BANGALORE A year ago, Ding Defen had never heard of **Infosys Technologies (INFY) **, India’s second-largest seller of computer services. Today, the budding software engineer from China is an intern at the company’s Bangalore headquarters.
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“I wanted to learn from India,” says Ding, a fourth-year undergraduate at Huazhong University of Science and Technology in the central city of Wuhan. So does China’s government, which persuaded Infosys in September to accept 100 Chinese students for seven months of training and work.
China is courting Indian expertise and investment to help build its own software-services industry and reduce the influence of giants like International Business Machines and Hewlett-Packard in its domestic market. Indian companies are swallowing their reluctance to train rivals because they can’t afford to miss out on a market that may be the world’s largest within 10 years.
“It’s a very funny and tricky situation,” says Sethu Nambiar, a vice president at Satyam Computer Services in Hyderabad, India. “You have a potential competitor seeking its competition’s help to compete.”
At stake is India’s 43 percent share of the contracts that international companies send abroad to cut costs for maintaining computer systems, and for developing and customizing software. The market totaled $40 billion in 2004.
Indian companies need to follow their U.S. and European Union customers to China before competitors draw them away, says Pradeep Mukherjee, managing director of NeoIT, a computer-services consulting firm based in California.
Establishing ventures in China may also unlock the country’s fast-growing domestic market and that of Japan, the world’s third-largest buyer of computer services, says Mukherjee.
India’s four biggest software companies get less than 5 percent of their sales from Japan, compared with 80 percent from North America and Europe. Japan awarded $257 million of contracts to Indian companies in 2004, less than a third of the $828 million sent to China, according to Gartner, a Connecticut-based research firm.
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“Indian companies can kill two birds with one stone,” Mukherjee says. “They get access to the Chinese domestic market and maybe the Japanese market, which none of them have been able to break into. At the same time, it meets the needs of their European and U.S. clients.”
With or without India’s help, China will overtake its Asian neighbor as the No. 1 supplier of software services within a decade, according to a March survey by CIO Insight magazine, published by Ziff Davis Media of New York.
“For any company in the world in my business, it is imperative that it has a presence in China,” says the Infosys chairman, N.R. Narayana Murthy.
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Infosys took the plunge Aug. 4, saying it would spend $65 million in the next five years to build software development centers in Shanghai and Hangzhou. The centers would employ 6,000 engineers, the company said.
Satyam is seeking a site for its largest development center in China and plans to hire 5,000 workers in the country within three years, says Shailesh Shah, senior vice president for corporate strategy. The software-services contractor, India’s fourth-largest, has 250 workers in Shanghai and Dalian.
Wipro, the third-largest, will double its work force in China to 100 people by March, according to Sudip Nandy, chief strategy officer. Wipro runs development centers in Shanghai and Beijing.
Those companies are expanding through subsidiaries in China. Tata Consultancy Services, India’s No. 1 computer-services company, has gone a step further. At the request of the National Development and Reform Commission, China’s top economic planner, Tata Consultancy in June agreed to become the controlling stakeholder in a venture with Microsoft, Uniware of China and two state agencies.
The Beijing-based venture would be a model for China’s industry to meet orders from abroad, the companies said in June. Tata Consultancy already has a development center with 250 engineers in Hangzhou, which opened in 2002.
In all, Indian companies will increase their investment in China 10-fold to as much as $1 billion within the next three years, according to the New Delhi-based National Association of Software and Service Companies, or Nasscom.
“From a Chinese perspective, this couldn’t be better,” says Dion Wiggins, a Hong Kong-based vice president for Gartner.
China’s domestic software industry is small and fragmented. Of the 8,000 companies providing services, three-quarters have fewer than 50 employees, according to the Massachusetts-based Forrester Research.
International companies won 90 percent of the $4.3 billion in contracts for computer services awarded in China in 2004, Gartner estimates. Government departments ordered about half the services, according to Nasscom.
IBM landed the most sales in the first half of 2005, beating out Hewlett-Packard, according to the U.S. research firm International Data. Digital China Holdings, a Hong Kong-based unit of Lenovo Group, is the dominant domestic company, International Data estimates.
Sales of computer and information services are increasing by more than 30 percent a year in China, says Sunil Mehta, vice president of Nasscom. Even so, the country’s software exports are just a 20th of India’s $17.2 billion.
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“If China has to become an IT services hub in a rush, as they would want in three to five years, they can’t do it without the Indians,” says Nambiar of Satyam.
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Former Prime Minister Zhu Rongji began courting Indian companies in 2002. During the first state visit to India by a senior Chinese leader in a decade, he approved the first Chinese subsidiary of Infosys after a one-hour tour of the Bangalore headquarters.
Since then, about 40 Chinese delegations have visited India to attract software companies to technology parks, says Mehta at Nasscom.