Information technology is one field in which the Chinese acknowledge India as a ‘superpower’. India witnessed a revolution in IT software at the same time as China demonstrated a phenomenal capacity for hardware development. In the early ’90s, India focused its energies on software, capitalising on a large pool of English-speaking science/engineering graduates. China, meanwhile, surged ahead in building infrastructure to complement a huge export-oriented manufacturing industry which absorbs some US $60 billion worth of FDI a year. The creation of IT parks in China has seen it emerge as a major manufacturing base for IT hardware. It benefited greatly from relocation to the mainland of Taiwan’s sophisticated hardware industry. Today, China’s ‘Silicon Valley’ for manufacture of computers, chips, semi-conductors, integrated circuit boards, is located along the belt between Shanghai and Suzhou in East China. It is the Mecca for IT hardware, rivaling Bangalore’s fame as a software hub. While Indian software industry is export driven, China’s IT industry thrives on domestic consumption. Its software exports, though rising rapidly, are dwarfed by India’s US $16.5 billion worth of exports in ’04-’05. However, China’s computer penetration, internet usage and broadband connectivity is several times higher than in other developing countries. Just as India’s focus is veering toward developing its infrastructure to complement its software arena, China is doing what it can to enable its relatively laggard software solutions sector to match up to the excellent standards of its manufacturing. Last year, alone, foreign venture-capital investors poured in nearly US$1.3 billion into 253 Chinese start-up units specialising in technology and telecommunications, according to a recent report of the Beijing-based International Finance Corporation (IFC), an arm of the World Bank. The IFC report also stated that 24 venture backed IPOs of Chinese hi-tech companies last year raised US$4.3 billion in global capital markets. This will act as a huge booster for China’s software capabilities. The domestic market for IT products in China remains fragmented though. Barring a handful of pan-Chinese entities, most Chinese companies are averse to making substantial outlays on sophisticated IT products and services. The preponderant role played by the state sector in the economy has ensured that the domestic Chinese industry remains inured to the efforts of foreign IT companies to tap the potential of the market. Indian IT giants must nonetheless seriously look at China for the simple reason that it is home to the world’s fastest growing economy. Most of the Fortune 500 companies are already present in China. A presence in China is quite simply part of a global company’s risk-mitigation strategy. Many Indian IT companies have already set up units in East China: TCS, Satyam, Infosys, Wipro (the big four), and others like iGate Solutions, Mphasis and Cognizant, have entered China with more or less similar objectives. The first target is to garner business from multinational clients who have ongoing operations in China. They also aim to use China as a base for promoting business in the Southeast Asia/Asia-Pacific region, especially Japan. China’s outsourcing industry has witnessed strong growth with many global players, such as IBM, HP and BearingPoint, having set up IT and BPO centres. Indian operators, such as TCS, with its big development centre in Hangzhou, and iGate in Wuxi, have realised it is cheaper to run certain operations in smaller towns in East China, not just in comparison to Shanghai, but India. Of TCS’s 175 employees in Hangzhou, 150 are Chinese. But Shanghai continues to cast its spell for some as a futuristic hub. Infosys plans to hire 200 Chinese IT workers in the first instance. It also has ambitions to build a 100,000 sq m development centre in the Zhanjiang High-Tech Park in Pudong by 2007, with 2,000 employees, mostly local Chinese. Many wonder if the recent emergence of China as an alternative destination for BPO will threaten India’s sway. At present, Chinese companies are still small by Indian standards. Take ChinaSoft, among China’s largest IT companies with an employee base of just 3,000. It mainly deals with the execution of government projects. By contrast, Indian IT global giants routinely employ tens of thousands of professionals. Many Indian IT personnel are being recruited by mid-sized towns in China as consultants to give a fillip to local industry. Apart from NIIT and APTECH, which trains thousands of Chinese; Satyam from India trains Chinese graduates in the use of PeopleSoft. The process of cooperative engagement between the Indian and Chinese IT sectors is gradually gaining momentum. The shortage of human resources, currently responsible for holding up China’s progress with regard to BPO, may soon be over. About 300,000 graduates emerge from India’s engineering colleges each year. The Indian software industry absorbs as many as 200,000 persons annually. In contrast, only 50,000 engineering graduates join the IT industry in China, but with engineering graduates growing to about two million each year, there is a strong likelihood that vast numbers of professionals would soon be available. To remain competitive, India would have to devote even greater resources to promoting education at the grassroots level and creating, urgently, modern infrastructure — initially at least around its IT hubs. Observers wonder if English language skills will ensure India’s dominance in the BPO sector. After all, English is relevant only for high-end consulting jobs. In project development models, the process goes through nine different stages in China as against five in India. English language knowledge is considered essential only in the top two levels of each model. There is much that Chinese companies can do using non-English speaking IT engineers. The regulatory framework for the software industry in India though is still regarded as very business friendly. Most Chinese IT parks offer a two-year tax holiday, followed by a 5 per cent tax on profits in addition to a 15 per cent corporate tax. India’s software industry, on the other hand, enjoys special tax concessions, so vital to its growth. Clearly, then, both India and China have something unique to offer the global IT industry. Neither is likely to substitute the role of the other. Both stand to benefit from adopting a co-operative approach in this field. The writer is India’s consul-general in Shanghai. Views expressed are his own
