Stepping Up Effort to Help IT Firms Gain Traction in China

Indian sourcing firms tried to introduce more industry solutions to Chinese customers, but may have a poor understanding of local needs

March 20--BANGALORE -- With Indian software companies failing to make a major dent in the Chinese information technology (IT) market, industry lobby Nasscom is stepping up efforts to improve business ties between the two nations amid expectations of increasing IT spending by the Chinese government.

Plans include initiating talks between Chinese state-owned enterprises and Indian IT firms.

Nasscom is planning to host a workshop in China in May-June with Chinese state-owned enterprises to gain a better understanding of their business problems and outsourcing strategies.

"China is a tough market because there are many moving parts to the whole economy," said Gagan Sabharwal, deputy director of global trade development, Nasscom. "What we intend to do is focus our strategy and energy towards the government sector because we feel in a few years time, this will be a huge opportunity for IT firms. We have to work closely with both the local government in China, as well as our member companies," said Sabharwal.

In 2002, Tata Consultancy Services Ltd became the first Indian IT firm to enter China, through a joint venture with US IT giant Microsoft Corp. Others soon followed, including Infosys Ltd, which opened its second Chinese subsidiary, Infosys Shanghai, in 2011. But they failed to make much of a headway.

In terms of market size, China still appears to be a lucrative market for IT firms, experts said.

Technology researcher Gartner estimates China's overall IT spending will expand by 8 percent a year to $172.4 billion by 2016, largely on consumer electronics and cloud software. In 2014, IT spending is expected to grow by at least 8.7 percent, Gartner said.

"Automation of health, banking, government, communications and manufacturing are major IT drivers. These vertical industries will offer the greatest opportunities for technology vendors in the next 5 years," Gartner said in a recent report.

Nasscom also said that it is working with the Chinese government to address short-term business visas issues, including increasing their duration.

Currently employees of Indian IT firms have to apply for a visa every time they travel to China.

"The problems that most top executives, even CEOs, of Indian IT firms face when they travel to China is that these visas are issued for very short durations and they are not multiple-entry visas. What we're asking for is to issue business visas that will be valid for 2-3 years at least," said Sabharwal.

Nasscom is also developing a language training program to help overcome language barriers in China.

According to a new Nasscom-commissioned report compiled by KPMG, titled "Entry Strategy for China," Indian IT firms need to take steps such as investing in more local resources and work more closely with local government agencies.

The report also says that Nasscom needs to take steps such as assisting the local government in developing outsourcing industry plans and take measures such as participating in the design and development of technology parks, economic development zones and technology development hubs.

The report advises Indian IT firms to "stay away from Tier-I locations to avoid high costs on facilities and personnel" and to step up "efforts on localization, particularly with the management resources".

"It's hard to see things improving (for Indian IT firms) anytime soon," said Tina Tang, research director at Gartner.

"Indian sourcing firms tried to introduce more industry solutions to Chinese customers, but they have a poor understanding of local customers' real needs and lack of local R&D capabilities," said Gene Cao, senior analyst at Forrester Research Inc.

"I would see if Nasscom or other associates could suggest Indian sourcing firms to assign more global outsourcing delivery workloads to their Chinese subsidiaries/JVs, which may help them build up larger team and get higher scale advantage in China," Cao said.

Business Line newspaper on Wednesday quoted China's vice-minister for industry and information technology Yang Xueshan as saying Chinese state-owned enterprises (SOE) were "not blocking" Indian IT firms, citing the success of other foreign companies. "We do not pose any impediments for Indian software companies in entering into cooperation with SOEs," he said on the sidelines of the third India-China strategic economic dialogue in Beijing on Tuesday.

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