Until recently, India has been a very lucrative and attractive market for the top IT firms. However, as the competition increased and the market saturated, Indian IT firms started looking at other potential markets. Luckily, they did not have to look far. As one of the fastest growing economies of the world, China holds exciting prospects for the IT industry and that is where the IT companies have trained their guns on. However, the sailing was not so smooth since Indian IT majors started facing heat, one of the concerns for the Indian IT companies operating in China is that the revenues generated by foreign IT companies from their China operations are much higher than that generated by the Indian companies. Through this article we diagnosed the issue in detail and proposed short as well as long term strategies to deal with the situation

1. FOCUSING ON THE FUTURE
What went wrong in China and how to get back on track –
A Strategy for the Indian IT operations to become Leader
in China
Submitted By -
NITIE, Mumbai
Shanu Singh, PGDITM5 (shanuchaudhery@gmail.com, 9702018520)
Srivatsan R, PGDIM 18(vatsa88@gmail.com , 8108355198)
(Category - Strategy and Consulting)

2. Overview
Until recently, India has been a very lucrative and attractive market for the top IT firms. However, as
the competition increased and the market saturated, Indian IT firms started looking at other potential
markets. Luckily, they did not have to look far. As one of the fastest growing economies of the world,
China holds exciting prospects for the IT industry and that is where the IT companies have trained
their guns on.
The Chinese attraction
Given the current economic situation, China, with a GDP growth rate of 10.4%, is one of the safest
countries to try to enter without fear of any financial risks. Apart from that, China was chosen because
of the following main reasons:
Human resources reserve Regional business supply base
Strategic
Objectives of
Indian IT
Develop the Japanese and Korean
Serve multinational companies in China companies for
markets
entering China
The first wave of major expansion was seen during 2002-2004, when TCS, Wipro, Mphasis, HCL,
Cognizant & Infosys opened up center in China and these were located in regions as shown in Figure
below.
Locations of
Indian IT
companies in
China during
2002-2004
An Unsuccessful beginning
However, the sailing was not so smooth and the Indian IT majors started facing heat on all four fronts
as they had not anticipated the intricacies in the Chinese market. India and China, though being
geographically close, are culturally and linguistically distant (Drivers of Success for Market Entry into
China and India- Joseph Johnson et. al., Journal of Marketing Vol. 72 (2008)). Indian companies„
neglect in the gaps of culture and education between China and India, as well as failure to fully
consider language-related factors have resulted in their being unable to adapt themselves to the
following situations in China:
1. Human Resources: The main strategic objective of Indian companies entering China was the
strong human resources reserve and the complete talent gradient level. Now, even after ten

3. years of efforts their position in terms of human resource development isn‟t very promising.
The graph below shows the human resource statistics of Indian companies in China and the
world.
Fig1: Human Resource Growth (China) Fig2: Human Resource Growth (World)
Planned Strength Actual Strength(2010) Strength (2006) Strength (2010)
6000 160000
5000 127779
108000
3000 58000
54000 55000
1100 400 200
TCS Infosys MphasiS TCS Infosys Wipro
Judging from the fact that recruitment in China is negligible when compared to worldwide
recruitment, we can conclude that in a sense, the human resources reserve strategy of the
Indian service outsourcing companies in China was a failure.
2. To make China a regional business supply base (Below-expectation Development in
the Chinese Market): Compared with the Top 100 (China) growing companies in Service
Outsourcing, Infosys/TCS/HCL China are just medium-sized service outsourcing companies,
far behind the Top 10 leading Chinese companies. Also their development in the Chinese
market is still at the early stage. For example, the projects of TCS in the finance and banking
sector in China have not been promoted all over China as a successful case in its development
in the Chinese market.
3. To serve multinational companies in China: The original language advantages of Indian
companies in the global market are also lost in the Chinese market, because, in addition to
local companies, they have to face a group of powerful rivals including multinational
companies like IBM and Accenture, who were once the contracting parties of these Indian
companies, but who have now become rivals in the Chinese market. Under such
circumstances, their language advantages disappeared.
4. To enter the Chinese IT market and to develop the Japanese and Korean markets:
Another major objective of Indian companies entering China is to exploit the Japanese and
Korean markets. However, depending on the advantages in language, culture and geographic
location, Chinese companies have secured a relative monopoly position in the outsourcing
business targeting at Japanese, Korean as well as Chinese IT market.
Roadmap
So how do the Indian companies counter these issues? The answer, obviously, lies in what measures
they take to tackle each of the four issues mentioned above. However, they must not jump the gun
and take on everything at once. Issues such as development of Korean and Japanese markets can
only be handled in the long term. So the need of the hour is a perfect mix of long term and short term
strategies focusing on branding, resource association & development, strategic geographic positioning
and new business focus.
Short Term strategies

4. 1. Talent nurturing (Association with universities)
Indian IT majors should work with Chinese universities to develop the loyalty & required talent
pool; this can be done by having partnerships in educational programs like;
“2+3 Matrix”, in which 2 stands for the two public courses and public specialized training
that run through the whole process of academic education, while 3 means the three
specialized courses of theory learning, real project operation and enterprise
internship (Model used in Suzhou Industrial Park Software and Outsourcing Vocational
College)
Engineers from the organization take up “double titles” (teacher and engineer) and
“double positions” (teaching position and development position) in the form of guest
faculty (Model used at Neusoft Institute of Information in Dalian by Neusoft, Cisco and
SAP)
“three-three” system, namely a third of the teachers is foreign teachers, another third
of them part-time teachers from enterprises and another third of them high-level
professional teachers. (This Model is operational at Hangzhou Institution of Service
Engineering (HISE))
2. Overcoming Language Barrier through Domestic Tie-ups: Indian IT companies should look
for tie-ups with the regional companies, in-order to explore the potential of the huge ITO market
in China (easy access to local market and local talent). Such kind of tie ups already helped TCS
(tied up in 2006) in scaling; Infosys also followed the footstep and tied up with DHTZ recently in
2011.
3. Focus on developing IT-BPO, BI and Analytics business: These industries can be
independent of three key factors: 1) good foreign language communication skills and basic
computer knowledge and application skills; 2) rich professional domain knowledge of the offshore
outsourcing industry; 3) legal requirements, business norms, standards and habits on information
privacy and intellectual property. Since Chinese are strong at mathematical problem solving skills
therefore they should be leveraged to provide the backend solutions to support analytics and
process oriented ITO tasks.
4. Upcoming IT Services Opportunities: Apart from being an outsourcing destination, China itself
is a huge market and holds great promise for the IT businesses. Here the vertical sectors spending
the most on IT services are finance, telecommunications and manufacturing. Under China's 12th
Five-Year Plan, healthcare, utility, transportation and retail are likely to be the focus of further
development. Gartner believes the major IT services opportunities in China are:
Communications: Investment in rolling out 3G networks and investment in R&D for new
technology, such as LTE
Healthcare: By the end of 2011, China should have established hospital information
system trials, for which the core system is the electronic medical records, in 22 provinces,
regions and municipalities
Retail: Optimizing or migrating supply chain systems into end-to-end business processes,
including procurement, storage, selling, pricing and accounting, and data analytics of BI
and CRM
Transportation: The development of a smart transportation system based on the smart
city concept
Utilities: Green IT technology and solutions are necessary to help the Chinese government
realize the promise of cutting environmental pollution and reducing the carbon footprint
Long Term Strategies
1. Setting up centers in upcoming locations near to North & South Korea, Japan and
Taiwan
From the current distribution of the major Indian companies in China, we can find that they have
not established enough branches in Shandong Province and the northeast China. They should look

5. up for opening up delivery centers in the suggested regions including Jinan and Qindao so as to
have right people on board to serve prospective customers in their language.
More than 50% of the total IT business
(China) is generated from domestic
clients
Locations (under oval)such as North &
South Korea, Japan and Taiwan are the
neighboring countries which provide 45%
of the outsourced IT business in China
Indian IT companies have setup their
delivery centers in competitive eastern
Geographical
cities leaving upcoming hubs like
spread of IT
Chengdu (except Wipro), Chongqing &
hubs in China
Xi‟an
2. Trust building Exercise to capture local business opportunities (Cultural alignment)
Hofstede Model can be used to design business practices to align with Chinese culture; it can be
worked upon at five levels:
Power distance – Higher officials are responsible for decision making (Similar to India)
Collectivism versus individualism – Individualistic decision making (In contrast to India)
Femininity versus masculinity – Masculinity (India - balanced)
Uncertainty avoidance – Do not feel threatened by uncertainty (In contrast to India)
Confucian dynamism – Lookout for long term orientation (Similar to India)
Above guidelines can be used to conduct business and to build up the trust for long term business
associations. Branding can be done by developing and sharing successful case studies long with
client recommendations especially for the local business development in Chinese market
3. Focus on setting up small delivery centers in multiple geographies instead of large IT
Parks: There is a continuing and significant imbalance between supply and demand for skilled IT
labor, in the major cities. Gartner reported that IT companies offering pay increases between 20%
and 30% to attract or retain highly skilled technology workers, especially in the Tier 1 cities such
as Beijing, Shanghai and Guangzhou. Therefore to remain competitive Indian IT companies should
focus on building up small delivery centers in the upcoming IT hubs such as Chengdu, Qingdao,
Xiamen, and Xi‟an. There delivery centers then can be expanded as the talent base increases at
those locations.
4. Competitiveness: The 12th Five-Year Plan signifies key aspirations to close the income gap
between the richest and poorest citizens. As a consequence, all IT services providers should
expect increasing labor costs and increasing domestic competition. In order to remain
competitive, IndianIT companies should consider transferring some business into low-cost south
Asian countries, such as Vietnam, Indonesia or Malaysia.
Refer: Appendix A – „IT Hub Spread‟
Appendix B – „Geographical Spread‟
Appendix C – „Chinese IT Market Segmentation‟
Appendix A - IT Hub Spread in China

6. IT Companies (indicative, not
IT Hub Location Name Region exhaustive)
Call center of Shanghai OnStar
Xiamen South Eastern China Telematics
Guangzhou South Eastern China
Shenzhen South Eastern China TCS
Qingdao North Eastern China Genpact (2011)
Shijiazhuang North Eastern China
Jinan North Eastern China Microsoft (2011)
Patni, Annik, Infosys BPO (2011), DHC,
Dalian (Liaoning Province) North Eastern China IBM, Accenture
Beijing North Eastern China TCS
Tianjin North Eastern China TCS
Shenyang North Eastern China Upcoming
Changchun North Eastern China Upcoming
Xi'an-Shaanxi province
(Engaged in this new educational
revolution) Central China Vanceinfo
Nanjing Eastern China Vanceinfo
Ctrip, Baidu, Google, Tencent, Acxion,
Nantong Eastern China Vanceinfo
Shanghai Eastern China TCS, Infosys, Wipro, Mphasis, HCL
Hangzhou
(Engaged in this new educational
revolution) Eastern China Infosys BPO 2006
Chongqing Eastern China Microsoft (2011)
Guangdong (Nanhai district of Foshan) Eastern China Upcoming
Chengdu Central China Wipro, Vanceinfo
Semi Saturated IT
hubs
Saturated IT hubs
Upcoming IT hubs

7. Appendix B – Geographical Spread of IT Hub in China
Geographical Findings
--> Red dots represents the major locations where IT companies have setup their delivery centers.
--> 9 out of 11 outsourcing hubs are located on the eastern part of the country
--> More than 50% of the total IT business is generated from China itself
--> Locations (under oval) such as North & South Korea, Japan and Taiwan are the neighboring
countries which provide 45% of the Outsourced businesses to IT companies in China
--> Indian IT companies have setup their delivery centers in competitive eastern cities leaving
upcoming hubs like Chengdu (except Wipro) and Chongqing

8. Appendix C – Chinese IT Market Segmentation

9. References
1. Drivers of Success for Market Entry into China and India by Joseph Johnson & Gerard J. Tellis -
Journal of Marketing Vol. 72, 1–13
2. Entry modes of multinational corporations into China's market: a socioeconomic analysis by
Haishun Sun - International Journal of Social Economics, Vol. 26 No. 5
3. Multinational Companies and China: What future? An Economist Intelligence Report, The
Economist
4. IT Services Outsourcing Market in China 2010-2015 - Technavio.
5. Market Trends: IT Services, Asia/Pacific, 2011-2012 - Gartner.
6. China market forecast, segmentation and market overview report – DATAMONITOR.
7. chinadaily.com.cn for latest technology industry development news in China.
8. en.chinasourcing.org.cn for latest information technology industry news.
9. ibisworld.com.cn for latest information technology news.