Why China's it lags behind India

Economic Observer: from the domestic IT service situation, domestic enterprises generally low level of profit, including market reasons, but also the reasons for the enterprise itself. What do you think is the key reason for the lack of competitiveness of domestic IT service companies compared with national IT service companies such as India?
Ye Yuanyang (head of McKinsey's information technology consulting business, director, McKinsey Hong Kong Branch): China's IT services sector is now growing in revenue due to increased domestic demand-increasing demand for small and medium-sized businesses seeking customized software solutions, but with revenues less than India's annual income (US $12.7 billion) in 2004 Half of it.

For the long-term development of the enterprise Services, in the management level, talent accumulation and in-depth understanding of the application of the industry, the market for domestic IT service enterprises to put forward more and more high requirements.

International companies have high quality requirements, while China's IT service companies do not pay enough attention to architecture, design and testing, resulting in poor quality  this is a huge gap. At the same time, China does not have a strong industry organization, such as Nasscom of India (National Association of Software and Services companies), to promote its own industries overseas.

China's IT service companies are more customer-centric, to meet the needs of customers, even after the start of the project, but also to meet the customer's every change to be modified. This results in a constant change in the content of the project. Moreover, many projects do not have well-established contracts and are based on informal relationships, which makes the situation worse and ultimately leads to project failure.

Economic Observer: profitability and financing capacity all determine the size of the enterprise, capital is to ensure that the basis for the expansion of the scale of enterprises, technical personnel reserves, the stability of the team has an important role. The industry has the view that in the coming period of time, the Asia-Pacific IT Service market merger and reorganization will be difficult to avoid. What do you think of this view?

In this respect, McKinsey found that China's IT services market is not large enough and its share is extremely fragmented compared to other markets. In 2004, for example, China's largest 10 software companies accounted for only 20% of the total domestic market, compared with nearly 45% in India. The market share of China's top 10 suppliers has slipped from 25% in 2002 to 20% in 2004.

In general, smaller enterprises are unreliable, and the risk of cooperation with them is greater. Small enterprises, core staff is easy to lose, because of limited financial resources, not necessarily able to support the completion of the project, no capacity and the scope of business is not allowed to receive large orders. Chinese software companies cannot win large international customers if they do not scale. In order to effectively participate in the international competition of outsourcing business, China's software industry must be integrated. If there are more mergers and acquisitions or restructuring will not be so scattered. Unfortunately, this has not happened yet.

Economic Observer: At present, many domestic system integrators do low-end hardware integration work, if China's IT services market began to integrate, domestic small and medium-sized IT service companies will survive more narrow space? How can domestic manufacturers enhance their ability to survive and develop sustainably?

At present, the needs of multinationals and large state-owned enterprises in China's IT services market are dominated by internationalized IT companies rather than local companies. Local companies are at risk of being squeezed out of top business. In order to integrate, there are three changes to be made: first, companies must grow from a regional company that has only a base in the province into a real domestic powerhouse. This requires a shift in thinking and goals and adequate government support. Second, companies must develop the skills they need to acquire and merge, and they do not now have these skills. Again, companies have to use formal processes, such as human resources, to operate as effectively as big companies, rather than as an informal startup.

Economic Observer: For most of the domestic integration and development service providers, enhancing their software development and service capabilities is still a big challenge for them. At present, only a few enterprises in China's software enterprises have passed the CMM certification, but some experts believe that CMM certification is not the most important factor to improve the competitiveness of Chinese software enterprises, it is more suitable for outsourcing enterprises. What do you think of this view?

Yeh: Indeed, the CMM is just a certification of process documentation and process repeatability. As the experts say, this is a necessary condition for software success, not sufficient. You also need to have a strong sense of quality, architectural skills, design skills, and focus on software testing. Today, in most Chinese software companies, these are still very scarce. Domestic manufacturers need to enhance their ability to survive and sustain development by enhancing their ability to be irreplaceable in the industry by improving their software development and service capabilities. In addition, there is a need for strong human resources skills to recruit and manage talent. In addition, project management and it architecture are two key skills.

Economic Observer: From the perspective of IT service itself, enterprises should gain development, on the one hand, the accumulation of business talents and it compound talents in high-end consulting, on the other hand, improve the level of project management in the operation process. What kind of core competence the Chinese IT service enterprises should produce.

Ye-wide: China's IT service enterprises should mainly create three core competencies: first, project management, quality control, software testing and software design capabilities to ensure the highest quality of work. Second, the professional organization of human resources-related skills to retain, train and cultivate professional talent. Again, the acquisition of skills. Only by integrating these capabilities can China's IT services enterprises develop faster.

While the integration of Oracle after the acquisition of PeopleSoft has not yet been finalized, we cannot know for sure what the digestive situation is, but there is no doubt that the software giant has a good appetite. Oracle has recently begun a battle with the German counterpart, SAP, for a commercial retail software company named Retek.

The rapid expansion of mergers and acquisitions and the dominance of the competition are becoming a trend in the IT Service market. However, the same story is not staged in China.

"Unfortunately, mergers and acquisitions among domestic IT companies have not happened," said Ye Yuanyang, director of McKinsey's Hong Kong branch. ”

In a study with colleagues, he found that China's IT service landscape was not sufficiently large and fragmented compared to other markets. In 2004, China's largest 10 software companies accounted for only 20% of the domestic market share, while in India the figure was close to 45%. It is particularly critical that this pattern has a growing tendency to diversify. The McKinsey study shows that the market share of China's top 10 suppliers has slipped from 25% in 2002 to 20% in 2004.

McKinsey is a part of China's competitiveness in the IT services sector. "The structural flaws in China's IT services market are hampering the development of these IT companies ' competitiveness," the report said.

The McKinsey survey shows that the total income of China's IT services is less than half of India's annual revenue, with the country's top 10 software companies accounting for only 20% of the domestic market. Moreover, of the more than 8,000 software services companies in China, only 5 employees outnumber 2000 people.

Ye Yuanyang said that if the scale of Chinese enterprises does not go, its competitiveness will be greatly limited, so as not to effectively participate in international competition.

Solution to the way out without him, mergers or alliances.

At this point, McKinsey is not a loner. IDC Asia-Pacific also issued a report at the end of February 2005, said the domestic IT service landscape will change. In the Asia-Pacific (apart from Japan) IT service industry competition Pattern Update, IDC believes that due to the increasing competition in the IT services market, the fragmentation of non-sustainable further deterioration, industry restructuring will inevitably.

In the Chinese market dominated by international IT companies, local companies are at risk of being squeezed out of top business if they do not integrate in time.

First, he says, the company must grow from a regional company with only its base in the province into a real domestic powerhouse. This requires a shift in thinking, a goal, and adequate government support; second, companies must develop the skills needed to acquire and merge, and they do not now have these skills; Once again, companies must use formal processes (such as human resources) to operate as effectively as large companies, Rather than as an informal start-up business.

"IT service standards" dispute

Almost all IT service reports contrast the situation in China and India. The conclusion is self-evident: Chinese companies still need to learn from their neighbours.

Especially in the field of software outsourcing, Indian companies that have won a certain international reputation have robbed 70% of their market share, and China's outsourcing companies have only got 10%.

However, at the China-India Software summit in Beijing at the end of February, Indian companies were not behaving as aggressively as they did in the occupied markets, and they were talking about "cooperation".

It has been reported that the National Development and Reform Commission intends to promote cooperation between enterprises in China and India. In accordance with the cooperation plan, the Chinese and Indian companies will jointly build a super joint-venture software company with more than 10,000 employees and a minimum annual revenue of about $400 million.

However, the representative of Gartner suggested that it would be best to define the IT service standards before the two countries cooperated in order to standardize data transfer and effective communication.

Industry insiders agree with this view. Lenovo CICA President Yubing that the current market environment does require the definition of IT service standards. In this way, the client and the service can understand each other's needs and service commitments, so as to ensure smooth communication and efficient cooperation. and involving international IT service cooperation (such as offshore outsourcing business, etc.), the two sides should understand the global standards, in order to achieve complementary advantages, and seek common development.

CCW Research, an analyst at the research Department of Information Software and services, Cao Kaibin that the development of IT service standards is conducive to the formation of industrial chain and market maturity. But he also issued a warning signal: "Chinese enterprises in the development of standards, we must pay attention to the level of Chinese enterprises in the outsourcing industry chain, do not leave Chinese enterprises can only do low-end business image." ”

Cao Kaibin's judgment on the possible formation of an unfavourable "stereotype" for Chinese companies is not unfounded. According to statistics, the total income of China's outsourcing enterprises, 65% from the Japanese customers contracted low-value application software development outsourcing business. And in the lucrative software design outsourcing business, Indian companies are firmly in control of the commanding heights.

The difficulty in developing IT service standards also comes from the blurring of definitions and the complexity of implementation. Dr. Ye Tianjong, of IBM China Research Center, argues that the definition of service standards between the new model and the old model is still vague in the changing state of the IT service industry, and the common language needs to be formed.

A market without a dominant person

Fragmented domestic IT services market, still lacks the absolute leader.

Gartner's survey shows that the top three of China's IT services market are IBM, HP and Shenzhou digital respectively. But even IBM, which occupies the top spot, has a market share of about 5%.

The same is true of the domestic IT services market in the past 2004. The data from the Analysys consultancy show that IBM accounted for 8.3% of the domestic IT Service market in 2004, compared to 5.2% and 4.9% for China Digital and HP respectively.

Local companies still have the opportunity to improve their competitiveness in order to take advantage of the market reshuffle.

Of course, in McKinsey's view, the first thing they need to do is expand their size. In more than 8,000 IT service enterprises in China, nearly 75% of the enterprises have less than 50 employees. Unfortunately, domestic IT service companies do not realize that mergers and acquisitions, restructuring is a top priority. McKinsey's survey shows that only 12% of IT service companies want to improve their competitiveness through mergers and acquisitions.

Ye Yuanyang that the domestic IT service enterprises should pay attention to the cultivation of their acquisition ability if they want to achieve faster development and enhance their competitiveness. Currently, several Indian software companies are considering acquiring Chinese software companies. Before the "outward", domestic IT service enterprises must also "Ann".

Cao Kaibin that small-scale IT services companies also have the competitive edge, which is based on a deep understanding of the business professional ability. Cao believes that in the software outsourcing market, the employer in order to control the risk, will generally choose large companies as partners. But he thinks the big outsourcing market also has the take shelter of small companies. Small-scale outsourcing companies can also open up their own living space by improving their professional ability and enhancing effective communication.

Retaining professional talents and improving innovation ability is the second compulsory course for domestic IT service enterprises to improve their competitiveness. Ye Yuanyang believes that the retention and training of professionals will help improve the core competitiveness of domestic IT service enterprises. However, it is not optimistic that many enterprises do not attach importance to the development of talents at present.

Moreover, there is still a huge gap in the software talent that our country transports to IT service market. Sadie consultant recently released data show that China's software industry every year there are still about 20.3 million talent gap. With more than 70% of high-end software professionals trained by colleges and universities, they have an average of thousands of lines of programming experience. China still needs a lot of low-end software talent, which has created a huge space for the IT training market, which totaled 3.35 billion yuan in 2004.
Source: Http://www.weste.net