Wednesday, September 29, 2010

Chinese vendors catching up with Indian peers: Report

Chinese software services companies are fast learning to compete with their counterparts in India on certain verticals and may have already started to take away business from some of them. A US-based analyst firm and part of the privately-held financial institution, SIG (Susquehanna International Group), in its recent report, has said companies such as Microsoft, Samsung and Cisco Systems are moving some of their work to Chinese companies because they not only offer comparable services but also at 25 per cent discount compared with Indian IT vendors.

The report says that Chinese vendors have developed enough skills in outsourced R&D, testing and product development for them to wean away clients from Indian vendors. It says Microsoft, Cisco, Nokia and Samsung are among a longer list of technology and manufacturing customers that now outsource such services to China and some of these customers are also customers of Indian IT companies.

Pricing discount

It named two Chinese companies, HiSoft Technology (HSFT) and VanceInfo Technologies (VIT) as those who have posted year-on-year growth of over 50 per cent during the first half of 2010 for providing services such as outsourced R&D, testing and product development to Western clients. It said Wipro was one such Indian vendor which is facing “meaningful'' competition from China.

“We estimate China can offer comparable services at a 25-50 per cent discount to Wipro ($26/hour for Wipro, $16/hour for VIT / HSFT),” the report said.

Though Wipro did not respond to queries because it is going through a ‘silent period' ahead of the announcement of its quarterly results, a top official with another major Indian IT company, Cognizant, said that each of these countries brings its own capabilities to the table. “In an increasingly globalised and virtualised world, countries are not merely competing against each other, but are in fact complementing each other's strengths. While Indian IT services companies are ahead in a few areas, Chinese companies bring their own set of unique capabilities,” Mr R. Chandrasekaran, President and Managing Director, Global Delivery, Cognizant Technologies, said.

Much ahead

Looking at the potential China offers both in terms of pricing as well as talent, the Infosys Chief Executive Officer and Managing Director, Mr Kris Gopalakrishnan, had in an earlier interview with Business Line said China will become the company's biggest development centre outside India.

An analyst with KPMG, Mr Kumar Parkala, however, said India will continue to remain a preferred destination for customers. “India is quite ahead in outsourcing and many of the Indian IT companies have been around for decades,” Mr Parakala said.

The SIG report also pointed out that Chinese vendors are still new to the market and that many leading technology and manufacturing companies contract Wipro for its deep business process knowledge and domain expertise.

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