreign direct investment each year, there's a growing list of Western multinationals that need outsourcing help for their Chinese operations. And Chinese companies themselves are starting to realize that they not only need to upgrade their IT systems, they need outside help to do the work for them.

One of the early Indian movers into China was Bangalore-based Infosys. Early this decade, following visits to Infosys headquarters by then-Premier Zhu Rongji and Li Peng -- China's longtime No. 2, who at that time was head of the National People's Congress -- the Indian company announced plans to open an office in Shanghai.

To date, the growth hasn't been spectacular: Infosys has only 450 people in China, out of 50,000 employees worldwide. But James Lin, a Taiwanese-born veteran of IBM Global Services, who joined Infosys in 2004 as chief executive of China operations, says Infosys will be embarking on a China hiring spree.

"In the next five years," he says, "we're talking about 6,000 [Chinese] staff total."

Maintaining A Lead

Why the renewed commitment to China? According to Girija P. Pande, Asia-Pacific director for TCS, Indian companies have to build up their workforces there. The business model depends on it. "This is a business of skill and scale," he explains.

"There aren't many countries with both. In Asia, you have India and China." Of course, companies like TCS are already employing tens of thousands of Indian engineers. That leaves China as an untapped talent pool. "So China becomes important as well," says Pande.

Executives like Pande insist that Indian companies have little reason to fear that all of those talented Chinese engineers will go to work for homeland companies that can seriously threaten Indian IT dominance. Indian companies last year had $17 billion in revenue, compared to just $2 billion for their Chinese counterparts. Three years from now, Indian companies will have sales of $48 billion, compared to $5 billion for Chinese.

"They aren't going to be in the same league. If anything, they will fall behind," Pande says. "They don't have scale, and they don't have the marketing connections that Indian companies have established."

Structural Risk

Not everyone is so sure. A December report from analysts at Merrill Lynch noted that China produces 400,000 new computer-science graduates a year, compared to 181,000 IT-engineering grads in India. China also boasts far better infrastructure, the Merrill analysts reported, and less red tape than India.

While Chinese IT-services outsourcing companies are still in their infancy, they stand a good chance of growing up quickly. "Unlike the general belief that the China threat is a very distant one, we believe the first wave of competition from China could be felt in two or three years," wrote the Merrill analysts.

"[And] over a three- to five-year time frame, we need to watch the structural risk posed by China in 'commoditizing' IT services outsourcing."

All the more reason why Indian companies need to expand their operations in China now, while they still have time.

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Sub: is china a threat

to survive investment in china is inevitable,but FDI frm china is only 93$m and other than huawei there is no other major investor.but china is ...

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We can do better that what we have achieved in United states in Information Technology.We Need to Tab the Japense & other Koream market then ...

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Sub: India taking a big risk to shatter its future

India since 1998 has become very powerful in the field of IT. Most of the people working in IT around the world are form India. ...

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Sub: China IT providers

As an IT Business Consultant based in Shanghai, China. These are some of my observations in the Chinese local market. The Chinese local market looks ...

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