The occasion is the announcement of a joint venture between two small companies with big plans. The Chinese partner is Shenzhen-based Kingdee International Software Group, a Hong Kong-listed developer of accounting and other business software. The U.S. partner: E5 Systems, a privately held Waltham (Mass.) company that specializes in outsourcing business processes for corporations. The two are holding a press conference -- following a meeting with the Shenzhen mayor -- to announce their partnership to develop software for export.
AT A HIGHER LEVEL? Tiny Kingdee and E5 are hardly going to shake the foundations of India's tech giants Wipro, Infosys, and Satyam, which each do hundreds of millions of dollars worth of projects a year for the top names in Corporate America. But with China's leaders making no secret of their intention to copy India's success as an software-outsourcing powerhouse, many Indian information-technology executives -- not to mention the country's political and academic leaders -- still spend a good amount of time fretting about the Chinese threat.
With good reason, says Kingdee's founder, chairman, and CEO, Xu Shaochun. Although China has just a fraction of the market today, he says the country will catch up fast. "Indian companies just focus on basic work such as coding," he sniffs. "We are higher-level-focused than coding, such as analysis and design." Indians have enjoyed a big advantage thanks to their superior proficiency in English, but Xu says they can't count on that forever. "Our disadvantage has been the lack of technicians knowing foreign languages," he says Xu, "but now we have more and more specialists in foreign languages."
Right now, Kingdee is an inconsequential player in global markets, Xu admits. And it's not much of a player in China either, with just $24 million in sales in 2001 and about 1,000 employees. But Xu says the alliance with E5 will lead to growth that will allow Kingdee to spread beyond China's borders. "We would like to move into the international market," says Xu, who predicts his staff will triple in size within three years. With average monthly salaries of about $850, Shenzhen engineers are 20% cheaper than those in Shanghai or Beijing -- and $150 lower than those of counterparts in Bangalore.
LANDING ORACLE. That's one of the reasons Shenzhen's energetic young mayor, Yu Youjun, is promoting the city as an IT center (see BW, 12/09/02, "Yu Youjun: A Modern Mayor"). Already, Shenzhen boasts homegrown telecom and electronics companies like Huawei, ZTE, and Konka. When it comes to foreign IT investment, perhaps Yu's biggest coup to date has been landing Oracle, which opened its first Chinese software development center in Shenzhen in 2002, following Yu's visit to Oracle headquarters in Silicon Valley. Yu's goal is to make Shenzhen as important for software as it is for hardware.
"The government is committed to building a very supportive environment for the software industry," Yu tells Kingdee and E5 executives at a reception at his office on Dec. 4. He boasts that China is going to turn into a formidable rival for India. "China has the condition and position to play a more active role in the outsourcing market," he says.
Gordon Brooks, the president and CEO of E5 Systems, is counting on that. Throughout China, his company is developing relationships with software companies like Kingdee, with the expectation that Chinese engineers will be doing more and more work for E5's corporate customers in the U.S. Brooks, citing industry analysts, says by 2007, China will be doing $27 billion worth of software exports, making it about equal to India. "Just as manufacturing went offshore, so too will software," he says. "We think that the time is right for China. No place has the ability to compete on a global scale, other than India."
"NO BUSINESS CONTEXT." The big disadvantage that the Indian companies face, according to Brooks, is the soft demand from local customers. "The problem is the general lack of context for business -- there is no domestic market," he says. China, by comparison, has a booming domestic market, and that means the Chinese understand business in a way that Indians don't.
"Business context is more of a barrier than language. In India, it's totally Greek to them, although they speak English," says Brooks. "It's a tough nut to crack. You can crank out as many new graduates as you want, but they come with no business context."
That's not to say anyone should be writing the Indian software industry's obituary in the near future. For all of their bravado, Xu and Brooks will have to accomplish something spectacular in Shenzhen if they want to match the achievements of the top Indian software companies. India's success is not just about low salaries and English proficiency but also the high quality of its software engineers, many of whom are world-beaters.
However, the fact that Xu and Brooks -- and so many other software industry executives doing business in China -- have Bangalore in their sights should help to keep India's tech titans on their toes. Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online