Encouraging a Symbiotic Relationship

Can we gain from each other?

Can China compete with India in IT?

How quickly will China overtake India in the IT space?

Are Chinese software engineers smarter than Indian software engineers?

This is just a sampling of the questions thrown at me over the last five
years during my interactions with the media, business analysts, government and
industrial delegations, and colleagues from public and private sectors, in China
and the Asia Pacific.

A better question to ask probably is: how can China and India leverage each
other? As pointed out by economist Jagdish Bhagwati, while the US has gained
from the productivity gains in China in manufacturing and the same in services
in India, the two emerging giants have hardly gained from each others
strengths, despite being geographically so close.

Indias Strengths

Indias phenomenal success in IT outsourcing has not happened by accident,
but by design. Way back in 1975, it was fuelled by the vision of Dr FC Kohli,
the former Deputy Chairman of Tata Consultancy Services (TCS), during his
inaugural address at the annual convention of the Computer Society of India in
Ahmedabad, when he said,

Many years ago, there was an industrial revolution. We missed it due to
reasons over which we had no control. Today, there is a new revolutiona
revolution in Information Technologywhich requires the capability to think
clearly. This we have in abundance.

Indias offshoring prowess which has been proven time and again over the last
three decades is due to a low-cost structure, strong academia led by renowned
institutions like the Indian Institutes of Technology (IIT), National Institutes
of Technology (NIT), and Regional Engineering Colleges (RECs), and Innovation
and Research among others. Throw in our communication capabilities in English,
and we have a winning combination to address key offshoring markets in North
America, the United Kingdom, and Europe.

India, China Juxtaposed

A quick comparison between India and China in IT offshoring reveals the
following facts.

Though China lags behind India in IT offshoring as of today and there is a
long way to go, the IT industry in China is developing fast and Indian IT
majors, operating out of China, are making seminal contributions to its growth.
TCS, in 2004, was the first and the only IT Company in China to be awarded five
certifications: Capability Maturity Model Integrated (CMMI) Level 5, People
Capability Maturity Model (PCMM) Level 5, ISO, BS7799, and BS15000.

In 2005, when the Chinese Premier visited TCSs facilities in Bangalore,
India, S Ramadorai, the then Chairman of Nasscom suggested that a similar
organization be created in China to facilitate business and trade in the IT
space.

Where to Emulate China?

Attracting mammoth foreign direct investment (FDI): Chinas FDI in 2005 was
$72.4 bn, which is 13 times larger than that of Indias at $5.5 bn!

Rapidly creating the infrastructure required for growth: Chinas
unique selling proposition to the world is its infrastructure. As the saying in
Telugu goes: Jaatiya Rahadurulu Desha Abivruddi ki chihnalu (The roads of a
nation are symbols of its progress). China is a perfect example. Tier-2 cities
like Hangzhou in the Zhejiang province of China have infrastructure that is
streets ahead of any metro city in India.

In 2003, China consumed the most steel in the world (250 mn tonnes),
surpassing the combined consumption of the United States and Japan. In 2006,
China consumed 30.9% of worlds steel. The magnetic levitation train introduced
in Shanghai, with a speed of 430 km per hour, had an investment of $1.2 bn.

Pace of decision making and implementation: The Chinese government is
completely committed and focused on economic growth, and its bureaucrats are
extremely dynamic. Decisions regarding policy, or otherwise, are made and
implemented at a very rapid pace.

In Hangzhou, a five-star hotel was demolished in no time as part of an
expansion plan of the picturesque West Lake (due to which Hangzhou has earned
the epithet Honeymoon Capital or Heaven on the Earth). This new lake was
gifted to the people on the Chinese National Day.

Effective marketing of China: The Chinese are the most successful
salesmen I have ever seen. China always sells its one billion plus pool of
people. The first sales statement to foreign investors plugs this strength.

Business first: For the Chinese, business takes priority over
everything else. Anybody is welcomed as long as they are ready to invest. The
Chinese do not let political and social differences come in the way of
investment.

Workshop of the world: China is at the forefront of the
manufacturing-led Industrial revolution and it will continue to retain its
status of Workshop of the World for some time to come. This is the key driver of
the Chinese economy which has been growing at 9% y-o-y. It already dominates the
consumer electronics market, and hardware and automobiles are expected to
follow.

A number of Chinese companies have the potential to become threats to their
global counterparts. Some of the examples are the acquisition of IBMs PC
division by Lenovo; Haier, the manufacturer of home appliances in Qingdao gained
50% of the US market share for small refrigerators. Galanz in Guangdong
manufactures one of every three microwave ovens produced globally.

Attracting investment from the Chinese diaspora: The Chinese diaspora
numbers around 55 mn compared to Indias 20 mn. Remittances and investment in
the homeland is extremely high. The Chinese government has established a special
bureau to interact with non-resident Chinese and attract investments from them.

The aspiration of China: Attitudinally, China is hell-bent on becoming
an IT superpower. In 2005 alone, more than 100 Chinese delegations visited India
to learn from Indias success in IT offshoring. Chinese IT service companies
have already started operations in India.

Personally, I dont see this as a concern as Indian IT companies have been
moving up the value chain into high-end and niche areas like enterprise
solutions, business process outsourcing (BPO) & knowledge process outsourcing (KPO),
business & IT consulting, and engineering and industrial systems (EIS). IT
majors in India have even started reporting the percentage of revenue that they
earn from high-end/emerging services in their quarterly results.

China is an interesting economy to study and explore the best practices that
can be leveraged to Indias benefit.

We should encourage government and business delegations from India to visit
China to understand how China transformed itself into the Workshop of the World,
and also to explore the opportunities in the manufacturing space, which is of a
scale and magnitude that we have never seen before.

V Rajanna

The author is Regional Head, Andhra Pradesh Region, TCS

maildqindia@cybermedia.co.in