China had put in place what it termed an ?open door? policy aimed at attracting foreign investment since 1980. In 2001, it further liberalised the economy by removing restrictions on foreign investments in sectors like banking and finance, accountancy and legal services. The Chinese government had also extended an equal tax treatment to all enterprises, foreign or domestic, and new concessions were introduced in high-tech areas to encourage development. But despite all these measures, India Inc has struggled in China. The Great Wall has been a tough nut to crack, despite the best efforts of a plethora of Indian companies, both large and small.

Even now, the electronics and information technology sector, in which the two countries collaborate the most, are in the quest for adding a dash of local flavour to crack the tough domestic services market. China ranked 91 in ?ease of doing business? among 185 countries according to the 2013 study of the ?Doing Business Report?, which is supported by the World Bank. India, meanwhile, ranked 132.

As per a KPMG study released this year, China has identified seven strategic industries that are expected to benefit from special incentives and funding. These include energy conservation, next-generation IT, biotechnology, high-end equipment manufacturing, new energy, new materials and clean energy vehicles. Indian companies are hoping this would help them get a better grip of the situation in China. FE takes a closer look at some of the sectors in which Indian companies have been trying to breach in the Chinese Wall.

IT?s dragon climb

India?s IT powerhouses are now finding their feet in China?s large software services opportunity, as the local government and firms in the world?s second-largest economy shed their aversion to outsourcing, encouraged by policies aimed at galvanising the domestic industry.

Over the past decade, Indian IT players have found it difficult to penetrate Cinese market with language and cultural hurdles compounding the challenges. But China?s service outsourcing industry has been growing at a rapid pace for the last few years, while the bread-and-butter markets for India?s $76-billion outsourcing industry are struggling to grow.

According to Datamonitor, the IT-BPO market in China is pegged at $50 billion, growing at 14% year-on-year between 2011-12. A recent KPMG report focusing on India-China business opportunities says China is fast developing as a market for IT services, which accounts for about 36% of total IT-BPO market in the country.

?We do see some positive signs. Many Chinese companies are making big strides in going global. Therefore, they want to partner with global consulting and IT services firms to align their IT and business processes. Also, they need to quickly ramp up their production capabilities in markets demanding multiple languages,? says Infosys China CEO Rangarajan Vellamore. For FY13, Infosys recorded a revenue of $104.37 million from its China operations. Infosys had started its China operations in 2004 and now has over 3,300 people located in five cities, including Shanghai, Hangzhou, Beijing, Dalian and Jiaxing.

Unlike Western markets, China also doubles up as potentially large base to locate large campuses and serve global clients, thanks to its growing talent pool for the sector. ?We are building a new campus which can accommodate about 10,000 people in Shanghai. We continue to invest in people. Currently over 90% of people in Infosys China are Chinese. We plan to increase the percentage of Chinese in the company. More senior positions are now occupied by Chinese, who understand the local market and also have significant international experience,? notes Vellamore. One of the challenges that Indian companies have faced is to get talent at higher experience levels such as senior project managers.

Last year IT services firm Mahindra Satyam announced plans to triple its China headcount. Wipro too has plans to add up to 2,000-3,000 employees over next few years while TCS aims to take the China headcount to about 4,500 employees in the next couple of years. The engineering talent pool in China is partly driving the optimism though wage hikes and attrition have been a concern. The top-tier Indian IT firms have been on an expansion drive despite the fact that revenue from the region is still low, often accounting for under 2% of the total revenue.

Service outsourcing has been identified as a key industry to be developed in China. There are 21 service outsourcing base cities in China and they currently enjoy government support to foster talent development, design business-friendly tax structures and foster a positive environment to encourage service providers to set up shop in the country. In China, the total number of outsourcing companies increased to 16,939 in 2011 from 12,706 in 2010.

Shifting gears

The Tata connection with China goes back to 1859, when a young Jamsetji Tata, the founder of the Tata Group, was sent to Hong Kong to open a branch for his father?s banking firm. Today, the cash cow of Tata Motors, Jaguar Land Rover (JLR), is betting big on China, which became its biggest market with March sales growing 22% to record the highest-ever retail sales of 8,487 units collectively. In 2012, JLR sold nearly 72,000 units in China, up 71%.

?Europe is our largest sales region and China is now Jaguar Land Rover?s biggest single market,? JLR CEO Ralf Speth said at the Shanghai Auto Show last month. Over the past three to five years, JLR?s investment in China has gone past ?1 billion.

Meanwhile, Indian Hotels Company (IHCL), another Tata-promoted firm that runs the Taj group of hotels, will be making its entry into Chinese territory next year with its brands ? Taj, the flagship brand, and Vivanta by Taj, the business hotel brand. The interest in the region comes from a healthy growth in the Chinese tourism industry and its focus on expanding connectivity with Vietnam, Thailand, Cambodia, Myanmar, Bangladesh and Laos. IHCL is aiming at four properties in China, including two under management contract and two under its joint venture with Yunnan Tourism Co, a subsidiary of Yunnan Expo Tourism Holding.

Long March

* For top-tier Indian IT firms, revenue from China accounts for under 2% of the total revenue

* In FY13, Infosys recorded revenues of $104.37 million from its China ops.

Infosys has over 3,300 people in China across five cities

* In 2012, the Tata Group?s sales in China was over $ 9.2 billion, and it purchased goods from China valued at $900 million

* Tata Group employs about 4,000 people in China, according to its website

* As per M&M?s FY12 annual report, it reported a gross turnover of R818.27 crore through four subsidiary companies in China

* The M&M cos include Mahindra Yueda Tractor Co, Ssangyong Auto Parts Manufacturing Co, Ssangyong Motor Co and Mahindra Tractor Co

(With inputs from Ajay Sukumaran, Debojyoti Ghosh, Shweta Bhanot & Darlington Jose Hector)