The Issue: The China Threat

Currently, the ‘China Threat’ is perhaps the most spoken-about issue in

the industry. Enough to galvanize at least one big software house, TCS, into

setting up a separate think-tank to look into the issue. It is not difficult to

see why. Finally, fears of infrastructural bottlenecks, lack of quality manpower

and the inability to move up the value chain add up to one thing–a threat from

countries like China, the Philippines and a few other East European nations who

are making their presence felt in the global industry.

According

to the Asian Technology Information Program, a Tokyo-based organization that

conducts IT-related research, China has about 400,000 people working in

different rungs of the software industry. However, most of them are still

working at the bottom rung of the ladder, with very few program analysts or

systems designers.

That could change soon. The Chinese are revving up their IT industry, with

20,000 new software professionals expected to be added every year. More

importantly, they are honing up on their English-language skills. The country

already boasts of a much better IT infrastructure than India with a 55 Gbps

gateway, compared to India’s 800 Mbps.

Pawan Kumar, president, DSQ Software says, "Right now, China is three

years behind India in terms of offshore outsourcing, but the Chinese are working

hard, even on their language skills…besides, they have a cost advantage and

might soon surprise us." Sircar agrees. "China could become a strong

contender in a couple of years from now, specially at the low end of the value

chain. It is definitely going to happen and most companies will have to sit up

and take notice." Besides, Chinese manpower is approximately 15% cheaper

than India. Says Gurbaxani, "The rising cost of doing business in India may

make our offerings less competitive."

China’s other big advantage is exposure to the US market. Though China is a

relatively new entrant in the software sector, Chinese industry has had a US

presence for long.

There is cross-industry consensus, however, that at the end of the day, the

threat from China and other emerging countries boils down to two things–the

imperative to move up the value chain and remove infrastructure bottlenecks.

Price will not be a key issue. Says MGS, "If we lose our advantage merely

because we lost our price advantage, then it would imply that we never had an

advantage to begin with." Beekay agrees, "What we have to do to

counter the Chinese threat is to move up the value chain continuously. The lower

end stuff can be potentially threatened by China and the rest." Says

Darayus Bharucha, "There is definitely a threat from China in the long run.

And to avoid being overtaken by them, we need to beef up work on

infrastructure."

The scenario

China moves up the software rung, quickly adding to its 30,000-strong

high-level software workforce. Having developed a certain reputation for

quality, it begins to undercut India on price (something they do pretty

successfully in other industries) and becomes a competitor to reckon with at the

higher end of the value chain. Meanwhile, other East European nations and

countries like the Philippines give India a run for her money at the low end of

the value chain.