India lobby group touts IT industry potential
Thursday, 23 August 2007
Amy Yee, FT Syndication Service
NEW DELHI: India's software lobby group sought to dispel what it said was the myth that China would overtake India's lead in software outsourcing and services, claiming that its Asian rival lags three to five years behind its own booming industry.
Yet the National Association of Software and Services Companies (Nasscom) warned India against complacency as it stressed that China's strong infrastructure, education and government support for its software services industry could challenge India in the future.
China has "great potential but is far from being a serious competitor", said Kiran Karnik, president of Nasscom. "But keep in mind they can go fast."
In a report released Tuesday, Nasscom said China's fledgling information technology software and services sector generated revenue of about $12.2bn last year, or 0.5 per cent of gross domestic product.
In contrast, India's IT software and services industry generated revenue of nearly $40bn in 2006-07, 5.2 per cent of the GDP. Total revenues in 2005 accounted for 2.6 per cent of India's GDP.
While India touts the strength of its software services industry, its workforce of 1.6m is a small proportion of the country's population of 1.1bn. China has become a manufacturing powerhouse that employs hundreds of millions in factories.
Nasscom said that while China has "immense potential" it also faces hurdles, such as low use of English, differences in business culture with western countries, lack of transparency and intellectual property protection.
"Frequent comparisons with India and commentary positioning China as a substitute destination is misplaced," said the Nasscom report.
Revenues from China's IT sector exceeded $150bn last year but hardware accounted for 90 per cent of this total. Software and services sales are projected to reach nearly $28bn by 2010, up from an estimated $2.4bn in 2000.
Domestic Chinese clients and joint ventures accounted for more than 86 per cent of China's software exports last year. In contrast, the Indian outsourcing industry relies on exports to the US and, increasingly, to European companies.
The value of Chinese software exports was $1.8bn, with Japan and South Korea as the country's largest export markets.
China is trying to ramp up its software and services outsourcing industry. Its ministry of commerce has outlined a plan to train 300,000-400,000 university students over the next five years; provide financial incentives to encourage international certification of companies; and offer discounted loans for cities in China's less developed central and western regions.
Mr Karnik urged that there was a "strong case" for the two countries to collaborate in the future. For instance, as consumer electronics become "smarter", Indian software companies could help in production of Chinese-made appliances and other goods.
He also downplayed the impact of soaring salaries for India's IT employees. "Wage increases don't mean an increase in costs. Companies still have high profitability margins."
However, Mr Karnik admitted that appreciation of the rupee against the US dollar has hurt Indian outsourcing companies.
NEW DELHI: India's software lobby group sought to dispel what it said was the myth that China would overtake India's lead in software outsourcing and services, claiming that its Asian rival lags three to five years behind its own booming industry.
Yet the National Association of Software and Services Companies (Nasscom) warned India against complacency as it stressed that China's strong infrastructure, education and government support for its software services industry could challenge India in the future.
China has "great potential but is far from being a serious competitor", said Kiran Karnik, president of Nasscom. "But keep in mind they can go fast."
In a report released Tuesday, Nasscom said China's fledgling information technology software and services sector generated revenue of about $12.2bn last year, or 0.5 per cent of gross domestic product.
In contrast, India's IT software and services industry generated revenue of nearly $40bn in 2006-07, 5.2 per cent of the GDP. Total revenues in 2005 accounted for 2.6 per cent of India's GDP.
While India touts the strength of its software services industry, its workforce of 1.6m is a small proportion of the country's population of 1.1bn. China has become a manufacturing powerhouse that employs hundreds of millions in factories.
Nasscom said that while China has "immense potential" it also faces hurdles, such as low use of English, differences in business culture with western countries, lack of transparency and intellectual property protection.
"Frequent comparisons with India and commentary positioning China as a substitute destination is misplaced," said the Nasscom report.
Revenues from China's IT sector exceeded $150bn last year but hardware accounted for 90 per cent of this total. Software and services sales are projected to reach nearly $28bn by 2010, up from an estimated $2.4bn in 2000.
Domestic Chinese clients and joint ventures accounted for more than 86 per cent of China's software exports last year. In contrast, the Indian outsourcing industry relies on exports to the US and, increasingly, to European companies.
The value of Chinese software exports was $1.8bn, with Japan and South Korea as the country's largest export markets.
China is trying to ramp up its software and services outsourcing industry. Its ministry of commerce has outlined a plan to train 300,000-400,000 university students over the next five years; provide financial incentives to encourage international certification of companies; and offer discounted loans for cities in China's less developed central and western regions.
Mr Karnik urged that there was a "strong case" for the two countries to collaborate in the future. For instance, as consumer electronics become "smarter", Indian software companies could help in production of Chinese-made appliances and other goods.
He also downplayed the impact of soaring salaries for India's IT employees. "Wage increases don't mean an increase in costs. Companies still have high profitability margins."
However, Mr Karnik admitted that appreciation of the rupee against the US dollar has hurt Indian outsourcing companies.