Infosys : China IT is a tough market

Infosys China CEO Rangarajan Vellamore CEO said China IT is a tough market.

In order to address the $35-billion trade deficit, India has been insisting that China open its IT market more to Indian companies.

Chinese officials have maintained that there are no built-in barriers and the Indian companies have to compete in the market.

“There are some unwritten barriers in penetrating … and government projects. However, there is a lot more that can be done before hitting those barriers,” Rangarajan told PTI.

Almost all top brands of Indian IT firms are present in China, but they mostly service the multinational companies.

“Market entry strategy is about positioning as an alternative to global IT providers,which are well entrenched in Chinese markets,” he said.

Infosys China itself has been experimenting with various models with some success.

“We have to build case examples. Records elsewhere do not hold good in China. You have to start step-by-step with required investment and persistent campaign to demonstrate we can do better,” he said.

India’s over USD 100 billion software industry is focussed on the US as a major chunk of revenue comes from this market.

Chinese IT market in comparison is far smaller and profit percentages are not high.

“If you look at the Chinese IT industry perse, overall addressable market spending is about $150 billion on the IT space. It is about $14 billion per annum is the addressable space which is not big for Indian firms, he said.

The addressable market size of US market is about $600 billion and the Indian companies reaped more benefits there as they expanded on hardware, he said.

“A lot of homework has to be done to enter into the market. It could be acquisition, joint venture going on your own partnership. Find your own sweet spot and listen to the customer. Fame here does not matter. Prove and do well what he wants to accomplish. Then the customer will listen,” he said

“That is how we are making progress. By working with various Chinese companies we?have?created references,” he said referring to Infosys work with top Chinese diary firm Yily, which it got in a competitive bidding.

Infosys is working with several Chinese brands leaving aside multinationals, Rangarajan said.

On how Indian firms make themselves relevant to the Chinese market, Rangarajan said: “Chinese banks need us. They need pure services to bring trained talent to build and maintain systems. The systems are huge.

“They also have to transform their banks. Large banks are building their own systems with help of firms like IBM, but these are difficult to penetrate?as these contracts have bundled hardware and services,” he said.

However entry into tier two banks in China is possible using Indian services and this is where the Indian companies can do well, he said.

Chinese banks are looking for alternatives beyond global companies, be said and added that Indian companies need to work with local companies.

“We have to build case examples. Records elsewhere do not hold good in China. You have to start step-by-step with required investment and persistent campaign to demonstrate we can do better,” he said.

It is a matter of time to understand the needs of Chinese companies and Indian firms can bring in a blend of local and international capability, Rangarajan said.

On Chinese vis-a-vis US market, he said: “In terms of purchasing power parity, the US will have a revenue productivity of two-and-a-half times compared to China. …It translates the market size by less than two-and-a-half times,” Rangarajan said.

But at the same time the Chinese market is growing at a rate of 16 per cent which is a faster pace, he added.

“I strongly believe that though the size in the market may sound small. But based on my experience, it is a very critical market for innovation and future potential. Hence it is essential that Indian IT giants focus and invest early,” he said.

The spending is increasing and there is a lot of?transformation opportunities, the Infosys China CEO said, adding that the addressable spend is more there than the maintenance and support of systems. 

Also, there is a trust factor as there are projects involving state secrecy. These projects do not come easily and a long-term approach is required to build the trust factor, he said.

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