China eating into India’s IT R&D pie

BANGALORE: It’s a finding that shatters the perception that China was only getting low-end IT jobs and India was the research and development (R&D) hub for software and product development.

A study by research firm PricewaterhouseCooper (PwC) and Duke University, released on Wednesday, reveals that China is eating into India’s software and product development market share. India’s share in the global software and product development market has shrunk from 68% before 2002 to 55% between 2002 and 2004. It has fallen another 5 percentage points in 2005-2007 to 50%.

Duke University professor Arie Y Lewin, who headed the study, says the country’s share is set to drop further in the next five years by 10 percentage points to 40%.

India’s loss has been China’s gain, with the neighbour’s share growing from 1% pre-2002 to 9% in 2005-2007. Hari Rajagopalachari, executive director of PwC, says China’s market share is shooting up because product and software development is following manufacturing.

“With huge engineering talent, China has developed its product capability. Also working to its advantage is the fact that most companies have located their manufacturing base there (in China),” said Rajagopalachari.

Indian behemoths like Infosys, Wipro, TCS and Satyam are being challenged by smaller Chinese IT firms, which employ 8,000-10,000 people. The top five Indian IT firms have a workforce of over 75,000 each.

Manchester Business School’s Dr Silvia Massini, who was involved in the study, says that the Chinese are more competitive because wages there are lower than those in India. “With wage inflation, India is losing some of the edge it had. Chinese companies can offer better pricing. They are also as sophisticated as their Indian counterparts,” said Dr Massini.

However, Indian IT majors begged to differ. Girish Paranjpe, co-CEO of Wipro, says that the argument that China is emerging a big threat to India in the software and product development space isn’t convincing. He feels China’s manufacturing strength does not automatically translate into opportunity in this space. “There is no denying that China’s engineering base is comparable with India’s but we beat the Chinese in domain and other expertise,” Paranjpe said.