China or India, it's a question

However, in the long run, China is likely to be the biggest threat to the Indian software industry. When spoke to Business Line in 1996, Mr N. R. Narayana Murthy, the Infosys Chairman and Chief Mentor, right after a trip to China, said that China could emerge as a powerful outsourcing center and cast a threat to India’s software industry. For more than six years, India have resisted this threat .However, in order to refresh its global image, China entered WTO, bringing its great chances to grow into another offshore software development center matchable to India in the near future. Eminent research centers and institutions such as Meta Group Giga Group or Gartner, and the software industry's leading giants have predicted that India may has a five-year predominance over China in offshore outsourcing. But the key question is: What is the possibility that this predominance is shorter than that? To understand this question overall, it is of importance to contradistinguish the relative strengths of China and India at first.

China strengths

• Software Infrastructure: China spends more on the telecommunicayion infrastructure than India. Both the Internet penetration and fixed-line telecommunication subscriber base are over four times higher than India’s (see the table). A research made by PricewaterhouseCoopers showed that China was investing about 10 times in number more than India in telecom, and as a part of GDP, China averagely was investing three times more in telecom than India.
• FDI flows: China allures more foreign direct investment (FDI) flows than any other developing country and many times that India. And a great block of this FDI flows into the Chinese IT industry and produces many employment opportunities.
• Attractive policies (quick clearances): China has divided itself into five special economic zones and the current tax policies favor the setting up of software and hardware technology parks by foreign companies in these zones. What’s more, these parks’ clearances and approvals are faster than India.
• Low-cost labor: China's labor costs in the software industry are equal to, if not lower than, India's. China, with nearly 300.000 trained IT workers, may be in a position to match the over 400.000 counterparts in India.
• Powerful domestic sector: If the offshore outsourcing export fail for any reason, China has a powerful domestic sector to rely on. However, India does not have that strength.

India's strengths

• English fluency: Besides our software skills, as an English-speaking country, India has managed to obtain most of the offshore outsourcing business from the developed countries such as the UK and US. That is one point, where India probably overpass China and has assisted it keep the leading role in the offshore outsourcing industry.
• Favorable government policies: The Government has clearly granted the software industry with a liberalized tax policy such as concessions and tax holidays under Section 80 HHE of the I-T Act. The Government has also not interfered with the businesses of these software majors.
• Offshore software experience: Indian players have more than ten years of the experience in offshore software outsourcing. During this period, Indian software players have turned this strength into an extremely attractive value proposition. It will be difficult for China to catch up with India.
• Quality processes: India has probably the number of SEI-CMM-Level 5 certified players more than any countries in the world. This certification — the sign of quality — and the well-organized management systems and processes (developed and refined over the years) have assisted Indian software service providers to undertake highly repetitive projects efficiently, higher employee productivity and tighter deadlines.

In a word, a comparison of the relative advantages in the offshore outsourcing industry seems to demonstrate that India overruns China in the short run. But the critical question is: What strategies must India utilize tomake sure that it does not lose its leading role in the offshore arena, particularly in the lower end of the software value chain including application maintenance, migration or re-engineering of legacy systems.

To sustain India's software success story, the software players must:

• Pay attention to cooeration: Mr Kiran Karnik, President of Nasscom (National Association of Software and Service Companies), and the supreme association for the software industry, says that India must undertake the strategy of "complement and collaboration" by which we must link Chinese/Korean/Taiwanese manufacturing skills with India's software expertise, say, in the area of embedded software. The cooperation can help India develop new markets for the future. India development centers in China:
• Attract successful Indian entrepreneurs in Silicon Valley to India. In order to attact more elites from the Silicon Valley, it is necessary for Indian policy-makers to create an ideal policy environment. In this way, India could possibly remain India's software offshore service predominance over China. If India fail to do this it may start losing its leading role in the offshore software outsourcing space. It is possible that Chinese entrepreneurs in the States may be more willing to the hopes of Beijing than Indians will ever be of New Delhi.
• To take advantage of opportunities for bagging software orders in the Asia-Pacific region or to sub-contract work to Chinese, Indian software players may have to actively explore avenues for setting up India development centers in China. Satyam Computers was one of the first to establish and launch a software development centre in the Shanghai Pudong Software Park in China in late January. Meanwhile, the Chinese Premier, Mr Zhu Ronji, who visited India, also invited Infosys to set up a software centre in China. These proposals from China will be taken seriously. According to a recent research report by the Aberdeen Group, the United States Information Technology Office has predicted that China's software industry will record more than 30% growth between 2001 and 2005, reaching $26-30 billion by 2005.
• Uplift the value chain: We can learn a lesson from the competitive efforts of Chinese companies such as Huawei Technologies. Obviously, the lower end of the software value chain is getting commoditized very quickly. For the Indian software industry to expand and grow, it is necessary to move up the software value-chain by carrying on more high-end projects in consulting/systems integration or target newer markets in the Asia-Pacific region or undertake more framework - or product -based research and development initiatives.

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