Is China Better Than India in Software?

There’ a lot of interest in business schools around the world on a China and India comparison, especially with respect to the IT industry. Is it safe to ask, “is China’s Software industry better than India?” And, can China match India’s fast growing software industry, which grew at 13% in 2015 according to NASSCOM, earning $146 billion in overall revenue?

So, Can China Ever Catch Up With India’s IT Industry?

Well, China is nowhere close to matching Indian IT companies such as TCS, Infosys, Wipro or HCL Technologies, and it is not for the want of trying. Indeed, the Chinese government has made a concerted effort at building its software industry.

The Importance Of The English Language

Many Chinese universities offer specialized training to students in various programming languages such as C, C++, Java, C#, etc. The Chinese government knows very well that lack of fluency in English is a major handicap for young Chinese professionals, which is why they find it hard to compete in the software industry.

Regardless, experts are of the opinion that Chinese outsourcing firms are unlikely to catch up with their Indian counterparts in the near future. This is despite the push given to the local software industry by the Chinese government.

In a study titled Providers in China and USA: Preliminary Comparison, Professor Arie Y. Lewin, of the Fuqua School of Business, Duke University says that the IT industry is reaching a saturation point because of the intense competition among Indian, American and European firms such as TCS, IBM, Capgemini, Accenture, Infosys, etc. With so many established players already in the business, it’s hard for a new IT company from China to make much of an impact.

In an interview with the Indian financial daily, Mint, Prof. Levin said,

“It’s been very hard for Chinese outsourcing firms to break into the top; it’s partly not their fault because the timing was wrong. They’re not trying to take the share away from a growing market; they’re trying to take away share from existing players, which is much more difficult.”

The language barrier is a huge problem and the lack of English competency in China has made it very hard for Chinese IT companies to get IT contracts. Also, Indian IT companies such as TCS, Infosys and Wipro have been around for more than three decades. Most Chinese IT companies are less than a decade old. There just isn’t the experience or the track record which would allow the CEO of Fortune 500 company to justify trusting Chinese IT firms with a major contract.

Another problem faced by China is that its best and brightest engineering graduates aren’t really looking for programming jobs. They’d rather work in the manufacturing sector, where China is a world beater. Of the 1.1 million Chinese engineering graduates, only a tiny minority look at programming as a career option.
This isn’t an issue in India. Most of India’s 1.5 million engineering graduates compete for a job in the country’s software industry. The competition’s very intense and a vast majority end up getting rejected. It’s very, very difficult to get a programming job in a top Indian IT company.

There is no doubting China’s huge ambitions in the IT industry. But the country’s IT companies have completely failed to articulate a convincing value proposition to prospective clients in the US and Europe, according to Frederic Giron, principal analyst at Forrester Research Inc., 

Mr. Giron says that by focusing entirely on low-end application development services, Chinese companies have lost out to their more experienced competitors from India, who are both bigger and nimbler, and have the ability to offer the lowest possible costs for the long-term.

Indian IT companies are also a lot more profitable. Their profitability has been in the range of 15 to 25 percent over the last few years. Chinese IT companies have a profitability of 10 to 15 percent. So Indian companies have a huge advantage here – they simply make more money than their Chinese competitors.

But this is just the beginning for China’s burgeoning software industry. Young Chinese IT companies such as Yucheng Technology, Camelot, AsiaInfo-Linkage and Pactera have already made a name for themselves in the industry.

There’s no reason why these companies cannot succeed once they adapt themselves to the harsh realities of the global IT industry. They just need to find an area where they have a competitive advantage over the competition from India.

For example, it makes sense for Chinese IT companies to focus on serving Japanese and Korean companies, instead of competing with Indian firms for business from Western clients.