Wednesday, 26 December 2007

China a Threat to India in IT? Not at least for now!

In last 4-5 years if anyone has said that China could be a major competitor to India in IT outsourcing & BPO business, it would have definitely sent shocking waves among big IT players and even among IT professionals (they stand to loose jobs).
Media, especially the research firms like IDC, Gartner & Forrester had been proclaiming from perch top that China was going to be a big powerhouse very soon in IT outsourcing and India should worry about dragon. They were predicting for this to come true as early as by 2007. Everyone was saying so looking at the way China had been making strides in manufacturing and the way it was improving its hard infrastructure. And for us as well there was no way but to believe because if Chinese think of doing something they would make that happen at any cost. That’s the kind of reputation they have got.
But nothing significant in IT outsourcing industry has happened so far in China and I don’t see this happening for at least another 7-8 years. That’s when it may be starting to emerge a contender for competitor, still it would not be a competitor. That would still take few more years from there if Chinese are prepared.
Today there is not a single IT vendor in China worth its salt. There are many outsourcers like Objectiva, Bleum, etc. but they are just fringe players who would either never become serious players or would have to try too hard to become one.
Here are some of the reasons why China can not just become a serious IT player in IT outsourcing business:

  1. There are no big IT companies comparable in scale to Indian giants like TCS, Infosys. Today to bag a big outsourcing contract you have to show scale. Otherwise you can just become a body-shopper.
  2. Project management experience is one thing which you can not learn in an institute or college that comes only from work experience and India has that in abundance. Indians have been working in IT industry for decades now and so they have built formidable skills in this area which is their selling point and also huge differentiator.
  3. Even though the IT industry is so small there in China still attrition in China is more than 20% as against 15% in India. Not so goon signs at the inception.
  4. The experienced IT resources in China are 50-70% costlier than in India. Even the entry level resources are not very cheap in India and those are also not English speaking so the cost factor is hardly an advantage.
  5. Patent and IP protection is biggest problem in China and IT being such an important and sensitive area for customers they would think twice (or more?) before sending work to China.
  6. Should we mention English as one of the reasons? Can Chinese learn English in few years to become strong contender? Most of the business world over happens in English, even in non-English speaking countries.
  7. Nothing works in China without guang-xi i.e. connections, so for an outsider if they have to set up shop they either have to tie-up with local partner just for guang-xi or wait for years to grow whereas in IT you have to be very fast and nimble. International players like IBM, EDS, and TCS may not find it easy to grow there as they have grown in India.
  8. IBM, Accenture and EDS have been in China for 15-20 years still their service staff is minuscule that tells what the current IT environment there is.
  9. Indian IT is not because of government support or any institutional support but because of entrepreneurship of some individuals. In China it’s government that is pushing, but govt. can set up manufacturing companies not IT. It’s a people business. Better the people, more is success.
  10. China’s one child policy hampers employee movement between different Chinese cities as people normally are hesitant to leave their parents and grant parents.

    This is not to say that China can never become a serious IT player and Indian IT should also not become complacent. I’d hope China to come up fast in IT so India also improve its quality and there is overall improvement.

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