China proves to be the toughest frontier for India’s outsourcers

Discussion in 'Politics & Society' started by amoy, Aug 22, 2010.

  1. amoy

    amoy Senior Member Senior Member

    Jan 17, 2010
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    By James Lamont in New Delhi

    India’s information technology outsourcing companies have established global footprints that stretch from Saudi Arabia to San Diego in the US. Yet they have struggled to develop one of the most promising markets, just over the Himalaya mountains in neighbouring China.

    So difficult a frontier is the Chinese market for India’s pioneering outsourcing groups that their leaders would sooner talk about the potential of Latin America than the world’s fastest growing large economy.

    Yet some are still trying to make inroads, recognising the risks of shunning the lucrative opportunity presented by large, fast-growing Chinese companies. Tata Consultancy Services, India's largest IT outsourcing group, said yesterday that it planned to double its 1,100-strong workforce in China in the coming year.

    China and Japan are widely acknowledged by India’s software leaders to be the hardest outsourcing markets to crack. Japan gets its rating on account of a perceived resistance to change among its country’s businesses and a lack of urgency to innovate, while China’s difficulty is ascribed to cultural differences. Both markets pose linguistic challenges for an Indian sector that has prospered using English as its medium.

    “China, while it has significant potential, takes time to learn. It’s not easy,” says N. Chandrasekaran, the chief executive of Mumbai-based TCS, which employs about 160,000 people worldwide.

    “We want to grow. We want to grow faster but it takes time to learn the market, attract people and retain people. Attrition levels are higher in China than they are in India and that makes it difficult.”

    Most Indian outsourcing companies have established operations in China. They recognise the potential of servicing big, fast-growing Chinese companies with large customer bases and sizeable workforces, and developing expertise to service other parts of Asia.

    Wipro Technologies, the Bangalore-based IT services company, has opened a global delivery centre in Chengdu, in addition to a facility in Shanghai. Its Chengdu centre offers services for manufacturing, banking, financial services and insurance industries. It has expertise in English, Chinese and Japanese.

    Genpact, India’s largest business processing company, operates BPO service centres in the Chinese cities of Changchun, Dalian and Shanghai.

    Suresh Vaswani, joint chief executive of Wipro, puts the challenges of building scale down to more granular market-related issues. He says India’s nimble private sector often finds it difficult to come to terms with China’s more state-driven enterprises.

    He identifies strong possibilities working with multinationals in China and large domestic companies. But he recommends that any business strategy take into account the “state- influenced” nature of the market, and the need to create local jobs.

    Pramod Bhasin, the chief executive of Genpact, agrees that India’s entrepreneurial style of doing business does not easily gel with China’s more deliberate business culture.

    One of the keys to success, he says, is knowing how to navigate China’s corporate power structure, and the complicated personal networks that lead to business opportunities. Another is learning from the example of successful US companies such as McKinsey, IBM and Accenture that establishing a Chinese identity, and hiring a Chinese workforce, are essential. “In China, we are Chinese,” he says simply.

    In spite of the obstacles, there is an increasing willingness among large Chinese companies including state-owned enterprises to outsource certain services to create a growing onshore market in China.

    Beijing is taking steps to encourage the outsourcing industry, whose revenues grew to about $26bn last year, according to Deloitte, the auditing firm. Earlier this month, the Ministry of Finance announced that outsourcing service providers in 21 cities would be freed from business tax on offshore contracts until 2014.

    Industry executives in China say Indian companies struggle to get the best out of their Chinese operations. “It is much easier for Chinese companies to manage large-scale operations in China with Chinese staff,” says Seth Pinegar, vice-president at iSoftStone, a leading Chinese outsourcing services provider.

    The difficulties encountered by India’s outsourcers have caught the eye of New Delhi. Earlier this year, Anand Sharma, India’s commerce minister, extracted a personal commitment from Wen Jiabao, the Chinese premier, to rebalance a booming bilateral trading relationship skewed overwhelmingly in China’s favour.

    Alongside Bollywood films and basmati rice, IT was singled out for “corrective steps” to bring harmony between the world’s fastest growing, yet starkly different, large economies.
  3. devgupt

    devgupt Regular Member

    Feb 25, 2009
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    Salt Lake City, Utah, US
    Its not only Indian companies, even giants like Google find it difficult to grow.I read a book called 'Guanxi' whic chronicles how Microsoft set up shop in China.It really gave a fair idea how the Chinese business ethos are so different in ways which outsider just cant imagine

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