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Information Technology Info-Tech - Outlook Marketing - Marketing Research `For now, China won't displace India as IT destination' Moumita Bakshi Chatterjee
ADVANTAGE CHINA
New Delhi June 13 Frequent comparison between the two Asian tigers notwithstanding, China is unlikely to displace India as an IT destination in medium term, although it could well supplement India, as clients and vendors look beyond traditional offshore destinations for risk diversification. According to a report released by Everest Research Institute, the Chinese IT and BPO market is growing faster than India, albeit on a significantly lower base. The offshore services market in China, at about $2 billion in 2006, is likely to surpass $7 billion by 2010, with a compounded annual growth rate of 38 per cent. In contrast, while India's IT software and services export is likely to grow at 32 per cent in 2006-07, the export turnover is estimated to be $31 billion. India is targeting exports revenue of $60 billion by 2010, as per Nasscom-Mckinsey.
Risk diversification
"Besides simple labour arbitrage, factors driving the demand for Chinese services include risk diversification across multiple low-cost locations, potential labour pool and the attractiveness of China as a huge market for global products and services," Mr Sheetal Bahl, Research Director, Everest Group told Business Line. However, the report is quick to point out that on the supply side, China faces challenges such as Intellectual Property (IP) and data security concerns, and employability issues. "After its entry into the WTO, the Chinese Government created several laws to combat the problem. However, the effectiveness and enforcement of these laws is questionable. Also, despite the sizable labour pool, lack of language skills is likely to severely dampen the success of Chinese outsourcing market," Everest said. Moreover, while over three million graduates enter the Chinese workplace each year, the actual employability of the pool remains a serious issue as a significant majority of graduates lack the basic technical, management and communication skills.
Focus area
Currently, the primary focus area for China is IT applications work, specifically web technologies and programming in embedded systems. Maturity in enterprise software such as SAP and Oracle is relatively low as few suppliers focus on that space. Giving the broad geographical break-up of export revenues, the report noted that China had established itself as a key nearshore destination for Japan and Korea. The two nations account for 60% per cent of China's IT services export revenues, with North America and the UK forming the bulk of the remaining pie. The report further said that while Tier-I Chinese cities such as Beijing and Shanghai were more expensive than Tier-I Indian cities such as Bangalore or Mumbai, other cities in China offer significantly greater savings. "At an aggregate country level, it remains difficult to generalise which of the two countries is cheaper," it said. Total annual operating cost per Full Time Equivalent (FTE) for IT application development and maintenance delivery centre works-out to $24,000-28000 in Beijing and $25000-29000 in Shanghai, against $21,000-26,000 in Chennai and $23,000-28,000 in Bangalore.
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