The Hindu : Opinion / Leader Page Articles : Neighbours building an IT highway

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Saturday, Mar 11, 2006

Opinion

Opinion - Leader Page Articles

Neighbours building an IT highway

Pallavi Aiyar

Real Sino-Indian collaboration in software is beginning to materialise, giving China a valuable chance to enhance its own capabilities. What has, however, failed to take off is any collaboration in hardware, where the Indians could learn from the Chinese.

DOZENS OF smartly dressed Chinese graduates, eyes screwed up in concentration, pack the training room. Up front, the Indian teacher introduces them to a variety of "life skills" from effective communication and teamwork to a crash course in Indian work culture. These are the premises of the development centre of India's largest software exporter, Tata Consultancy Services (TCS), in the southern Chinese city of Hangzhou. The TCS logo dominates the glass and chrome studded skyline of Hangzhou's high-tech industrial zone. Inside the centre, 350 employees tap away furiously at state-of-the-art workstations spread over three floors.

It is a sight that would warm the hearts of believers in the long talked about potential for Sino-Indian collaboration in information technology, that if realised would make the neighbours a formidable high-tech global force.

When Chinese Premier Wen Jiabao visited India last April he poetically described bilateral cooperation as "two pagodas: one hardware and one software." "Combined, we can take the leadership position in the world," he opined echoing the sentiments of his predecessor Zhu Rongji who made similar statements during his visit to Bangalore in 2002. The Chinese character for pagoda is in fact pronounced "ta," so Tata in its Chinese avatar becomes the two pagodas of cooperation that Mr. Wen talked about. "These pagodas are a symbolic bridge between our two countries," said V. Rajanna, General Manager of TCS China.

TCS is, however, gearing up to take its role in China beyond merely the symbolic and set up what will be the first really substantial example of cross-Himalayan collaboration in IT. In June last year, TCS teamed up with Microsoft and three state-owned Chinese entities to agree to establish a joint venture that is being billed as a "role-model" for the Chinese IT industry. The joint venture, in which TCS will have the majority stake, is expected to be operational by this May. While details are still being worked out, TCS CEO S. Ramadorai said its scale would be substantial. Larger, in fact, than the current biggest Chinese IT firms that employ 5,000-6,000 people. The Chinese software industry has been growing at around 30 per cent annually in recent years, but in software exports it lags behind its neighbour. In 2004, total revenue earned from software exports touched $2.8 billion according to the Chinese Ministry for Information Industry. India's exports in contrast were worth a hefty $17 billion. The Chinese software industry remains fragmented and lacks scale. Only about 10 Chinese IT firms amongst some 8,000 employ more than 1,000 people. "What they really need to learn from us is the process of scaling up and providing consistent quality on an industrial scale," said Mr. Ramadorai.

The new venture, once operational, will provide IT outsourcing services and solutions to both the global and domestic markets. For TCS it thus offers an opportunity to finally break into the elusive $30 billion domestic Chinese IT market. "We can get access to the market here and build our credibility with governmental backing," explained Mr. Ramadorai.

For the Chinese side it will be a substantial learning opportunity, given the best processes and practices that TCS will bring with it along with its experience of handling large, industrial-scale projects. China has aggressively been courting Indian expertise and investment to help build its own software-services industry, persuading Indian IT heavyweights over the last few years to train Chinese students, and set up cooperative projects with local governments and universities.

In January 2005, the Beijing municipal authorities in collaboration with the central government established a special Sino-Indian Cooperative Office, whose sole purpose is to woo Indian IT firms to set up a base in China's capital. It was largely due to the efforts of this office that the TCS-Microsoft joint venture was created. The new company, once operational, will be located in Beijing's Zhongguancun software park, a coup for the city's authorities. Till date the majority of Indian software majors have looked to Shanghai and other cities in the south, passing over Beijing, as a centre for major operations.

According to Gartner, a research agency, Indian companies could come to account for some 40 per cent of the lucrative domestic Chinese market for software. This is, in fact, the pie that the Indians are eyeing. But actually getting a bite has proved tough. As TCS' Mr. Rajanna explained, domestic Chinese companies are used to getting software services bundled with hardware and are unwilling to pay top dollar for them separately. Indian companies also need to localise their operations, which he said takes time and patience.

Moreover, foreign-owned companies are kept out of the really large, multimillion dollar deals at the state-owned enterprises. This is where the new TCS joint venture, with Chinese Government backing, might make a breakthrough. If successful, it could fundamentally change the nature of the Indian IT game in China, which has thus far been restricted to the servicing of multinational or regional clients.

During an IT conference held in Beijing last year, Sunil Mehta, vice-president of India's software industry association, NASSCOM, pointed out that although over 20 Indian software companies had set up shop in China they employed less than 2,000 people combined.

Indeed till very recently Indian IT firms were exploring hitherto uncharted Chinese waters with some cautious toe dipping. 2005 was in some ways a watershed year, marking the start of substantial commitments by the big Indian firms to their China operations. Aside from the TCS joint venture, Infosys Technologies announced it would invest $65 million over a five-year period in its China business and establish development centres in Hangzhou and Shanghai, eventually employing some 6,000 people.

Infosys currently has 450 employees in China and, according to Vineet Toshniwal, head of sales and marketing, will hire a total of 1,200 people by March 2007. Satyam announced plans to ramp up its China operations as well, and inked an agreement with Microsoft in November, focussing on the multibillion-dollar enterprise solutions market in Greater China. According to Satyam's president, Ram Mynampati, the company intends to hire some 3,000 engineers by 2007, up from the current 250.

And it's not just the big boys that are enthusiastically looking north. A whole array of smaller, specialised, small and medium sized companies have now made the pilgrimage to China's shores. IGate Global Solutions, Newgen Software, Zenzar Technology are names that are becoming known in Chinese cities from Wuxi to Shenzhen.

That real Sino-Indian collaboration in software is beginning to materialise is thus evident. For Indian companies a China presence allows them to expand internationally, service global clients in China, access the Japanese and regional markets, and eventually take a stab at the weighty domestic Chinese market. For China, cooperation with India is a valuable chance to enhance its own capabilities and expertise in software.

A goal recently announced to be a national priority by Mr. Wen during his address to the annual session of China's legislature. Underscoring its commitment to this goal, China has recently established 35 specialised national schools to ensure a steady supply of IT talent and eventually expects to produce some 800,000 trained software professional, more than India's current 600,000 odd.

What has patently failed to materialise however is any Sino-Indian collaboration in hardware, where the Indians could be learning from their Chinese counterparts. Even as the Chinese send delegation after delegation to Bangalore and Hyderabad to study and learn from India's software success, China's high-tech factories remain unvisited by Indians. There is no equivalent in New Delhi, to the Beijing-based Sino-Indian cooperative office, aiming to attract and channel China's hardware expertise to India's benefit. Infosys, TCS, and Satyam are all involved in training increasing numbers of Chinese graduates and interns in the best practices of India's software industry. There are no Indians, however, being trained by Lenovo or other Chinese hardware majors. Huawei, a major Chinese telecom vendor, is the lone Chinese high-tech company to have invested south of the Himalayas, but it focusses its India operations on software development, benefiting once again from Indian expertise.

That China will catch up with India in software at some point is a fact that most seem to agree on. Infosys' Mr. Toshniwal says, "China is now where India was in the early 1990s, but I think given 3-5 years they will close the gap." Adds Prakash Menon, head of Indian IT training company NIIT's China operations, "They [the Chinese] are going to do it [catch up] with us or without us. Ultimately the choice for us is to be left out in the cold or engage with them."

In the meantime almost no one is willing to put a timeframe on when, if ever, India will succeed in matching China's hardware might. The way things stand the much-touted hardware-software collaboration, that would create a world-beating techno-charged Chindia, is simply nice sounding fiction.

At best following the TCS lead, Indian software companies can aim for getting larger slices of China business, thus helping themselves along with the Chinese. But while the Chinese, with this help, go about adding a software pagoda to their already flourishing hardware industry, India remains one pagoda short.

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