India plus China in ICT

By D. Murali and G. Padmanaban

Is it ‘India and China’ or ‘India vs China’? It is the former, says Mr James M. Popkin, co-author of ‘IT and the East’ (www.tatamcgrawhill.com).

There is an increasing recognition, he observes, that India and China possess significantly complimentary skills in most areas of the ICT (information and communication technology) ecosystem.

“For example, China’s overall success in the hardware segment and India’s overall success on the software front, China’s success being driven by high levels of FDI (foreign direct investment) even in the ICT sector, and India’s primarily home-grown investment environment etc.”

Pooling best practices and learnings on what has contributed to the success in each of these areas will provide an order of magnitude greater benefit to both countries, foresees Mr Popkin, interacting with Business Line, over the e-mail.

“The important issue is that this is NOT a ‘zero sum game’. In other words, given the size of the potential global opportunity, India’s gain need not be China’s loss and vice-versa!”

‘IT and the East,’ the Harvard business School Press book, which Mr Popkin co-authored with Partha Iyengar, is about ‘how China and India are altering the future of technology and innovation’.

Excerpts from the interview.

How can India and China work together and move the technology innovation engine to the East?

In ‘IT and the East’, we lay out a Chindia framework which enables the measurement of progress China and India can make in driving innovation. It has two dimensions: geopolitical alignment and depth of relationship.

There are five categories of alignment: People, Politics, Policy, Patterns of trade, Patents and Policing. China and India can use this framework to identify and drive closer levels of relationship across these dimensions.

Do the two countries have to promote mutual trade in services too?

Yes I believe both countries would benefit from promoting each other’s IT services in their own country.

For India, doing business in China brings: 1) access to a large pool of well educated engineers; 2) access to China’s large domestic market; 3) access to North and East Asian markets; and 4) geographical diversity of supply.

India is suffering from a skilled IT labour shortage in its domestic market since many skilled Indian IT workers prefer to work in the export industry. I think this creates an opportunity for Chinese companies to sell IT services and outsourcing to domestic Indian companies.

Here too the skills are VERY complimentary. In China the focus is more on services to the ISV (independent software vendor) community – that is considered ‘sexier’ by the companies as well as individual employees, whereas in India the bigger focus is on delivering services to the end-user enterprises.

There are significant differences in both of these constituencies that need very differing kinds of investments in people, process, and infrastructure that each country can ‘teach’ the other.

In the current scenario what are the strategies that the firms in the West should adopt in doing business with India and China?

We believe there are eight priorities that Western companies need to focus on now. For each of those priorities we have identified a set of actions and competencies that they need to develop. The eight priorities are:

1. Government policy formulation by industry

2. Rural development investment programs

3. Research, design and development

4. Market development

5. Chindia opportunity

6. Resource development

7. Local expertise

8. Cultural understanding

What are the daunting internal and external challenges India and China are facing in their quest to become global IT super powers? And what can be the strategies to overcome these challenges?

We have identified two critical uncertainties for each country in terms of the future of their ICT industries; and in some sense their economies overall. For India the state of the physical infrastructure is a major drain on economic activity and progress.

More specifically for the IT industry is the question of whether India can educate and train enough people to propel IT into being a far larger contributor to overall economic activity.

In China we believe a key issue for its future role in the IT industry is whether it can show itself to be a source of significant technological innovation. The current level of government involvement in the economy creates a dampening effect on innovation.

Have India and China been able to bridge the cultural gap even as the two countries race ahead in IT? Can joint ventures between companies from the West and the East help in this regard?

Many cultural gaps between the people of the two countries still exist, caused perhaps by relatively low levels of tourism. Food remains an issue of course, e.g., it is hard for Indians to find veggie meals in China and the Chinese tire quickly of curry for every meal in India. Joint ventures at the company level have and will continue to show the power of the Chindia model as we demonstrate with case studies in ‘IT and the East’.

India and China have had differing success levels in bridging different ‘cultural gaps’. India has been phenomenally successful in bridging the culture and language gap with the English speaking countries of the world, most notably the US and the UK, and to some extent Australia.

China on the other hand has had notable success in dealing with Japan, Korea and Taiwan (where India, especially in Japan, has had NO success or very limited success!). Again, these are areas where both countries can learn from each other.

Chinese companies are increasingly hiring Indians at senior levels to help them ‘crack’ the English speaking market, while Indian companies are trying to leverage their China presence and Chinese resources to try and better address the Japanese market.

Are alternative locations coming up to threaten the momentum of fresh business to India and China?

Certainly labour arbitrage is not unique to China and India and you see significant development of offshore/nearshore locations in Southeast Asia, South America and Eastern Europe.

There are 53 distinct countries that Gartner is tracking that are all trying to take some piece of the global sourcing pie away from India (primarily) who is the undisputed leader at this point in time.

However, the biggest challenge that most of these countries face is the issue of population and the size of the graduate pool entering the work force. India and China are the only two countries that have this basic ingredient to address large-scale resource requirements.

Ireland, which was an offshore ‘star’ earlier is a classic example, where its success as a low cost location dwindled because of population issues, and today it is no longer talked of as an ‘offshore’ destination.

Can the infringement of intellectual property right (IPR) crop up as a major roadblock?

Yes IPR is an issue in both countries. India still lags somewhat in the development of a legal structure for IPR protection. China has a more developed legal system of protection but enforcement remains spotty. This is a major concern of western companies doing business in both countries.

Do you find the cost arbitrage losing its edge as a trigger for offshoring, with costs rising in these two countries?

Outsourcing based on cost alone has not always paid off strategically for many companies. While cost is an important factor, other considerations come into the success equation for companies thinking properly about their multi-sourcing strategy. Rising costs in both countries will force buyers and sellers to develop more sophisticated value propositions.

Those that cannot identify or articulate a long term value proposition beyond cost arbitrage should really re-think their global sourcing strategy or not view it as a strategic but more as a tactical time-bound initiative and make decisions accordingly.

Should India and China also focus on domestic IT business as a strategy?

Certainly each economy will begin to develop outsourcing demand if current rates of economic growth continue over the next 5-10 years. I think today’s Indian domestic economy is particularly ready for outsourcing because of the skilled IT labour shortage I mentioned earlier.

Further, to develop and propose higher end capabilities in the global market, it is imperative that these capabilities and skills be honed in the domestic market as the opportunities arise – and they definitely are today in India for sure, and will shortly appear in China as well – since it is more difficult to make a pitch for these services globally if a vendor has no track record in doing that kind of work.

Why would a global client trust that a vendor can do some really high competence work in a particular industry (e.g. telecom) if that vendor has lost to their competition (primarily global vendors) for exactly that kind of work in the domestic market. It will hurt the credibility of the local vendors in the global markets if they do not take up some of these domestic projects as well.

Is there anything that the developed countries should be doing, but they aren’t, to reverse the offshoring trend?

I refer again to the eight priorities we lay out for companies building their India, China and Chindian strategies. Developed countries should consider these priorities and develop policies and programs as appropriate to take advantage of these opportunities.

There is no ‘reversing’ the offshoring trend – it will only get refined (e.g. morph more to global sourcing) and fine tuned as time goes on. Eighteen months ago we said that ‘offshore sourcing has become mainstream’, which meant that for many enterprises – and an INCREASING number of enterprises – offshore / global sourcing was becoming the default way they addressed their sourcing needs.

It will be difficult to ‘turn the clock back’ on this trend. We’ll see some realignment in terms of where the work gets done, the ‘sweet spot’ of each of the countries on the supply side may evolve or change, some of the work may go back to the developed countries (work which should probably have never left there in the first place) etc., but there will be no mass scale reversal.

Bio:

Mr James (Jamie) M. Popkin is a group vice president and Research Fellow in Gartner Research responsible for the Business Intelligence and Information Management research group. Prior to this position, he was responsible for Gartner research content strategy in China, India and Korea. He has 15 years of experience at Gartner, and 18 years in the IT industry.

Prior to joining Gartner, Mr Popkin was with the Deloitte & Touche LLP IT practice, managing a variety of technology strategy and development engagements. Previously, he served as a board member of the Association for Image and Information Management (AIIM) International Board of Directors.

An economics graduate from Connecticut College, Mr Popkin holds an M.A. in Public Policy from Kennedy School of Government at Harvard University, and a Certificate of Management from Darden School of Business at the University of Virginia.

Named one of the ‘50 Most Influential People’ by ImagingWorld (IW) Magazine, Mr Popkin is Senior Advisor to the China Business Continuity Management Association.