In the third century BC, a monk sent by India’s most renowned king, Ashoka, reputedly brought Buddhism to China. His journey over the Himalayas has had a lasting impact on Chinese culture.
Now a city in eastern China, is again looking to India for enlightenment.
Wuxi is hoping to reinvent itself as a software outsourcing powerhouse – and as a competitor to places like Mumbai and Bangalore.
It is an ambition rooted in economic necessity. Wuxi’s main local industries – textiles and solar panels – are facing central government reining-in because of nationwide overcapacity.
The city’s manufacturing base is also damaging Lake Tai, China’s third largest freshwater lake. A 2007 outbreak of toxic blue-green algae threatened the water supply of 30 million nearby residents.
The environmental crisis persuaded local planners to look at a wider range of commercial options, including the potential for service outsourcing, with an emphasis on IT.
In layman’s terms that means the grunt work of software development – the programming, the testing and the fixing of system bugs.
So the decision was taking to build large IT parks, with a plan to dedicate at least 6 million square metres to software outsourcing. Last year the city partnered with India’s National Institute for Information Technology to establish the NIIT (China) Outsourcing College.
The ambition is to develop Wuxi as the “leading outsourcing centre in China”, according to local Party General Secretary Yang Weize. Authorities hope for more than $30 billion of revenue, and at least a million service outsourcing jobs by 2020.
In the first six months of this year, the city won outsourcing contracts worth $1.14 billion, more than double the same period last year. Deputy Mayor Fang Wei believes “Wuxi is on its way to becoming a ‘little India’.”
Wuxi is one of several Chinese cities moving into service outsourcing, as the government looks for alternatives to manufacturing. Similar projects are underway in Beijing, Shanghai and Dalian.
In spite of the massive investment, China still trails India in the service outsourcing sector. India’s market share last year was 37%, while China commanded less than 10%. India also dominated in software exports, earning $47 billion, versus $14 billion from China.
Chinese companies are yet to build global brands or match the scale of the major Indian players, Infosys, Wipro, and Tata Consultancy Services.
Experience helps. India’s outsourcing record has built client trust, as well as best practice capabilities that may take Chinese companies years to develop.
Cost is another critical factor, and so far India is still cheaper. A recent survey by Payscale.com showed the annual median wages for software developers in India were $9,330 – less than half those in China.
But the trend may be moving in China’s favour. Hewitt Associates, a consultancy, predicts salaries will rise 9.2% in India next year, and only 6.7% in China.
Still, the main obstacle preventing China from challenging Indian dominance is language. Each year, India generates twice as many English-speaking graduates as China – that is about 450,000.
It’s a situation that could also work to China’s advantage, if its own sector focuses on non-English speaking markets.
Zhou Ming, deputy director of the China Council for International Investment Promotion, already sees opportunities for Chinese companies in Taiwan.
The hope is that they can also build on their existing client base in neighbouring South Korea and Japan too.
The domestic market is also becoming more lucrative, and has begun to attract Indian competitors. The top three Indian outsourcing companies have already opened businesses in China.
Recession in Europe and the United States has only made the service outsourcing industry more competitive.
Wuxi’s targets are lofty. However, having the infrastructure in place is only the first step.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.