The Hindu Business Line : `China many years behind India in software'

DESPITE the frequent comparison, China has a long way to go before it catches up with India in sectors such as IT, software and business process outsourcing, reveals a latest report by McKinsey.

The recent McKinsey study of China's software sector says it would be years before the country poses a threat to its continental rival - India - in this arena.

"For starters, the Chinese must consolidate their highly fragmented industry to gain the size and expertise needed to capture large international projects. Currently, there is little movement in this direction," it said.

It noted that the number of engineering graduates and software application professionals had grown considerably in recent years in China, while annual revenues in software and IT services have risen by 42 per cent a year, on average, since 1997 reaching $6.8 billion in 2003. Moreover, the number of English-speaking graduates in the workforce had doubled since 2000, to more than 24 million in 2004.

However, shortcomings in the structure of China's IT industry prevented it from taking full advantage of these changes.

"Although revenues from IT services are rising, they are barely half of India's $12.7 billion a year. Growth is driven by domestic demand — most customers are small and midsize Chinese enterprises that want their software customised to their own needs," it said.

Moreover, the country's nascent foreign-software-outsourcing business accounts for just 10 per cent of the industry's total revenue, compared with around 70 per cent for India, it said.

"China's software industry must consolidate to compete effectively in global outsourcing," it said while pointing out that top ten IT-services companies in China have only about a 20 per cent share of the market, compared to the 45 per cent commanded by India's top ten.

China has about 8,000 software services providers, and almost three-quarters of them have fewer than 50 employees and only 5 have more than 2,000 employees.

The study concluded that without adequate scale, Chinese players were unlikely to attract top international clients.

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