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JULY 1, 2003
By Bruce Einhorn For India, a Shrinking Chinese IT Monster Suddenly, Indians are realizing that their big edge in English skills and multinational investment should hold off China's software threat It wasn't that long ago that the Indian information-technology industry was gripped with China fear. When I first traveled to Bangalore in 2001, company executives, industry officials, and government ministers all seemed convinced that the Chinese, having nearly obliterated the Indian manufacturing industry, were setting their sights on India's greatest success story, software services. Given China's track record in so many other industries, lots of Indians fretted that the Chinese would come to dominate software, too. Fast-forward to the present. In late June, the Indian Prime Minister visited Beijing, putting a spotlight on the slow warming of relations between the world's two most populous countries. Indeed, a tremendous change in feeling about China is apparent in India these days. In the corporate offices of Bangalore and other Indian IT hotspots, far less concern is visible about the Chinese stealing the software business any time soon. Indeed, Indians seem convinced that their country's rise as an IT power is unstoppable. DODGING SARS. Consider these confident comments from Vivek Kulkarni, IT secretary for Karnataka, the state in southern India whose capital is Bangalore, India's Silicon Valley. "China, of course, has engineers, but they are not good at software," he sniffs. "They are not really competing." Why the confidence? One reason is the severe acute respiratory syndrome (SARS) outbreak showed that China isn't all powerful. Yes, the virus now seems to be under control. And yes, the Chinese economy, having defied predictions of a SARS-induced collapse, is surging again. Yet for several crucial weeks, the world shunned China. India, on the other hand, was SARS-free. The outbreak in China provided vital psychological support for Indians who previously had heard little but glowing reports of China's stupendous economic progress, which makes India's steady but slow growth seem pathetic. LANGUAGE BARRIER. Another reason for Indian confidence is the continued migration of jobs to India. Back in 2001, the boom in business-process outsourcing hadn't started. Now, hardly a week goes by without another multinational announcing that it's opening or expanding an office in India so that low-salaried, high-skilled Indians can provide all sorts of back-office support. Companies are hiring thousands of Indians to work in call centers, answering questions from customers a half a world away. Indians believe China doesn't have an easy way of stealing this sort of work. The Chinese just don't speak English as well as the Indians, says Kulkarni. "They are very weak in terms of communication," he says. Company executives agree. "They have been handicapped primarily by language skills," says C. Srinivasan, head of EDS's (EDS ) offshore operations in India and chairman of A.T. Kearny India. The abundance of English-speaking talent is a big reason Adobe Systems (ADBE ) has been expanding its Indian operations. Late in 2002, the graphics and imaging software maker moved into a new $10 million building in Noida, on the outskirts of Delhi. The office is the only building Adobe actually owns, says Naresh Chand Gupta, managing director of Adobe Systems India. "India has the right talent," he says. With some 200,000 new engineers each year, "the availability of manpower is huge." STILL LEARNING. Not that Adobe isn't thinking about China. Gupta says it did consider a base there, especially since Adobe knew about the success Microsoft (MSFT ) has had with its Beijing-based research center. "We visited a software technology park outside Beijing. It had beautiful infrastructure," he says. Nevertheless, the issue of few Chinese speaking English well remains. "We still see problems with language." Indians, however, don't appear to be getting overconfident. They know China sooner or later will come on strong in the software business. "China in the long run is a threat," says Srinivasan. "But now, it is not. Short term, we still have time. The fact of the matter is China is still learning the software-development business." And the Chinese may prove to be fast learners. EDS rival Cap Gemini Ernst & Young (CGEY ) is counting on that. It opened its first Chinese operation a year ago to do business-process outsourcing in the southern city of Guangzhou, a few hours' train ride from Hong Kong. Salil Parekh, COO of Cap Gemini's Asia Pacific operation, says it's natural that China should attract more investment from consulting companies like his. "We think things will move to other low-cost geographies," he says. "And China is the biggest of the lot." "INEXHAUSTIBLE." Cap Gemini is considering expanding to another location in China, which will take on more importance compared to smaller Asian locations like the Philippines, which just don't have enough bodies to satisfy the need for low-cost employees. "In the Philippines, we can't scale," says Parekh. "The talent pool is sizable, but not the size of India or China, where it's inexhaustible." Many countries fear China's attempts to become more of a technology power. But India's big advantages -- the base of English-speaking talent, the size of local players like Wipro (WIT ) and Infosys (INFY ), and the critical mass of investment by multinationals in Bangalore and other areas -- give Indians good reason to feel secure that they'll be able to withstand China's challenge better than just about anybody else.  Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online Edited by Beth Belton Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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