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Saturday, April 09, 2005

China Resource Scaleup Disappoints India Headquartered Companies!!

Recently we covered China no big force in software services and covered the Mckinsey perspective on china's software sector,it will be many years before the china poses a threat to its continental rival.We also covered the point of view that its going to be the Indian Headquartered companies all the way in future ruling the IT services market. Financial Times writes,China is far from the promised land for Indian software service giants. Excerpts:

Jerry Rao, CEO of Mphasis declares "We have not cracked China.In Shanghai, we have 100 developers, mostly Chinese, but should have 400. Scaling up has been an unexpectedly large problem,"he says. MphasiS among the first wave of Indian technology companies that ventured into China either as the IT partners of multinationals or via small local acquisitions with the strategy centred on mitigating rising wages and other costs in India, spreading geographical risk and using China as a launch pad into Japan and South Korea is disappointed with the inability to scale up.At issue for these companies is China's relatively immature IT services market, which means there is no fluid labour market for Chinese-speaking programmers. Companies such as MphasiS cannot quickly and inexpensively employ locally in response to a sudden burst of project-based work, which is a feature of the industry. In particular, there is a lack of suitable local applicants for jobs as project managers and quality control managers. In India, such people, typically with 5 to 12 years experience including stints in the US, are paid premium salaries. Software companies are forced to send project managers from India to Shanghai, raising the operating costs there.A lack of bilingual Chinese IT professionals, for jobs such as team leader, is also holding back expansion. One English and Chinese speaking programmer is required to oversee a team of four local developers who speak only Chinese. Because there is only a small number of bilingual programmers, they can command a salary premium of 30-40 per cent. These labour market deficiencies have not gone unnoticed among customers in the US, which is the biggest market for Indian IT. Whereas clients already in China might allocate work to MphasiS's Shanghai centre, those new to outsourcing in general and China in particular are nervous. Mr Rao adds,"US client says NO to China and prefers to deal only with [our office in] Bangalore".
From a marketing perspective, it is important to have a presence in China during this lean phase. Secondly, learning about the China market for the future, in the belief that it will eventually become lucrative. Ironically, the domestic cost pressures, non availability and attrition rates in India are increasingly forcing companies to turn to China as a necessary, if perhaps premature, addition to their operating base. “Just as companies in the US and Europe view their subsidiaries in India as lower cost options to serve clients, India could look to [lower cost] China," says Gartner, a technology consultancy.

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