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.

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.