Posted by: Bruce Einhorn on July 5, 2007
Is India’s software services industry light years ahead of China? Or are the Indians about to lose their lead to the up-and-coming Chinese? Over the past few days, two very different answers. According to a new report from IDC, the Indians have reason to worry. The research firm, headquartered in suburban Boston, has announced that its analysts have come up with a new “Global Delivery Index” that, according to an IDC statement, “compares 35 cities in the Asia/Pacific as potential offshore delivery centers, based on a comprehensive set of criteria such as cost of labor, cost of rent, language skills and turnover rate.” This new index puts Bangalore No. 1, with Mumbai No. 3 and Delhi No. 4. (The only non-Indian city among the top four is Manila, at No. 2) But “Chinese cities are on the rise and closely nipping at India’s heels,” IDC adds. “IDC forecasts that Chinese cities will overtake Indian cities by 2011 due to massive investments made ( e.g. infrastructure, English language, Internet connections, technical skills, etc) which are favorable towards offshoring.”
But then there’s this next-day story in India’s the Business Standard. “China outsourcing sector no match for India,” the headline declares. The writers call the idea of China challenging India a “myth” and cite a recent Forrester report saying that the threat from China is “diminishing gradually with issues like language, attrition and intellectual property (IP) protection continuing to haunt multinationals.” For years, China boosters have been saying that just give them time and they’ll catch up to the Indians, but as the Business Standard reports, in 2006, the Chinese IT services industry had a paltry $7.7 billion in revenue, compared to India’s $39.6 billion industry. “China has the potential but India has the edge” the newspaper quotes Nasscom Vice-President Ameet Nivsarkar boasting.
How then to explain IDC’s confidence about China? The firm is not predicting that any Chinese company is going to reach the scale of Wipro, Infosys or TCS soon. However, there’s no doubt that Indian companies are increasing their presence in China. (See, for instance, this story that I wrote back in November about TCS.) As the Chinese improve the environment for outsourcing in the ways IDC predicts (and as rising wages in India lead more companies to look elsewhere) maybe China will become more competitive - and maybe it will be the Indian companies with operations in China that will be the biggest winners.