The Hindu Business Line : IT cos expanding in China despite slow pace of growth

Favourable factors
It's a gateway to markets in Asia-Pacific region.
Local market growth prospect is big attraction.
Can partner local firms in lucrative govt deals.

New Delhi , Nov. 12

Indian IT companies are expanding their operations in China as a long-term strategy to cater to the markets in South and South East Asia.

Be it Infosys' investment of $65 million over the next five years to set up development centres, Tata Consultancy Services setting up a software park, with a majority stake in partnership with Microsoft and the Chinese Government, or Satyam doubling its headcount in China. This, despite the fact that the pace of growth is slower in this market than in the US or Europe.

Serves as gateway

Analysts feel that this trend is primarily due to the opportunities offered in the Chinese market and the country being a gateway to markets in the rest of the region.

Above all, China watchers point out that dynamic changes such as the Chinese banking system going global means that the inter-linking of banks would offer IT companies a good opportunity. Their long-term presence here would also help them to affiliate with the Chinese Government on other lucrative projects.

"China would be a very important destination to cater to the countries in South and South East Asia such as Taiwan, Hong Kong, the Philippines and Korea among others where Indian IT companies are yet to tap the market. But the challenge remains in terms of market entry points in terms of establishing presence and increasing business from Chinese operations," says Mr Manoj Mohta, IT analyst at Crisil.

Satyam venture

Take for instance, Satyam Computers, which started operations in October 2003 and by 2006, it has increased its headcount to about 400. The number of offices has gone up to four and development centres to three. "We plan to double our headcount in China by next year. However, despite our expansion, revenue and employment from Chinese operations contribute less than one per cent to the company's entire operations. But China continues to be a significant market. However, availability of resources and ability to service requirement that comes from Chinese companies is a challenge," said Mr Raghavendra Tripathi, Country Manager, China, for Satyam Computers.

China may be a tough market to crack and poses challenges of a first time nature, but its significance remains nevertheless. "The trend among IT companies is to harp on the Chinese market, but what they are trying to tap are markets such as Japan and Korea through this," said Mr Krishnakumar Natarajan, President and CEO, MindTree Consulting.

Mr Mridul Vats, Senior Analyst for Software Services, IDC India, explains the hows and whys of the Chinese market being a cost strategy for Indian companies. " It is obvious that China is a long-term strategy for Indian companies, otherwise why would companies like Infosys, whose 85 per cent revenues come from the US and the UK, consider China when only 3 per cent of their revenues comes from Asia Pacific and Japan. Companies such as HCL, Wipro and others with a presence there would be benefited when there is a boom in the Chinese market."

Market watchers also feel that IT companies are spreading their wings to other geographies in order to serve their global clients better in a proper mix of on-site and off-shore mode.

According to Mr Ambarish Dasgupta, Executive Director, PricewaterhouseCoopers, "They were earlier serving mainly the US and the UK outfits in an onsite mode but now under the compulsion of serving their global customers equally well in other countries they have to move out. Of course, the additional attraction of the local IT market is always there," he said.

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