Where India Trumps China: Software


By Bruce Einhorn It's not often that people in India have a chance to lord it over China. The world's second-most-populated country, India suffers from a bit of an inferiority complex, especially when it comes to China, No. 1 in population. The two fought a border war in the 1960s, which the Chinese won. In the 1980s, the Chinese economy boomed, as Westerners and Japanese poured investment into the country, while India languished. Even when New Delhi introduced belated economic reforms in 1991, China continued to attract the bulk of foreign direct investment.

So India's prominence in the software industry gives tremendous satisfaction to many here in the subcontinent. Starting with the Y2K-solution business and continuing with software-outsourcing services, Indian companies have become key players in the global economy. The likes of Infosys, Satyam, and Wipro are now favorites of investors both in Bombay and in New York. Indian officials are talking grandly of turning the country into an information-technology (IT) superpower.

Meanwhile, China has gone nowhere in the software business. That makes India's success all the more gratifying for Indians. China may have prominent hardware companies, such as Legend Computer (No. 6 in the Business Week Global IT 100), that far outclass Indian rivals, such as Hindustan Computer (HCL) (See BW, 6/19/00, "The Info Tech 100"). But when it comes to software, the Middle Kingdom has nothing that can compare to India's world-class software companies.

BAD PRESS. PCs, as the Chinese know, are a commodity business. Software, on the other hand, shows more long-term promise -- especially for countries like India and China that want to develop their "knowledge-based economies." So the goal of many a Chinese Communist official is to figure out a way for China to become the Next India in the software business.

Perhaps that explains why Indians have been miffed about the way the Chinese press has written about the country recently. Currently traveling around India is Li Peng, the chairman of the National People's Congress and the No. 2 man in the Chinese Communist Party leadership. While newspapers in Hong Kong and the West are filled with reports about secret documents showing Li's role in the 1989 Tiananmen crackdown, papers in India are interested in more pressing matters, such as the insulting economic commentary in the official Chinese newspapers. Take this Chinese comparison of Beijing and New Delhi that was reprinted last week in a top Indian paper:

"The biggest difference is in living conditions. Beijing eliminated power cuts a long time ago, and everyone has running water. In New Delhi, power cuts are frequent in some areas. In the slums, law and order is bad, and power and water are rationed. New Delhi has no subway and few overpasses. Buses are old and dilapidated, and traffic congestion is terrible. Private ownership of cars is much lower than in Beijing."

CULTURAL ADVANTAGE? Unfortunately for India, all of that is true. But in international relations, unlike in libel law, truth is not always a defense. Especially given the humble remarks of Indian Defense Minister George Fernandes in 2000, when he made a point of speaking about the areas where China is ahead of India.

And don't forget the anger that many Indian business executives feel about alleged Chinese dumping of products like chemicals, plastics, consumer goods, and electronics in India. Official statistics say Chinese imports are just 3% of India's total, but unofficial numbers put the figure as high as 20%. "When they dump, they dump in huge numbers," gripes Dev Bhattacharya, president of corporate strategy and business development at Indian conglomerate Birla Management Corp. "Within the last year, it has become huge," he adds.

All of this underscores the importance of Indian software successes like Infosys, Wipro, and Satyam. These companies, which specialize in providing outsourcing software services for Western multinationals, have recently reported their quarterly earnings, with profits growing by over 100%. Since the Chinese enjoy the upper hand in so many other areas, Indians are understandably crowing about their IT accomplishments. Dewang Mehta runs Nasscom, the National Association of Software & Services Companies. Yes, he says, the Chinese have ambitions to grow in software. But India won't easily surrender its first-mover advantage. "We have perfected the art of IT services," he brags, adding that China is 10 years behind India in this area.

And, Mehta adds, India's democratic culture gives it an edge over authoritarian China. "Innovation doesn't come from nondemocratic society. With democracy," on the other hand, "it is strengthened," he says. China may have an advantage over India when it comes to building infrastructure -- as the Chinese press has proudly reported in advance of Li Peng's trip. But when it comes to building human capital, Mehta says China can't compare. The Chinese are determined to prove that they can. Look for the Sino-Indian competition to heat up in the new year. Einhorn covers technology from Hong Kong for Business Week. Follow his weekly Online Asia column, only on BW Online


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