These two may not be linked – the US-China trade war escalation and the general consumer preference for everything smart, from phones to cars. But the two trends are helping Indian IT companies break into the Chinese market.
Till very recent, the China market was a tough one for Indian IT companies.
“Indian IT firms have been trying to break the Chinese market for over 20 years now, but without much success,” said Pareekh Jain, founder, Pareekh Consulting.
Policy issues in China apart, Indian companies were unable to scale up due to need for expertise in Mandarin and challenging price points.
Growing software market, US-China trade war
In 2019, there have not been much of a change in the terms of policy or language issues. What had changed, experts say, is that software has become all pervasive, from automobiles and manufacturing to home appliances and mobile phones.
“This might be just what Indian companies need,” said Jain.
Let us look at automobile and manufacturing space, where China has a strong presence, for instance. Sectors have transitioned to smart cars and smart machines that are IoT-enabled. Operations are no longer manual thanks to application of artificial intelligence and machine learning.
While Chinese enterprises are self-sufficient when it comes to hardware skills, the same cannot be said for their software prowess. An analyst pointed out, “It is not enough if they want to compete at the global level. For that they need to partner with other geographies and this is where India comes into the picture.”
So far it was largely the US counterparts that did the job. But with the US-China trade war escalations, it has become quite challenging for Chinese firms to depend largely on their Silicon Valley partners for their software capability like earlier.
“China now needs more partners who can help them here. So this opens up more opportunities for other countries, India included,” the analyst added.
Indian IT players such as L&T Technology Services, TCS, HCL Tech and Tech Mahindra are already working with automotive clients across the world.
For instance, TCS helps Nissan Motors with vehicle analytics system.
In recent times, Chinese firms such as Xiaomi, Huawei and Vivo have setup R&D centres in India. In fact, Huawei’s largest R&D centre after China is in India.
An analyst has pegged that there are close to 6,000 Indians working in the Chinese R&D centres here.
This in part could have spurred investment in the Chinese market by Indian IT cos. According to a recent survey by the Confederation of Indian Industry (CII), more IT and BPO firms will up their investment in China in 2019 compared to 2018.
Tech Mahindra’s recent announcement about its focus on China is a case in point.
Kris Gopalakrishnan, co-founder, Infosys, in an earlier interaction with Moneycontrol, said, “However it still might not a large market for the IT cos like the US, Europe, Canada, the UK and Australia.”
While the size of the Chinese software and information services industry is $493 billion, the second largest in the world after the US, the Indian companies are yet to make their presence felt.
This is despite all major IT firms such as TCS, Infosys, Wipro, HCL Tech and Tech Mahindra having operations in China. The CII report states, that currently the region accounts for about 3 percent of global revenues for the IT and BPO cos. But, it added, most of the the IT and BPO cos in China expect the revenue to increase by over 10 percent in 2019 compared to 2018.
This, according to industry watchers, is a positive sign. Gopalakrishnan said, “China is an important market especially when you look at future direction.”
He explained that China has become the second largest economy in the world and the global industry must derive revenues proportional to the size of the economy. “That means we have to increase our revenue from China,” he added.
But it is not easy. Gopalakrishnan said, “Indian IT cost has gone from zero to nine percent now. To improve, the Chinese and Indian government need to work together.”―Money Control