No topic continues to remain as hot in the tech industry and the world at large than the impact of China and India. Curiosity grows manifold when one learns that Indian IT companies are doing brisk business in China. They are doing this by servicing multinational clients which have expanded operations in China and need support. Homegrown tech majors are also using China as a service delivery location for their customers in Far East such as Japan, Korea, Taiwan and even the US. Tapping the domestic
Chinese market which has robust demand for services and solutions is equally high on the agenda for Indian IT majors.
Perhaps Tata Consultancy Services (TCS), India?s largest IT services firm, best exemplifies the success story of an Indian IT company emerging from mainland China. TCS pioneered the entry of Indian IT industry in China in 2002 and remains at the forefront of that thrust with 1,200 consultants, of which 92% are locals. ?We believe in attracting and developing local talent,? says Girija Pande, chairman of TCS for the Asia Pacific region.
Today, TCS China is serving over 30 global and domestic clients from financial services, manufacturing, telecom as well as the government sector. Some of the key clients are: Eaton, Motorola, Cummins, China Foreign Exchange Trade System (CFETS), Guangdong Provincial Rural Credit Cooperative Union (GDRCC), Bank of China, China Trust Bank, Hua Xia Bank, among others.
Early this month, India?s largest software exporter enhanced its delivery capability in China by opening an offshore global delivery centre in Shenzhen. This is TCS? fifth global offshore delivery centre in the Middle Kingdom, after facilities in Beijing, Shanghai, Hangzhou and Tianjin. The new Shenzhen delivery centre is aimed at strengthening TCS? presence in the South China market and will be the preferred offshore delivery centre for TCS China when delivering projects to Asia Pacific markets. The Shenzhen delivery centre will also focus on providing local service to customers in the region and is expected to create more business opportunities for TCS in Guangdong and Shenzhen.
?TCS considers China as a strategic country and we are going to be there for a long time. In fact, there can be no Asia Pacific strategy for any company without China,? says Pande. After all, globalisation of the Chinese economy is leading to a growing need for modern software with the latest features and improved functionality. ?Their domestic IT services market is double the size of Indian market. Given the transformation that is taking place, we see China as a market with huge domestic opportunities. Our strategy in China is a three-pronged approach to expand business: Service the multinational clients which have expanded operations in China and need support; Create China as sourcing base for servicing neighbouring market such as Japan, Korea and Taiwan; Tap the domestic market which has demand for services and solutions.?
Without any doubt, IT spending is rising quickly in China. Chinese companies are looking for support in IT services as they globalise. Gartner analysts say that Chinese enterprises have historically preferred to develop applications using their own labour because it costs less. However, this tendency has resulted in legacy and quickly obsolete software as well as inhibiting Chinese enterprises? sustainability and business IT continuity. Growth will mainly be driven by replacing immature infrastructure with standardised systems. Manufacturing, financial services, telecommunications and government will remain top spending sectors.
It is obvious that Indian IT firms stand to benefit. Gaurav Gupta, managing partner, India, Everest Group says, ?The market for IT outsourcing in China is about $15-20 billion, dominated by China to China outsourcing and regional support for Far East. The industry is growing rapidly in China and is expected to double in the next 3-5 years.? He adds: ?The China to China outsourcing is predominantly being done by local Chinese suppliers, but increasingly global and Indian players are making inroads into the local market. However, most of these inroads are through the China operations of global clients as opposed to relationships with local Chinese companies or the government. TCS has probably made the most progress in local Chinese market relationships, as it formed a strategic partnership with the government that has given it access to the local market.?
Interestingly, it was in 2005 that TCS was invited by the Chinese government to form a joint venture?TCS China?to create a large scale global offshoring base in China, at the Z-Park in Beijing, providing IT outsourcing services and solutions to both the global and domestic market. The joint venture, supported by National Development and Reforms Commission (NDRC), leverages the strengths of the different partners in technology, software development, and consulting, including the best-of-class processes and practices of TCS. TCS Asia Pacific owns the majority stake of the company with 72.2% and the three Chinese partners?Beijing Zhongguancun Software Park Development Co Ltd, Tianjin Huayuan Software Park Construction and Development Co, Ltd, and Dayong Software Co, Ltd?supported by NDRC hold the remaining 27.78%.
TCS is not the only Indian IT major making rapid strides in the Middle Kingdom. Infosys Technologies is equally bullish on the business prospects emerging from India?s neighbour to the North. Srinath Batni, member of the Board, Infosys Technologies, says, ?Infosys acknowledges the rapid economic growth and the vast talent pool available in the region and envisions building a world-class delivery hub in China. Infosys aspires to be one of the best consulting companies in China and a trusted partner to the clients in China to implement solution with global best practices.?
Infosys Technologies (China), headquartered in Shanghai started operations in 2003 with a view to become a world-class delivery hub offering IT-enabled business solutions in China. Batni says, ?Over the years, the clients in China have expressed confidence in working with the company. Infosys has experienced a very positive business sentiment in China. Infosys China has seen rapid growth since its inception. The company operates today with over 2,600 employees from its two development centres at Shanghai and Hangzhou. 95% of the employees are Chinese nationals.?
In a smart business strategy, Infosys China has carefully laid the right foundation and groomed a good talent pool with processes, technology and tools to provide services to clients. It services over 80 clients in the region across sectors including banking and capital markets, high tech, manufacturing, automotive, retail industries, healthcare, and pharmacy. The company works with companies in all sectors, but has a special focus on the financial services, manufacturing and retail industries, Batni informs.
Going forward, Infosys is establishing a China Education Centre to develop software talent in research and education institutions at Jiaxing Science City (JSC). It is pertinent to note that Jiaxing is set to become a talent hub for IT and BPO industries as it is strategically located between Shanghai and Hangzhou. Accordingly, Infosys will train 1,000 engineering graduates from universities for entry level positions, and conduct soft skills and leadership training programmes for more than 2,000 employees annually at the China Education Centre. In addition, the centre will train the computer science faculty of Chinese universities in new and emerging technologies.
According to Virender Aggarwal, senior vice-president and head of APAC-MEA markets, HCL Technologies, China?s consistently high GDP growth has helped make it one of the largest economies in the world. The aptitude to augment this growth by leveraging technology opens up abundant opportunity and compelling long-term growth prospects for IT service providers. ?This is especially evident in the IT industry where margins are coming down and buyers are increasingly cautious in the US and European markets that we have to look for new avenues of growth. China is also attractive from the perspective of a service delivery destination due to the talent availability and labour arbitrage. Hence the prospects of servicing customers near shore at close to offshore rates makes it more attractive,? he says.
?China is a large market that no large IT service provider like us can ignore. Using China as a service delivery location for the customers in Far East and the US is a good entry strategy employed by many IT service players,? says Aggarwal. However over the last decade, the customer base has been increasing specifically for the Indian IT service companies. ?At HCL, our customer base in Greater China now has both Chinese local organisations as well large MNCs which we are servicing globally from China. However, going forward we would leverage our learning to tap deeper into the local China market even more aggressively.?
HCL Technologies has more than 150 consultants stationed in China servicing over 25 customers, which includes one of the world?s largest investment banks, a global contract manufacturing company, world?s largest aircraft manufacturing company, world?s largest mobile phone company.. The company?s operations include enterprise applications, maintenance and operations, application development, vertical services and infrastructure management. ?We officially launched our Shanghai centre in 2007. The journey has been an interesting one, more of persistence and learning than abrupt results, which definitely has helped us gain the knowledge to build and deepen further into the markets gaining celerity in recent times,? says Aggarwal.
?All the key customers mentioned has been a difficult task to crack through given the unique nature and needs of the market. However now we have the right ingredients which includes strong reference customers, local talent and market understanding to move to the next level of growth,? says Aggarwal. ?We plan to develop China into one of our key global delivery centre, which will comprise mostly of Chinese locals.?
To win in the new marketplace, companies must drive customer value, collaborate, combine the strengths of multiple cultures and take advantage of economies of scale on a global basis. As the Indian IT companies look to reduce their dependence on the US and European markets, they are demonstrating their innovative skills to penetrate and thrive in the Chinese market. In short, China is the mega opportunity round the corner.
