Is China a threat to Indian IT companies?

Studies show that Chinese software outsourcing firms are unlikely to catch up with Indian and other global software services firms anytime in the near future, despite a major policy push towards outsourcing from China’s central government in recent years. Language barrier has also played a huge role in China’s inability to attract large outsourcing contracts at a time of increasing commoditization of IT services. According to a survey 79% of IT services firms in China have been in business for less than 10 years. On the other hand, top US and Indian IT firms have been around for the better part of the last three decades, in some cases, even longer.

software-company-logos-india

China has also faced the problem of attracting the best talent, with the country’s engineering graduates not looking at IT services as a primary option for employment, instead focusing more on manufacturing firms. China currently trains 1.1 million engineers annually, according to a recent report by Kotak Institutional Equities. Since 2006, the Chinese government has tried to build expertise in software outsourcing. It identified 20 cities where such firms could be developed.

 The average profitability of Chinese IT services firms went down from 10-15% to less than 5% over the past two years, while that at most large Indian firms was in the 15-25% range

Experts say China’s focus on the domestic market and Japan may have hindered its ability to gain market  share in other growing economies.

To be sure, China’s IT industry was never considered to be a serious threat to traditional multi-national and Indian outsourcing giants, such as IBM, Accenture, TCS, Infosys, Wipro Etc.

Indian Defence Strategies – Time to focus

Points highlighted by PM in Combined Commanders Conference lately has some points of concern with respect to national security.

India has to tackle to following challenges

  • Defence acquisitions in light of economic slow down.
  • There are changes in strategies followed by US and China in Asia Pacific region.
  • Recent global crisis has made US gain more control on economies of Asia.
  • There is a significant rise of China in terms of security and economic aspects.

Agni missile

The above issues require our armed forces to regulate strategies accordingly. We have to learn from the mistakes of the Russian and American arms race. Indian and Chinese are in similar situation like that of Russia and US before in terms of defence and arms.

What India has to do?

  • Strengthen nuclear areas and second-strike capabilities (to withstand nuclear attacks)
  • Concentrate on raising elite forces to undertake special operations that can be to strike on terrorist camps or protect national boundaries.
  • Improve in-house technology drive by private sector as partners cutting down defence import bills like that of US – style military industrial complex (an understanding between the national armed forces and bureaucracies). The recent comments by former Army chief General V P Malik mentioning that “India has fractured the policy-making on national security matters and it is guided by bureaucrats who are totally unaware of defence matters” a serious concern at this point.
  • Finally, in the era of globalization, it is very important to note that no security strategy can succeed without an appropriate foreign policy. Pakistan for than matter has maintained a good relationship with US and China to support its defence capabilities.
  • But with the growing global terrorism and China military strength, its very a right time for India to cultivate a good cooperative understanding with US, Japan, Vietnam, Indonesia and Australia.

Go Rural!!

Many of the Indian companies that are in various sectors such as automobiles, banking, consumer goods and food processing have – “Go Rural” as primary strategy. Its time, these companies have realized that there is a great scope of market growth in the suburbans.

Rural India

Some facts:

  • Rural India is 7800 small towns and 6.4 lakh villages with 75% of purchasing power.
  • Rural India contributes 55 per cent of the manufacturing GDP
  • Rural factories account for 70 per cent of all new manufacturing jobs
  • Rural consumption per person has increased by 19 per cent yearly between 2009 and 2012; two percentage points higher than its urban peers.

Accenture research reveals that making real profits in India’s rural markets is possible, even in the short term. The key: Companies must build and maintain efficient sales and distribution networks tailored to rural India’s unique characteristics.

Amul brand is a classic example with its presence of 4000 villages that has less than 5000 in population.

Mahindra and Mahindra is one of the company has been growing its market in financial business and has its presence in 2 lakh villages.

Also with rural consumers increasing their interest for better products and high-standard services, FMCG companies like Dabur and HUL have increased their efforts in rural sectors.

Impact of Recession in India

Rupee

There are 3 companies that did very well in US, while others went down, in spite of recession during 2008 melt down. Walmart, Dunkin, Best Buy. Whatever their strategy is, it is evident that they could sail through and still make good profits because of their focus, and anchoring to their values. Their technology and innovation has helped them.

Now that India is going through the similar phase, the companies should focus on certain things:

  • Consumerization:
    • Evolving an enterprise technology from consumer products to professional areas. Ex: Smart phone that is a consumer product can be innovated, specialized to Doctors, military etc.
    • Axis bank launched services for elderly, it is more than just opening accounts for them, but it is also paying bills for them, managing emergency services at hospitals.

The four sectors that majorly hit as of now :

  • Automobile: Cars being luxury products, they are hit first.
  • This has impact on loans, credit cards, thus Financial institutes.
  • Holiday sector
  • Consumer durables

Hope:

  •  Rural India is still not much impacted by recession, as there are no conversations about job loss yet. Rural India mainly depends on monsoon and the impact of bad market condition is relatively low. A good monsoon means good purchasing power. As major part of GDP is still based on rural India, it is still not worst and we have time to cope up soon.
  • No recession holds more than 11 months as per the statistics of past 10 recessions in the world. Putting aside the logic behind, how is it, we have hope that it is getting over soon.