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Dec 09, 2009, 12.14 PM IST | Source: CNBC-TV18

How serious is China threat for the Indian IT sector?

Global IT spending would be ahead of the economic recovery. That's the view from the industry body NASSCOM that expects China to be both a great opportunity and a threat for Indian technology companies.

Som Mittal, President, NASSCOM
Global IT spending would be ahead of the economic recovery. That's the view from the industry body NASSCOM that expects China to be both a great opportunity and a threat for Indian technology companies.

In an interview with CNBC-TV18, Som Mittal, President of NASSCOM spoke about the how serious is the China threat.

Below is a verbatim transcript of the interview. Also watch the video.

Q: We have seen a lot of IT companies, which are upping the work that they do in china, whether itís servicing or any other Ė do you see it picking up further?

A: China is an important country for three reasons. One is many companies are going to China to service the North Asian markets. There is a natural affinity for servicing Korea and Japanese and hence companies are in Dalian and in other places too.

The second thing is that many of our global customers are setting up operations in China and hence to service them we have enough domain expertise about them that it becomes important for us to service them when they go to China. The third is that the China Market itself is growing at fabulous rate. That offers a market opportunity.

So just like we have gone to the other countries, China itself is a destination country for us.

Q: Wipro says that they see China as an off shoring market very similar to India, though smaller in numbers. Do you see China becoming an important threat going forward?

A: Currently, as compared to our USD 50 billion exports that we do, I believe China export market is about USD 2 billion and their natural affinity and advantages in North Asia where they have advantages of both language and culture. But I am sure their aspirations are to become an off shoring destination like India.

However, Indian companies will have to continue to reinvent themselves to be ahead and I think that is what their aim is. The maturity levels of Indian service providers are notches higher. While China will catch up, I am sure India would move up the value chain to be able to offer higher value services.

Q: We see a lot of companies whether itís Wipro or Infosys ramping up the number of people they have in the US. Do you see that as a direct reaction to what has been happening on the visa front and do you see the trend continuing?

A: Indian companies are increasing their presence globally anywhere. Today its 7.5% of our population is foreign workforce. As we go up the value chain, itís very important for us to have local presence, be able to have local culture in the organisations and also to be offering a beachheads that we could create there. But more importantly, we need domain expertise.

In the past, it was very difficult for us to hire local citizens because they have choices. As you know that across the world there is scarcity of technical resources. But now that the jobs are less, there are not enough people to take them, I think this offers an opportunity for Indian companies to be able to hire.

They had announced their centerís much earlier. So Infosys, TCS and Wipro had announced their local centers almost two years back and now they are strapping up the recruitment there.

Q: Let us talk about the recovery. We have been seeing that reflected in the quarterly numbers for most major IT companies but are we really out of the woods? What is your assessment in terms of clients spending at this point in time?

A: The worst of the downturn seems to be over. That shows in terms of the trends that are going on. We have met also very large number of customers and the dialogues have changed from cost reduction etc, to how they can transform their companies, how can they get cost efficiencies downstream and how can they introduce new business models.

In all this IT would be required and hence IT spending would be coming in. I would believe that the IT spending will be ahead of the economic recovery because economic recovery would be because of the three changes that I said would happen. However, we still think that the transactions volumes are yet to go up. But the fact that we as an industry are now penetrating new markets, new verticals and also new customer segment will keep our growth rates going.

Q: We are also hearing of many US companies moving their offshoring business that was being done in India back to US. What is your own reading of these trends?

A: It is marginal if at all. The fact that we still have 4-7% growth rate here inspite of the downturn, would indicate that any such instance that you might have found is probably anecdotal and it is not a trend. I do not think very much is moving back because we are so embedded into the system.

There have been only one or two instances where people had surplus employees on their rolls and based on the Union activity etc they found it better to have them deployed but I do not see any trend of work moving back into US or any part of the other countries.

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