MUMBAI: Indian IT has conquered continents thousands of miles away, but continues to struggle in China — where changes in government and the inability to adapt to a centralised planning structure have lowered the industry’s ability to compete in the market.
Chinese corporations — largely state-run enterprises — are proving a hard nut to crack and even the frontrunners in the race are pulling back. Genpact, which had the strongest focus on the Middle Kingdom, has cut back the number of sales people targeting the Chinese market by 70%, two sources with knowledge of the matter told ET.
“Chinese firms are much closed about the concept of outsourcing. Unlike the multinational outsourcers, they are still building a brand in China. They are finding it really hard going. Genpact is paring down its sales team, refocusing them to bring in more work from Japan into China, rather than look at the Chinese firms,” an outsourcing advisory consultant based in Shanghai told ET. He declined to be named because he is not authorised to discuss specific company trends.
Indian companies eyed China for three reasons — the ability to service the operations of multinationals operating in that market, use China as a delivery base for Japan and tap the growing demand from Chinese firms for IT services, a market that is expected to cross $350 billion in 2014, according to research firm Gartner.
Genpact’s pull-back is also reflected in where the company puts its money. In 2010, former CEO Pramod Bhasin said China was an important market for the company and that it was open to acquisitions to boost business capabilities in the country. But now, nearly four years later, China finds no mention in the list of important regions for Genpact.
“In terms of markets, we are concentrating these investments in large developed economies such as North America, Europe, Australia and Japan. These are areas where we see significant long-term market opportunity for Genpact. This refocusing will necessarily entail tapering of growth in non-core areas,” Genpact CEO Tiger Tyagarajan told analysts in February.
Genpact did not respond to ET’s questions about the re-assignment of its salespeople in China and whether it still continued to invest in that market at the level it had previously.
The China problem is not Genpact’s alone. Last year, current Chinese Premier Li Keqiang visited Tata Consultancy Services’ office in Mumbai, a sign of the company’s commitment to China, but the going in that market has not been easy.
“Japan is looking good, not China. It’s a very small base but we’re growing. The pipeline is good in Japan but China is a problem,” TCS CEO N Chandrasekaran told ET in an interview in January.
It is in fact a story that is playing out across the IT sector, experts say.
“China has been a tough market. I don’t think companies will pull out but they will re-evaluate. It would make sense to leave a base in the market to come back when the Chinese domestic market improves,” said Pradeep Udhas, a member of the India Leadership Team and head of the Sales & Markets function for KPMG in India. Udhas declined to comment on specific companies. Udhas added that even servicing Japanese companies out of China was decreasing in importance as growing Sino-Japan tensions mean that Japanese firms were looking to diversify the regions from which their services are delivered.
The National Association for Software and Services Companies, the industry body for the IT industry, agrees that growth in China has been tough despite attempts by the industry to break into that market.
“We have to understand that these markets are different and that the same models might not work in markets like China. We will have to come up with new ways and the industry is working on this,” R Chandrashekhar, president of Nasscom, said.
In fact, the entire offshoring model may not work with Chinese companies, industry players have said.
“Chinese firms like to have control over their processes and being able to say you will do the work in that country is a great benefit. We have centres in China to handle the work from that market and it helps,” Salil Parekh, CEO Application Services for UK, North America and Asia, at French IT services firm Capgemini told ET. Parekh said Capgemini was expecting a ‘good’ rate of growth in country and was continuing to invest in that market.
(Source: The Economic Times, March 3, 2014)