Wen visits India's Silicon Valley- A boost to Indo-China IT exchange
Date: Saturday , April 30, 2005
China and India’s annual GDP growth rates for 2003 were at 9.1 and 8.5 percent and at 9.5 and 6.9 percent for 2004, respectively.
China and India have since become the two largest and fastest growing economies of the 21st century. The nature of the two economies is similar on many counts and hence both India and China together can play an important role in the World Trade Organization (WTO) and global outsourcing market.
Gartner Research estimates that India would be the beneficiary of 40 percent of China’s IT exports as early as 2006. Revenue from India’s IT exports was $12.5 billion in 2003-04 (ending in March), a 30 percent increase from the previous year, which in turn has resulted in a 10-15 percent annual rise in wages in India’s software and back-office services industry.
Software export revenue for China in the year 2003 was $700 million, leaving an over-eager skilled workforce ready and willing to work for low pay. On average, an engineer with some experience in Shanghai is paid a monthly salary of less than $500, compared with more than $700 in India and $5,000 in the U.S.
Indian IT Firms In China
Many Indian software companies, with a long-term strategy to gain foothold in East Asia, have started business in Shanghai, Shenzhen of Guangdong Province and Hangzhou of Zhejiang Province. Indian software companies like Tata Consultancy Services (TCS), Infosys Technologies, Satyam Computer Services and Wipro have pioneered this expansion in China.
They are currently developing software in Shanghai’s Pudong District for the most lucrative sectors such as finance, securities, insurance and telecommunications. A recent study by KPMG for the National Association of Software and Services Companies (NASSCOM), an IT industry trade group in India, has predicted an acute shortage of IT personnel to the amount of 250,000 by the year 2009 in India. Thus, the numbers favor increased forays into China by Indian IT firms.
In fact, they are not only exploring the lucrative business potential in China but also coveting the neighbouring markets of Japan and the South Korea where China currently dominates.
Satyam Computer Services, India’s fourth-largest software services exporter, started operations in China in January 2002 by initiating a subsidiary to strengthen the company’s market in the Asia-Pacific region.
It is the first Indian software development company to establish operations in China, operating out of the Shanghai Pudong Software Park.
Jiabao, who arrived in Bangalore from Sri Lanka, also visited TCS, India’s largest software exporter, and suggested the two countries cooperate in IT. A detailed presentation was done by TCS’s CEO S Ramadorai on India’s IT industry and the firm’s operations in China during his visit.
TCS commenced its operations through its wholly owned subsidiary Tata Information Technology (Shanghai) Ltd. (TITL) in Shanghai during June 2002. As the first Indian IT services company in China, TCS has developed a strong presence in Hangzhou with over 200 associates forming an integral part of its delivery center.
Infosys Technologies (Shanghai) Company Ltd (ITSCo), a fully owned subsidiary of Infosys Technologies Ltd. started operations at Shanghai in October 2003. Infosys invested an initial capital of $5 million to start up this subsidiary and plans to hire 850 more professionals in China during the current fiscal year 2005-06 to expand its subsidiary operations for servicing its global clients and tapping into the large domestic market.
Though the subsidiary generated Rs.80 million in revenues during the last fiscal year, the net loss was INR 80 million.
Wipro, India’s third leading software service exporter launched a Chinese subsidiary in March 2005 and aims to open a technology centre later this year. “We are in the first phase to serve clients with a China footprint.
The second step will be to do an Offshore Development Centre (ODC) in China,” says Sudip Nandy, Chief Strategy Officer of Wipro. Unlike rivals TCS and Infosys, which has set up software centers employing Chinese from the start, NASDAQ listed Wipro will initially deploy 35 to 40 Chinese-speaking workers from Yokohama in Japan.
Indian companies also provide computer-training programs in China. NIIT Ltd., a Delhi-based training and IT services company, set up its first training center as the earliest entrant into China in Shanghai in 1998. The company currently has more than 100 training centers in about 25 provinces of China, while working in tandem with more than ten universities, three software technology parks and various local companies in the country.
Chinese IT Firms in India
Jiabao, who landed with a battery of high-profile business executives representing over 140 Chinese companies, called for greater ties in chip designing and a few niche hi-tech areas. Top executives from several large Chinese companies like Zhongxing Telecom (ZTE) and Huawei were present in the delegation to explore new business opportunities with Indian companies. Jiabao persuaded Indian software companies to set up operations in China to tap the Chinese and global markets.
India’s telecom equipment market has been dominated by the U.S. and European equipment suppliers something that is quickly changing. Chinese companies have recently underbid them by half or more on large supply contracts tendered by the two state-owned operators, Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL).
Leading the Chinese charge are ZTE and Huawei Technologies. ZTE started Indian operations in mid 2001 and won its first contract in July 2002 when it was selected by BSNL, which runs fixed-line and cellular phone services across the country, to construct a national transmission backbone network. The contract was worth INR 1.3 billion (US $29.5 million).
In the same year, ZTE signed an agreement with BSNL to supply a CDMA network for nine major states. Despite concerns in some areas that the Chinese company posed a security risk, the contracts were accepted.
ZTE’s main competitor Huawei Technologies launched its India subsidiary in Bangalore during February 2001. It was selected by MTNL, which runs fixed-line and cellular services in Delhi and Mumbai, as the equipment supplier for the expansion of its CDMA network in those cities. The contract for 800,000 lines was worth INR 3.5 billion. Huawei Technologies has set up an 800-strong software research and development facility in Bangalore.
The centre works on 3G, wireless and optical transmission solutions. The company has also outsourced work to Wipro, Infosys and Mphasis. The subsidiary has invested $90 million in setting up and scaling its Indian operations.
The prevailing enormity of this trend remains unclear. Revenue from IT services is rising in China, but it is still barely half of India’s $12.5 billion per year.