Can China close the software gap with India?

Posted by: Bruce Einhorn on November 20, 2006

With Chinese President Hu Jintao in India, regional research house DBS has a timely look at the software rivalry between the two Asian countries. ‘What rivalry?’ scoff the India boosters out there, with good reason. India’s IT companies are so far ahead of their Chinese counterparts, maybe the two really are not in the same league. Just consider where the two industries will be by the end of the decade: According to DBS, Nasscom is targeting $60 billion worth of Indian exports by 2010, while the Chinese government wants software exports to hit just $10 billion that same year.

Still, the Chinese government is ambitious, and has made it clear that building a software and service outsourcing industry is a government priority. That’s one reason the DBS analysts, Ma Tie Ying and Aathira Prasad, aren’t ready to rule out the Chinese, despite the impressive lead that the Indians have. The Chinese industry may be small, but it’s growing at an impressive 40% clip. “By the rate the software industry is growing,” the DBS analysts write, “China may well be a future threat to established global suppliers like India.” Moreover, “Chinese policymakers and software entrepreneurs recognize their weaknesses in many aspects, and are keen to learn from international experiences, especially from India.”

That’s one reason that the Chinese are so happy to have the likes of TCS and Satyam set up joint ventures in China. (See, for instance, this BW story.) The game plan is pretty similar to what the Chinese did in manufacturing – open the market and encourage foreign investment, and then have Chinese managers who have gained experience thanks to the foreigners set up local-based competitors. It has worked in industries like telecom: See Huawei and ZTE. Ma and Prasad have their doubts about whether China can pull off the same thing in software services, where lax protection of intellectual property rights will be a much more serious problem. They point out that “massive infringement of intellectual property rights in China” makes it harder for the Chinese companies, which need to focus on their domestic much more than the export-oriented Indians. And the DBS pair hit on another major problem. For all of the enthusiasm about China’s deep pool of talent, it’s awfully hard to find qualified managers there. Ma and Prasad blame the Chinese education system and its emphasis on “rote-learning rather than compound capabilities such as innovation, communication, organizing and coordination.” Companies have ways of addressing the problem by putting in place training programs designed to teach Chinese how to think differently; more long-term, China’s schools are starting to change, with the goal of encouraging students to think more creatively.

But the Chinese have one big factor in their favor. India is getting expensive. Ma and Prasad point out that Indian IT wages are rising at about 16% a year, “and given that attrition rates are quite high, there looks like no option but for employers to continue increasing salaries every year to retain their employees.” The DBS pair think rising wages help make rivals in Southeast Asia and Eastern Europe more attractive. It probably will also give a boost to China. No wonder, then, that TCS and other Indian biggies are looking at major expansion of their Chinese workforce in the next few years.

Reader Comments

In Hsieh

November 21, 2006 11:32 PM

Brazilian government and many local companies also want to position the country as viable IT outsource alternative, but instead should recognize that Brazil IT strengths is in developing solutions and not on-demand programming.

Ray

November 22, 2006 8:16 AM

Rather than trying to catch up India on IT outsourcing, China should focus on building companies like Microsoft and Oracle based on indigenous innovation and brand-buidling, and then outsource basic programming to India. Why should set the goal as working for others??

Motilal

November 22, 2006 11:24 AM

Why do I get a feeling that I have been reading the same arguments over and over again for the last 10 years?

In 1999 HBS Review published an article "Move Over India: China Is Coming". At that time India's annual revenue from IT was under $0.6 billion (today it is over $22 billion).

I am still waiting for China. China has a long way to go before it can close the gap with India, let alone set up companies like Oracle and Microsoft.

steve sailer

November 22, 2006 10:27 PM

Dear Bruce:

Please stop comparing India to China and please also stop using Chindia. If you really enjoying commenting on India, please consider comparing India to U.S. since Americans are obsessed with comparing India to something. You may laughing at me how arrogant I am or how stupid it is even to suggest such comparison! It is like comparing a beggar to a millionaire. That is right. So is it to compare India to China. It would be same ridiculous to compare China to US. They are in totally different leagues.

China and India are totally different other than the facts that both have large population and both are extremely poor. Contrast could not be sharper. They look different, talk differently and follow different growth model. China is planned, top-down and authoritarian while India is chaotic, anarchistic and democratic; Chinese are low-key and reserved while Indian are talkative, bragging; One is also quietly focused while other is overly optimistic. Most important of all, one is of one of the highest average national IQ while other is of below average national IQ. It is stupid to lump them together.

Nikolay Guenov

November 25, 2006 2:45 PM

It is important to note that when you compare China to India or the US for that matter, you need to consider also local software and services companies that are actually started by expats in China. Friends of mine have started suuch businesses in China (both Beijing and Shanghai) and provide outsourcing and software product development for multinationals as well as develop their own products. Such companies will be very successful training grounds for for future local enterpreneurs. They will add to the speed of local development. Combine these with relatively open policies by the local government in enabling the starting of new ventures and you can have rapid increase in new companies.
Travel to Haidian district in Beijing and in many of the high rises you would finds tons of new software (Web, e-commerce, embedded, etc) firms. China went through similar multiple starts in other industries as well -- e.g. semiconductors. Now, China certainly has relatively successful companies in that industry as well...At any rate, given persistence and patience, things happen.

fttd

December 8, 2006 2:43 AM

China 's software is much better than India.

China is mainly focus on its own market.

India only export

deepak gaur

December 6, 2008 11:05 AM

hello sir,
"Is china better than india in software"
plz sir give me some detail at this topic
thz

franky

December 12, 2008 5:32 PM

In the first ten months of 2008, China’s software export value surged by 51.3% year-on-year to US$ 11.7bn, with the software outsourcing services accounting for US$ 1.01bn, up by 47.2% year-on-year but with the growth rate standing 23.3 percentage points lower than the rate for the first nine months of the year. In the period, the Chinese software industry’s total completed income rose by 31% year-on-year to RMB642.97bn with the growth rate climbing by 10 percentage points over the same period of last year but dropping 1.8 points over that of the first nine months.

India software and services export cross $40 billion in fiscal 2008 with the domestic market estimated at $23 billion.

www.chinainfoworld.com

Deepak Dubey

May 13, 2009 12:55 PM

There is hell comparing by some people between India and Chaina.
My dear there is no any comparison between India to another country.
Who are doing htis comparison plz tell me 1'st Wt's the growth rate of India and other countries. Does they know ?

fazil

March 12, 2010 7:37 AM

india and china are fast growing countries we can give equal priority both them

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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