Indian Software Enters the Chinese Market

By SHAO CHANGJIE & QIU JIANGHONG

NIIT is the first Indian software company t enter the Chinese market..

IN the past, Indian software firms only targeted European and American markets. But now, they have turned their eyes to China. Six years ago, Prakash Menon, an Indian merchant aged 33, visited China for the first time in search of a location for NIIT, the largest software training corporation in India. After 15 days' roaming in China, Menon decided to set up headquarters in Shanghai.

Six years later NIIT, the first Indian software corporation in China, has established nearly 100 training centers and enrolled about 20,000 students. "Six yeas ago in India, no one thought about setting up businesses in China," Menon says. "But recently, more and more Indian merchants and enterprises have diverted their vision from Europe and America to China's huge market."

Menon's office is located on Nanjing Road, the busiest street in Shanghai where many multinational enterprises have staked their claims. Four Indian software magnates, Tata, Infosys, Wipo and Saryam, have established Chinese branches in Shanghai and built research and development centers there.

Led by these enterprises, other Indian firms are keen to come to China. "We receive about seven or eight emails every couple of days from Indian firms interested in setting up enterprises and investing in China," says Menon.

Combination "Soft" and "Hard"

So why the sudden attention from India? "It is based on anticipation of cooperation between the great software and hardware nations," says Menon.

Menon says that though it took only ten years for India to become the second largest software exporter after the United States, 63 percent of Indian software output value is exported to the United States. " India actually bound its software industry to the European and American economies," he says. "When the American economy stagnated, Indian software firms had to reduce their output."

Furthermore, Indian software industry is at the end of the world software industrial train. "Many software orders that are passed on to Indian firms to develop have already been transferred several times, says Menon. "Each transfer cuts profits." The shortcut taken by the Indian software industry depended largely on providing cheap labor for developed countries. This caused low prices and a lack of national brands.

Menon points out that India's "information highway" has broken up and cannot digest its software industry's surplus production capacity. Indian software firms must, therefore, explore overseas markets. China obviously offers a large potential market and so is the touchstone for Indian software brands.

Many Indian software firms in China offer services to multinational enterprises only and expand their business to Chinese clients after establishing a firm foundation. Indian enterprises probably have more clients than European and American IT enterprises because of lower prices.

Getting Better and Better

It is no easy job making money in China, partly because the maturation of Indian enterprises in China is gradual. In May 2004, the Indian Industrial Federation arranged for more than 20 Indian enterprises to make on-the-spot investigations in China. Besides Shanghai GM, Siemens (China) and other multinational enterprises, they also visited local enterprises such as Shanghai Electric to establish cooperation relations with native Chinese enterprises. After visiting local enterprises, S. D. Tyagi, executive director of NTPC, the sixth largest electrical heater manufacturer in the world, said: "We should revise our plans to enter the Chinese market, because there is disparity between China's needs and the products we offer."

Although many Indian firms have become gradually familiar with the Chinese market, they must beware of rising Chinese rivals, such as Shenzhen's Huawei Technologies Col., Ltd., whose prices contend with those of Indian firms.

In any event, Indian enterprises' success rate will increase if they work out a long-term development plan for the Chinese market. In their eyes, China is a gold mine and the increasing need for IT services here is phenomenal. Today, China Telecom and its branches choose Indian IT enterprises as service providers. This instills Indian enterprises with confidence in their future in China.

It is believed that cooperation between India and China and sustained economic growth is likely in the coming ten years. At present, the Indian investment in China exceeds US $300 million, and Chinese investment in India exceeds US $150 million. At the same time, bilateral trade is developing fast. Six years ago bilateral trade between China and India amounted to US $1 billion; in 2004, the figure could well break US $10 billion. Prakash Menon predicts that trade volume will surpass US $20 billion in 2008.