June 12, 2009 / 4:59 AM / in 9 years

As crisis bites elsewhere, Indian firms turn to China

MUMBAI, June 12 (Reuters) - When Tata Consultancy Services (TCS.BO), India’s top software services firm, set up a development centre in Hangzhou in China, one of the requests it had for the city’s vice mayor was for vegetarian food.

Less than three months later, an Indian restaurant was fully functional in the eastern Chinese city for TCS’s Indian workers, a signal of the high priority China has given to growing business ties with India.

“The Chinese government has always rolled out the red carpet for us,” said Girija Pande, head of TCS in Asia Pacific.

Despite a long border dispute that saw the two nations go to war in 1962, China is India’s biggest trading partner in Asia.

Some companies like TCS hope these ties could prove more resilient to the impact of the financial slowdown than business with the United States and Europe, a sign of shifting global economic sands as BRIC (Brazil, Russia, India and China) countries grow in wealth and clout.

“Entering China was part of our emerging markets strategy,” Pande said. “And now we’ve seen that not only is growth faster, they’ve also fared better in the crisis.”

Bilateral trade between China and India, old partners along the Silk Road, is valued at about $38 billion now, and India has the potential to export $157 billion in goods and services to China by 2020, Goldman Sachs has forecast.

From textiles and chemicals to IT, China has unseated Japan and is expected to soon replace the United States as India’s top trade partner. That may happen sooner than expected as the financial crisis has slowed IT spending in developed markets.

“Let’s admit it: China is a large opportunity,” N. Chandrasekhar, chief operating officer at TCS, said recently.

“Yes, there will be conflicts and challenges, but the opportunity is so huge.”

For more on emerging BRIC countries, click [nBRIC]


TCS, which gets more than half its revenue from North America, was the first Indian software firm in China in 2002.

China had a thriving hardware industry and a small software sector it was determined to develop along the lines of India’s $60-billion a year world-class industry.

So, in 2005, the Chinese government invited Indian software firms to partner it in a joint venture. TCS won that bid and TCS China, in which the Indian firm owns two-thirds, was formed in 2006. Microsoft later took a near-9-percent stake in the venture.

“When we first went in, we only had two concerns: given we were an Indian firm, would we be able to recruit local people? And, who would our clients be?” Pande said.

    As it turned out, the Chinese IT industry and IT students were well aware of TCS, and the Tata Group firm had no difficulty replicating its model of recruiting locals and training them.

    Starting with multinational clients such as General Electric (GE.N), Motorola MOT.N and Cummins (CMI.N), TCS was profitable in China in 15 months, and is now targeting local firms.

    “There are several large Chinese firms like Huawei and Haier that are going global. And everyone knows India and China are where the next multinationals will emerge,” Pande said, referring to Huawei Technologies Co Ltd HWT.UL and Haier Electronics Group Co Ltd (1169.HK).

    Business in auto manufacturing, textiles and chemicals has risen, but it is in IT the two are especially complementary, he said, with their focus on “cost-effective” hardware and software.

    Indeed, PC maker Lenovo (0992.HK) has found a ready market in India, and Indian software firms including Infosys Technologies (INFY.BO) INFY.O, Wipro (WIPR.BO) (WIT.N) and Satyam Computer Services SATY.BO SAY.N have followed in TCS’s footsteps, after initial concerns about intellectual property rights.

    Asia makes up 12 percent of TCS’s revenues now, and will likely contribute about 15-17 percent of revenues in 5 years, Pande estimates, when they will be about 5,000-strong in China.

    “The opportunity in China is for us to take,” Pande said.

    “We’ve grown steadily and slowly, following the old (Deng Xiaoping) saying that we have in all our offices there: ‘You cross the river by feeling the stones’.” (Editing by Jerry Norton & Ian Geoghegan)

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