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Patience is a virtue in China, India IT learns

December 21, 2006 08:47 IST

As chief executive officer of one of India's most powerful IT services companies, S. Ramadorai is accustomed to managing a company growing at warp speed. At the helm of Tata Consultancy Services, he manages a workforce of 75,000 people and is currently absorbing about 25,000 new employees each year.

However, there's one place where Ramadorai has learned to be patient: China.

Among Indian companies, TCS has been a China pioneer. When Ramadorai launched the Chinese operation three and a half years ago, TCS was one of the first Indian IT companies on the mainland. But progress has been slow: Today, TCS has just 500 people at its wholly owned subsidiary located in the eastern city of Hangzhou.

A workforce that small is pretty much just an outpost at a company as vast as TCS.

Ramadorai promises that the TCS China will start to speed up. The company has become a joint-venture partner with the city governments of Beijing and Tianjin, both of which have IT parks where they want TCS to take the lead in setting up software development centers. And TCS has landed Microsoft as a partner in the joint venture, too. (The breakdown of the JV: The Indians own 65%, the Chinese have 25%, and the Americans 10%.)

Commitment to Expansion

The JV has now received Chinese government approval and will be up and running soon, Ramadorai says. He plans to merge the Hangzhou subsidiary into the JV and increase TCS's headcount in China tenfold, to 5,000, by the end of the decade. "We will be one of the largest in China," he promises, boasting that the expansion "shows our long-term commitment to that country."

As Chinese President Hu Jintao prepares for his Nov. 20 arrival in India, the first visit by a Chinese head of state in 10 years, many other Indian companies are eager to show their long-term commitment, too. Indian companies such as Infosys, Wipro, and Satyam Computer Services all now have China operations.

Like TCS, most of the Indian companies today have fairly small operations in China. But, like TCS, most have plans to grow quickly in order to serve both multinational clients in China and local Chinese companies.

Moving into the Hinterland

Having set up their first China locations in the past few years, they are now looking at moving into the Chinese hinterland to reduce costs and make use of a cheaper workforce. The Indians also hope to use China as a base to win business from Japan and South Korea.

One item likely to be discussed next week by Chinese and Indian diplomats is the difficulty that Chinese companies have lately encountered in India.

While he does not deny that Chinese companies such as Huawei and ZTE have encountered difficulties trying to expand their business in India, Ramadorai contends that India's software services providers have not had an easy time breaking into China, either. "Indian companies have problems understanding what the opportunities for access into China are," he says.

"Investment Mode"

That might explain why Indian outsourcing specialists have been slow to take off in China. Consider, for instance, Infosys. With a subsidiary in China, Infosys has set up software development centers in Shanghai and Hangzhou with over 250 employees.

Citing a quiet period dictated by an upcoming U.S. depositary-receipt offering on Wall Street, Infosys declined a BusinessWeek request for comment.

But at the company's most recent quarterly result announcement, Managing Director Nandan Nilekani said that Infosys China would continue to be in "investment mode." Infosys forecasts that it will make investments of $65 million in the next five years to build its Chinese business. At the end of that period, the company expects to have 6,000 engineers in China.

Satyam Computer Services is getting ready to hire quickly too. The Hyderabad-based company entered China in 2002 and has operations in Shanghai, Beijing, Dalian, and Guangzhou, and is now looking at second tier cities such as Chengdu, Xian, and Nanjing. Satyam's China headcount today is small-just 400 people.

Caution Remains

But Raghvendra Tripathi, general manager of Satyam's China operations, pledges that Satyam will ramp up to 10,000 in China by 2010. "It is a strategic move for us," says. He claims that moving away from the cities will help Satyam reduce costs by 20% compared to staying in major Chinese cities along the coast.

Not every Indian IT exec is so gung-ho about China. Of the major Indian companies, Wipro has always been the most cautious when it comes to a China strategy. That hasn't changed. Wipro launched in China in 2004 and today has only 100 people working in Beijing and Shanghai-and half of them are Indian.

The company is looking to low-cost areas in other parts of the country, such as the western cities of Xian and Chengdu, says Masaki Nagao, CEO of Wipro's Japanese and Chinese operations. "We need to have windows of opportunities for our customers," says Nagao.

Better at the Borders

Others may be planning to hire thousands and thousands of Chinese engineers, but not Wipro. The company wants to hire only 500 more people in China over the next two years. One reason for the go-slow approach: Hiring people with English language skills is a challenge in China, claims Nagao.

"We only hire bilinguals," he says. Yet even the China skeptics at Wipro are willing to make some concessions as the company prepares to expand into second-tier Chinese cities. "We may hire non-English speakers," says Nagao.

Indian execs remain hopeful that Hu's upcoming visit will help erratic Sino-Indian relations enter a new phase. "India-China relations are stepping up to a different level," says Ramadorai of TCS. He points to the increase in commercial and cultural exchanges and the progress the two have made in resolving their border disputes in the Himalayas and in Kashmir. "These are good signs that things will shape up for the better," says Ramadorai.

Bruce Einhorn and Nandini Lakshman, BusinessWeek