Monday, August 27, 2007
Indian IT companies’ planned conquest of China has gone awry. But nobody is throwing in the towel just yet.
Anybody who goes to China aiming to make a quick buck from its vast population will be bitterly disappointed, says Joe Studwell in his 2002 book, China Dream: the Quest for the Last Great Untapped Market on Earth. Indian IT services companies, who forayed into the Middle Kingdom between 2002 and 2005 with $150 million in investments, must now feel Studwell was addressing them personally.
China was expected to be a delectable three-part conquest (see ‘China — The Next Smart Move’, BW, 29 August 2005). As a first step, Indian IT firms wanted to use China’s vast and cheap manpower pool to create development and delivery centres that would service their international clients. In the second phase, the capability of the development centres to work with double-byte code, a software technicality necessary to accommodate Sino-Japanese scripts, would be leveraged to net the lucrative Japanese market. The final goal was to target China’s domestic IT market, particularly its outsourcing business. But five years on, Indian IT companies in China are floundering. Their ability to do business in China is being challenged, and the assumptions they made of how foreign clients would embrace Chinese delivery centres are changing. Nevertheless, the game is far from over.
Not Quite One, Two, Three
The initial China hype has given way to a relentlessly red bottom line mainly due to clients not shipping work there as promised. “This is, in part, due to lack of security around intellectual property and patents in China,” says James Lin, CEO and managing director, Infosys Technologies (China). Today, all Indian IT services companies in China employ less than a thousand people, a dismal headcount. If wages in China were attractively cheaper 3-5 years ago, they are now much higher than in India. In a recent interview, TCS’ CEO S. Ramadorai said payscales for senior positions in China are sometimes 50-70 per cent higher than in India. Entry-level staffers command a 5-25 per cent premium. This stems from social benefit costs to be paid to the Chinese government. “Si jin (social benefits) occur under four heads — pension, unemployment, housing and medical,” says Prakash Menon, president of NIIT China. The additional burden can be up to 52 per cent in a city like Shanghai.Besides, India is already a global delivery centre, one that is less expensive than China.
China was expected to be a delectable three-part conquest (see ‘China — The Next Smart Move’, BW, 29 August 2005). As a first step, Indian IT firms wanted to use China’s vast and cheap manpower pool to create development and delivery centres that would service their international clients. In the second phase, the capability of the development centres to work with double-byte code, a software technicality necessary to accommodate Sino-Japanese scripts, would be leveraged to net the lucrative Japanese market. The final goal was to target China’s domestic IT market, particularly its outsourcing business. But five years on, Indian IT companies in China are floundering. Their ability to do business in China is being challenged, and the assumptions they made of how foreign clients would embrace Chinese delivery centres are changing. Nevertheless, the game is far from over.
Not Quite One, Two, Three
The initial China hype has given way to a relentlessly red bottom line mainly due to clients not shipping work there as promised. “This is, in part, due to lack of security around intellectual property and patents in China,” says James Lin, CEO and managing director, Infosys Technologies (China). Today, all Indian IT services companies in China employ less than a thousand people, a dismal headcount. If wages in China were attractively cheaper 3-5 years ago, they are now much higher than in India. In a recent interview, TCS’ CEO S. Ramadorai said payscales for senior positions in China are sometimes 50-70 per cent higher than in India. Entry-level staffers command a 5-25 per cent premium. This stems from social benefit costs to be paid to the Chinese government. “Si jin (social benefits) occur under four heads — pension, unemployment, housing and medical,” says Prakash Menon, president of NIIT China. The additional burden can be up to 52 per cent in a city like Shanghai.Besides, India is already a global delivery centre, one that is less expensive than China.
Labels: China Dream, IT market in China, Untapped Market on Earth
Subscribe to Posts [Atom]
