Recruiting in China

BANGALORE: As the Chinese pitter-patter into IT services turns into a loud clatter, Indian majors are pushing hard to grab a bigger slice of that market. TCS, Infosys and Wipro plan to shift at least 10% of their new outsourcing projects to Chinese cities of Dalian and Chengdu, for the first time since India’s software exports industry took note of the Chinese threat a decade ago.

Top customers like GE and General Motors are demanding that Indian vendors deliver some services from locations outside India because of geo-political risks and location redundancy. India’s tech behemoths are also realising that by creating local jobs in China, they can gain a bigger share of the Dragonland’s $10-billion-plus outsourcing market.

While TCS plans to increase its existing 1,200-employee base by over five times in the next few years, Infosys will invest $100 million to build a 4,000-professional-strong team. Wipro, the third-biggest software exporter, will have around 1,000 professionals in a year’s time.

“A clear inflection point for China has been clients’ acceptance over the last few months. And despite some risk perceptions, we are selling Infosys China, and not just China, as a new location to customers,” says SD Shibulal, chief operating officer, Infosys. “Over 80% of the work we do in China is for our global customers,” he added. Testing of software applications, engineering design for automobile and consumer durable firms are among projects set to get increasingly shipped to China.

Clearly, China is no longer a pure rival for India Outsourcing Inc. Instead, it is increasingly helping Indian technology vendors position themselves better by offering a choice of delivery centres beyond India to customers. “It’s no more about being rivals,” says Girija Pande, chairman of TCS’ Asia Pacific operations. “We are now seeing more load that can be sent to China. In fact, we are already doing both IT and BPO projects,” added Pande.

Rising wages, attrition rates and increasing scarcity of employable labour are among the top reasons for this shift in the way Indian IT industry has been looking at China. A September report by Goldman Sachs says Infosys’ revenues from China could top $200 million in three years, from $100 million today. TCS’ China revenues are expected to reach $250 million from almost $100 million currently, the report added.

While bidding for global outsourcing contracts, Indian vendors are beginning to break up a project into pure application development and software testing components. Of these, “non customer-facing portions such as testing is increasingly going to China,” says Amneet Singh, vice-president, global sourcing at consultant Everest Group.

Some clients are also concerned about growing geo-political risks in India because of terrorist threats and delicate equations with neighbours such as Pakistan and China. “We received calls from several customers after the 26/11 Mumbai attacks. Since then, we have noticed China come up more frequently in our discussions," said a CEO at one of the top Indian tech firms that has a development centre in Mumbai.

Another inflection point for China’s growing outsourcing industry is the rise of local firms like HiSoft, NeuSoft and VanceInfo. Some like HiSoft are looking at success stories of Infosys and Cognizant and globalising their operations. HiSoft, for one, got listed on Nasdaq in June and has already started getting customers like GE, UBS and Citibank to offshore work to China.

“There’s a growing need from CIOs to diversify and China is positioned as an ideal complement to India,” says Ross Warner, a spokesman for HiSoft, based out of Beijing. The company started working with GE in Japan eight years ago. “It’s no secret that we look up to their (Infosys) journey and are now focussing to replicate some of that,” adds Warner.

“Moreover, MNCs that aspire to sell into China are often requested by the government to purchase from China. This is a factor motivating MNCs like GE, 3M and Nokia to procure to China,” says James Friedman, analyst at SIG.

However, even as China is set to become a $30-billion outsourcing powerhouse in five years, there are hurdles it needs to overcome. While the country produces more engineers than India, lack of experience in handling large, complex projects remains a worry. Plus, China’s wage rates are a higher than India’s because employers have to spend on social security.

“This is a common mistake which is made because in China, one would have to pay 50% tax to the government plus a premium of 10-15% if the person can speak English,” says Frances Karamouzis, research veep at Gartner.