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.