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July - 2002 - issue > View From the Top
India’s Software Supremacy and the Chinese Threat
Monday, July 1, 2002
If the indian software
industry could ever agree on a
tag line for India's IT vision, the
impulse would be to shy away
from the standard "cheap IT
outsourcing capital of the world" that
likely typifies the perception in
corporate America. It is far more
fashionable - and indeed advisable - to
say that you are "moving up the value
chain."


But realistically, one cannot ignore
the fact that cost arbitrage, after all, is
what the Indian IT industry relies
upon for business - through access to
a huge pool of cheap, skilled labor.
U.S. corporations may discover that
India's capabilities are especially
impressive and valuable in the IT
arena over time but, by and large, they
decide to go to India for cost savings.


It is in this very realistic context
that India must view its much-talkedabout
potential rivalry with China in
the IT services arena.

Despite concerns over weak
demand for IT in the embattled U.S.
corporate sector, recent commentary
in the Indian press has been generally
patting India on the back in
suggesting that China is ostensibly
not a significant near-term threat to
India in the IT services sector. The
reasons cited are India's current lead
in software and project-management
expertise, and the fact that India's
workforce speaks English.

But how do these tired concepts
hold up to serious price competition -
whether from China or any other lowcost
region? China's basic
infrastructure remains superior to
India's - thanks to a government that
systematically ensures that initiatives
(like the deployment of telecom
infrastructure and power grids) are
carried out. As has been widely
reported in the media, Chinese
telecom facilities are at least 10 years
ahead of what India has developed.
Arguably, on the macro level, Chinese
engineers are more or less on a par
with Indian engineers, with perhaps
even greater capabilities - as shown by
Chinese nuclear and defense
industries. And if the Chinese
government chooses to teach X
number of Chinese engineers English
in the next five years one can be
certain the program will be rigorously
carried out.


One has to wonder: is India's
heralded English proficiency a real
deal-maker? It is doubtless important
not to understate the value of India's
English-speaking workforce. Indeed it
is important to keep in perspective
how valuable it is that India is a
democracy. But it is also important to
admit that on a cost-driven offshore
IT project, it may not be vital that all
people involved speak English - nor
indeed that they live in a democratic
society. Is China's lack of democracy
perhaps even an edge in terms of
getting things developed and
approved expeditiously?

Expatriate Chinese in the U.S.
speak excellent English, and many are
heading back to China as ambitious
entrepreneurs, ready to do brisk
business with the U.S. It would be
foolish to assume that if China
develops the necessary skills and
capabilities in IT services, India's
English fluency alone will protect it
from competition. It is also foolish
simply to assume that China will not
rapidly develop proficiencies in IT
services that will rival what exists in
India.

Many IT services companies in
India and the U.S. are considering
setting up centers in China to be
closer to Japanese customers. Once
companies clear the initial hurdles of
doing business in China - a necessary
step when entering any new country,
including India - they may well
seriously consider using Chinese cost
advantages and skills for their
software development.

India should consider the
competitive pressure that will emerge
from China on the IT services and
software front much more seriously.
China has already proved its
economic and technological muscle
through the success of indigenous
telecom giant Huawei Technologies -
which incidentally has established
offices in India, sensing the
opportunity to develop India's
telecom infrastructure. The Chinese
have a very impressive culture of
entrepreneurship that is just coming
into its own as the economic reforms
of the last 20 years take hold,
especially given China's recent entry
into the WTO. As it stands, India has
the advantage in software…for now.

The 21st century holds great
promise for India. In an era when
ideas and information driven by
human capital fuel economic growth,
India's tradition of creative freedom
and respect for knowledge - nurtured
by a democracy firmly established
over the last 50 years - should put it in
good stead. Indian IT firms are
moving up the value chain already,
but they remain overwhelmingly
reliant on cost arbitrage. Upcoming
competition from China should act as
a catalyst to transform India's
branding from the "cost effective
hub" to the "value added hub" for IT
services.

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