Friday, February 02, 2007

Topic for the day - Take 13

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Hey guys,

Here comes the GD topic for the weekend. China being the favourite of many, I am sure there will be pretty interesting points.

"Chinese competition to Indian IT industry - How to take the bull by the horn"

I want to see people come up with various threats that we face and how Indian companies can mitigate them.

Things from my side
1. I have not done the analysis for the stock market GD. The participation level was a dampner, but I will give a good session on that by Monday
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8 Comments:

Anonymous b2b said...

Chinese competition to Indian IT industry - How to take the bull by the horn

Start::
The Indian IT industry is a success story of growth fueled by entrepreneurs and today envied around the globe. China is our next door giant neighbor and traditionally an enemy since 1962 war. Anything China draws analysis and policies which are at times emotionally attached.

Why is India an IT power house
With IT export this year of $31 billion; India can rightly claim it has arrived. These are numbers which everyone expects and is confident of going northwards. Today IT industry has spread its wings from the infant industry working on fixing Y2k bug in legacy computer systems to today working on high end product development cycles. Today the industry here is working on range of products which includes Voice support for clients, service agreements for products, complete enterprise related solution, and serving as R&D centers for top technology companies.

There have been combinations of factors which have contributed to it and in no particular order.

A) Cheap overall labor costs
B) Large English speaking population.
C) Big pool of trained professionals
D) No governmental interference in this industry from bureaucrats since it was unknown until 90’s
E) Trained pool of professionals who have experience in European/American companies and who knew the opportunities in the environment they were working, which can be filled in from India.
F) Push from Sam Pitroda for this industry backed by Rajiv Gandhi and helped by Jack Welch GE medical systems.
G) A legal system which protects rights of individuals and assets of all nationals foreign as well as Indian.
H) A large middle class population which is increasingly becoming another reason to attract more capital.
I) Capital for IT initiative is not borrowed as loans from the banks or govt or not funded by govt in anyway, but the effort is to get clients/VC etc.


These overall factors have been maximally capitalized by entrepreneurs in India and today the reach is spreading into knowledge management centers. The IT has spread from pure technology assault limited only for servicing and maintaining enterprise software and now seeped to banking, consulting, financial management, financial analysis, tele-medicines, Intellectual Property, teaching etc.

China Story
China is a global hub of manufacturing and there is no two thoughts about that. They are the ones who showed the power of SEZ(Special Economic Zones). They have the right market for the products they manufacture and export. They have a growing middle class population.

Obstacles for China
But, the Chinese govt. at heart is conservative and a communist nation. The manufacturing boom of china is more a result of Chinese govt subsidizing the SEZ for export related purpose. For internal growth Chinese govt has subsidized the growth by allowing banks to have NPA in range of 35.4% and it bails out banks when they are failing using the large FDI and large surplus dollars it has. China has a flawed judiciary which is not independent and is non transparent in its functioning. It has been reasonably questioned time and again if it can protect the interest of investors. China suffers from the fact that its English speaking population is very sparse as compared to the whole population and hence hard to find a base of good English speakers. IT industry growth can not be forced or funded by the SEZ model simply because if you want to replicate India’s model (Which everyone wants to do), you need more than just money.

Conclusion
For all the contributing factors mentioned above. We can conclusively say that we posses no threat from china in immediate term. The recent treatment of Huawei company to try to work in India is another incident where we should not let past history judge the business decisions.
Infact, what India needs to crank up efforts to trade more with China and try to help them in their IT infrastructure. We should leverage our position of strength in IT so that Indian IT sector can spread the basket of our services to not only US and Europe but also China, which is soon going to be numero uno economy by GDP. So I would say we should try to ride on the bull for the bull ride ahead.

11:15 AM, February 02, 2007  
Blogger Himanshu Gupta said...

China and India are world's two fastest growing economies and Yet, One is riding ahead on its Manufacturing prowess and other one's success is fueled by Services. India's IT industry is one of the fastest growing sector of india's economy with growth rate being 28% for past 4 years. With revenues of $38.2 billion in 2006 and 4.8% contribution to GDP, it definitely is taking india to the world in technological sector. However, since Indian IT-ITes sector had grown initially on the basis of its Cost advantage, it is feared that China too with its large population can give India a run for its money in IT sector. Whether such a scenario is possible or not, We can discuss it.

1) IT industry in India, though has the cost advantage due to large population base, it has matured enough in past 10-15 years to learn how to create large Enterprise applications through complex project management cycles by leveraging proper Talent. This kind of project management expertise is difficult to copy and therefore China will be a laggard compared to India in the IT field for a long time.

2) China doesn't has a large pool of English speaking people, and even those learning to speak english don't have the proper accent(US and British) usually required for voice-based BPO operations. Therefore, India has much less to worry from China in voice-based calls sector than from countries like Vietnam which are beginning to grow in this field.

3) China doesn't have proper climate for entrepreneurs. In China, it's the state that runs most of the things. India too has its share of archaic regulations but IT industry has mostly been spared of these regulations due to its recent arrival on Economy scene. Since technology is a fast changing field with applications being built having very specific consumer orientation, such processes can't be dictated in a very strong top-down economy as such of China.

4) Regarding the point b2b made on riding the bull, it's a very good point indeed. In fact, NIIT and infosys have opened their campuses in China and are utilizing Chinese talent to their advantage. Ultimately, Indian IT companies can never relax otherwise the internal domestic competition as well as the already established Western IT firms such as IBM, Accenture will eat them. So, it's better that Indian IT companies should try to move into more high-value operations and at the same time, use Chinese talent to its cost advantage.

- Himanshu

9:01 AM, February 03, 2007  
Blogger Gyan-ee said...

I have created a Googlegroups called catfundae@googlegroups.com where all the comments get forwarded since many of you said that comments from people get missed out.

If you want all comments forwarded to your email, join the group at http://groups.google.com/group/catfundae. You will not need a google account for this I guess. If you have any problems, mail your ID to catfundae@gmail.com and I will add it for you

10:06 PM, February 05, 2007  
Blogger Atul said...

START-The two biggest emerging economies have been attracting a lot of attention from the analysts all over the world. One major topic among the discussions is the growing competition among both in order to have a bigger piece of the Technology cake.
We may look at the areas where china can be a potential competitor andthe effect it may have on the future of indian IT industry.

1) Just like we are trying to venture into manufacturing industry, China is trying to equip itself with the knowledge base to compete with us in the software field. Building and strengtheing university contribution is among the steps to build solid foundation inthis knowledge economy.

2) we should inculcate the good practises which has resulted in success for China in other fields. We should try to strengthen the foundation and focus more on the quality of engineers rather than the quantity.

3) Indian IT companies can learn from the way China has handled global competition and harnesses its strong features.

4) The govtn should tryt o provide better infrastructure and focus more on completion of proejcts on time.


5)There is enough room in technology field for both India and China to co exist without hampering individual growth and can complement each other in formulating end to end solutions and technology management.

2:07 AM, February 06, 2007  
Blogger Atul said...

Regarding b2b's comments, the factors mentioned favourable to India can largely be mapped to China also. also, i would like to contest regardingt he comment on the conservative attitude of chinese govt., the recent examples of allowing FDI in all major sectors site as the example o the liberala ttitude focussing ont he growth and economic developement.

Also , they are not trying to copy the indian model, but only trying to learnt he good things and formulate their own.

Also, in case of Huavei, that issue was raised from the intelligence and defence milistry which can apply to any nation.

2:31 AM, February 06, 2007  
Anonymous Anonymous said...

START:China is leaps & bounds ahead of us in many areas, but we still have certain advantages, due to our English speaking population, our democratic setup. How can we exploit this?

More points:
1)China beats us by a huge margin in terms of infrastructure. Our power shortages, water problems & road state deter many an investor from setting up their centre here.
We have to handle this issue at the earliest.

As we have seen in case of the Banglore Airport, development gets stalled with burecratic hold ups & it becomes a major pain point.

2)The procedure of setting up business has to be made much more user friendly. It takes an average of 5 months to start a business here, as oppsed to weeks in China.

The Govt has to clear pathways, & introduce fast, problem free methods for the same.

3)English education has to be prioritised at the school & college levels, since that is the ticket to employment into BPO & KPO sectors.
This is one of the main advantages that we have, & this edge cant be lost.

4)There have to be more Regional Trade Agreements (RTA) with other Asian countries, like Japan & Korea. Japan accounts for only 3% of India's exports, whereas the chunk is imported from China.

Diplomatic relations have to be made with an aim to increase trade.

5)There have been many recent instances of cyber crime, & identity theft in certain BPO companies. Cyber laws & cyber crime cases have to be in place & have to be dealt with swiftly to instill confidence in MNCs regarding outsourcing.

6)The regulations for FDI, & caps on retail & backoffice operations have to be relaxed to ensure better investment.

Intel recently chose Vietnam over India, because of the problems faced regarding FDI & about ownership of the unit in India.

That was a huge loss, & such cases will work against us in future as well.

7)We have to ensure that the IT services companies, get the requisite accreditaions (security, ISO, CMM etc), that are required by some US firms, so as to attract more business.

8)We have to try & get more business in the KPO segment, where our strengths lie compared to China. We have educated professionals, like accountants, doctors etc, who can do more intelligent independent work, than their counterparts in China.

9)The majority of the rural population of our country, is involved in agriculture, even though there is no productivity seen there.
This has to be moved to industry, to provide competition in the manufacturing sphere as well.
We cannot sustain merely through BPO, & service revenue. There has to be an expansion into other areas as well.

Aparna

5:01 AM, February 06, 2007  
Blogger Gyan-ee said...

B2B,

Good data points. But I guess you could have addressed the 'how to tackle' part better.

Himanshu,
Very simple and elegant points. Good show

Atul,
1. Good counter-points
2. Need to be more specific in suggestions. E.g., When you say we shud inculcate good practices of China, you have to tell 'what good practices'

Aparna,
Most of your suggestions address what the Govt needs to do. I would have liked to see how the IT industry itself needs to tackle the threat.
The industry shud lead the way and Govt can be an enabler.

2:12 AM, February 13, 2007  
Blogger Gyan-ee said...

Good points by the group
1. There have been combinations of factors which have contributed to it and in no particular order.
A) Cheap overall labor costs
B) Large English speaking population.
C) Big pool of trained professionals
D) No governmental interference in this industry from bureaucrats since it was unknown until 90’s ---- really???
G) A legal system which protects rights of individuals and assets of all nationals foreign as well as Indian
H) A large middle class population which is increasingly becoming another reason to attract more capital ---- China has the strength too
I) Capital for IT initiative is not borrowed as loans from the banks or govt or not funded by govt in anyway, but the effort is to get clients/VC etc ---- Government has given more sops to IT than any other industry
2. We should leverage our position of strength in IT so that Indian IT sector can spread the basket of our services to not only US and Europe but also China, which is soon going to be numero uno economy by GDP. We should try to ride on the bull for the bull ride ahead ---- excellent point
3. Since Indian IT-ITes sector had grown initially on the basis of its Cost advantage, it is feared that China too with its large population can give India a run for its money in IT sector
4. IT industry in India, though has the cost advantage due to large population base, it has matured enough in past 10-15 years to learn how to create large Enterprise applications through complex project management cycles by leveraging proper Talent. This kind of project management expertise is difficult to copy and therefore China will be a laggard compared to India in the IT field for a long time
5. China doesn't has a large pool of English speaking people, and even those learning to speak english don't have the proper accent(US and British) usually required for voice-based BPO operations. Therefore, India has much less to worry from China in voice-based calls sector than from countries like Vietnam which are beginning to grow in this field
6. Since technology is a fast changing field with applications being built having very specific consumer orientation, such processes can't be dictated in a very strong top-down economy as such of China
7. It is better that Indian IT companies should try to move into more high-value operations and at the same time, use Chinese talent to its cost advantage --- very good point
8. I would like to contest regarding the comment on the conservative attitude of chinese govt., the recent examples of allowing FDI in all major sectors site as the example o the liberal attitude focusing on the growth and economic development
9. China is not trying to copy the indian model, but only trying to learnt the good things and formulate their own
10. Building and strengthening university contribution is among the steps to build solid foundation in this knowledge economy.
11. China beats us by a huge margin in terms of infrastructure. Our power shortages, water problems & road state deter many an investor from setting up their centre here.
We have to handle this issue at the earliest ---- good to see someone pointing our lacking too :)
12. The procedure of setting up business has to be made much more user friendly. It takes an average of 5 months to start a business here, as opposed to weeks in China
13. There have been many recent instances of cyber crime, & identity theft in certain BPO companies. Cyber laws & cyber crime cases have to be in place & have to be dealt with swiftly to instill confidence in MNCs regarding outsourcing
14. The regulations for FDI, & caps on retail & backoffice operations have to be relaxed to ensure better investment
15. We have to try & get more business in the KPO segment, where our strengths lie compared to China. We have educated professionals, like accountants, doctors etc, who can do more intelligent independent work, than their counterparts in China ---- What makes us think that we are better accountants and doctors than the Chinese

2:51 AM, February 13, 2007  

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