By HOWARD W. FRENCH
Copyright The New York Times
Published: November 8, 2005
SHANGHAI, Nov. 7 – For years, the rapid growth of China and India has been based on business with the developed world, and has often meant taking business away from Western industries. Now, companies in the two largest emerging economies in the world are beginning to hunt intensively for business in each other’s markets.
In recent months, a giant company in one country has announced ambitious expansion plans in the other. India-China trade had already been growing at a phenomenal rate, reaching $13.6 billion last year – a sevenfold increase from 1998. Companies have said their new investments are critical strategic moves aimed at profiting from the other country’s rapid rise.
But also driving the boom in investment has been the shortage of talent in crucial sectors in both countries. The strengths of each are remarkably different: China is an industrial powerhouse in the making, while India has placed its bets more heavily on services.
Nowhere can this trend be seen more clearly than in information technology, where India is already perceived as a global leader. China is vowing to catch up.
Infosys Technologies, the software and information services giant in India, for example, recently announced plans to invest $65 million to expand its business in China. Infosys plans to hire 2,000 computer specialists over the next two years and to construct corporate campuses in Shanghai and Hangzhou to accommodate even more workers. Infosys has not previously made an investment in China of that size and scope and, experts say, it presages similar moves by other Indian technology companies.
“We are going to use China as a global development center, as much as we do India,” said Saikumar Shamanna, head of human resources development for Infosys in China. He said the company would seek business with multinational corporations in China and also with China’s own emerging multinationals.
“Today, options for people are increasing in India so rapidly,” Mr. Shamanna said, “that hiring has become a matter of who’s willing to overpay the most. When you look at the numbers of engineering graduates coming out of the Chinese universities, this becomes a very attractive place for us.”
India’s information technology sector is growing so quickly that wages in some areas are increasing by 25 percent a year, making qualified graduates from the country’s best schools scarce. China produces 400,000 engineering graduates each year, many of them in computer studies, and expansion by Indian companies into China is aimed, in part, at wooing them.
Infosys, based in Bangalore, the capital of India’s computer services industry, has risen from obscurity in the last few years to become one of the world’s top computer outsourcing companies, mostly by providing software services to large corporations in the United States and elsewhere in the West.
Infosys’s plans to expand in China have been mirrored by those of several other big Indian companies that also specialize in computer services and outsourcing, like Tata Consulting, Wipro and Satyam Computer Services. This year, Satyam announced its plans to build a major campus in Beijing. Another Indian company, NIIT, has recently expanded in China, creating more than 125 centers around the country where it teaches programming and other computing skills.
On the Chinese side, the drive to explore the Indian market is being led by corporate giants, like Huawei Technologies, a networking equipment manufacturer that competes with Cisco Systems of San Jose, Calif.
“Since we are a company whose business is based largely on globalization, we felt we had to be in India,” said Huang Ji, the chief executive of Huawei’s operations in India; Huawei has recently hired 700 Indian software specialists. “In recent years, Chinese companies have been doing research on software on a small scale, and things are still not very standardized. In India, lots of companies have reached a very high level already, and we would like to learn from them.”
The Chinese government still plays an important role in the creation of companies, and as the value of the computer services and software sectors rises, Chinese officials have been searching for training and investment opportunities in India. As a result, Infosys, for example, recently accepted 100 interns from China at a corporate campus in Mysore, India. The Chinese province of Jiangsu also recently announced plans to recruit as many as 400 software engineers from India to help it start a provincial information technology industry.
Since starting modestly in China in 2003, Infosys has outgrown three office buildings in Pudong. It is constructing a new campus in Pudong. An official with Infosys said he expected rapid expansion with the potential for tens of thousands of employees spread around China in the near future.
On a recent visit to Infosys’s headquarters, many of the new hires from China – most of them recruited from its best universities – could be seen taking training classes in English.
For now, Indian companies enjoy a lead in cross-border investments. A stiff challenge for them remains, however: how to break into the Chinese corporate market, where outsourcing of information services is less established than in most developed economies, and where a strong bias in favor of working with Chinese partners remains in force.
Goods manufactured in China have become ubiquitous in the Indian marketplace, bringing down the prices of many products and forcing some Indian producers out of business. The future of the economic relationship of the two nations will depend in part on the openness of the Chinese.
“Chinese companies are not really used to business-process outsourcing,” said James Lin, chief executive of Infosys China. “It’s going to take a little more time. We tell them that if you want to be a truly globalized business, we can help you.”
By HOWARD W. FRENCH