Make IT in China, Integrate IT by India

It's all about the Golden Triangle: The U.S., China and India (in this order, although “USIC” makes for a better acronym – and I still prefer “Golden Triangle”). There is some talk about the BRIC countries, stressing that Brazil and Russia should be added to the equation, but this is farcical. Even BRIC protagonists acknowledge the fact that China has a GDP that exceeds the combined GDP of Brazil, Russia and India – and this won't change for the foreseeable future. Frankly, China stands on its own, with India a distant second, and Brazil and Russia both small objects in India's rear-view mirror.

Within the framework of the Golden Triangle, the most important question to be answered has nothing to do with IT, IPR or R&D, but “whether the conceivable rise of China and India to become potential great powers in the coming decades, (and) the accompanying relative loss of power of the USA ... will lead to a renaissance in the power rivalries of great actors and possibly even to violent conflicts.” The February report issued by the Friedrich Ebert Stiftung Foundation goes on to note that “many neorealist authors consider military conflicts between rising and declining hegemonic powers as almost inevitable,” something implied by Henry Kissinger during his recent trip to China. And whether the dawn of a de facto East Asian NATO will make war less likely is anyone's call, especially since China is already developing capabilities designed specifically to thwart U.S. Pacific Command forces. (See the 2007 RAND Report titled, Entering the Dragon's Lair: Chinese Antiaccess Strategies and Their Implications for the United States.) This column, however, assumes that armed conflict is not inevitable. Wishful thinking on my part? Perhaps, but I hope not.

On the macroeconomics level, it's all about trade (which I'll cover in another column) and the RMB. As we all know, there is seemingly endless chatter about the need to revalue (actually, upwardly value) the RMB, although there are voices of reason from the likes of Morgan Stanley's Chief Economist as noted in his testimony a few weeks ago before the U.S. Senate Finance Committee. Besides, a discussion paper published by Japan's Research Institute of Economy, Trade & Industry found that a unilateral appreciation of the RMB wouldn't have a major impact on addressing trade imbalances. (Uh ... hasn't Greenspan been saying this for the past several years?) Fortunately for China, there are also voices, such as Lloyds TSB, crying out for revaluation of both the renminbi and Indian rupee. Very slight advantage to India, if for no other reason than the fact that revaluation of the renminbi gets a lot more mind share in the States than revaluation of the rupee.

Although revaluation is a “big picture” item, it's hardly a show stopper to doing business in or with China, especially when comparing options versus India. So, how does China stack up against India, especially as a destination for software development? This is the main issue I will address in this essay, albeit primarily from the perspective of third-party offshoring and outsourcing options for ISVs.

One key point to consider is that sales of “Made in China” software exceeded $30 billion last year – and this is a conservative estimate. This is a larger number than the combined top line of the top Indian globals, but I realize that it's not an apples-to-apples comparison. Nevertheless, $30 billion is a huge sum, especially considering the ASP of a typical software package in China. Translation: That's a lot of units!! And although some may think that it's primarily embedded, well, think again: UFIDA alone employs over 10,000 software engineers (possibly as many as 20,000) – and their focus is on the enterprise space, not the embedded sector. How many software engineers are employed by Infosys?

Fact: The reason that China's ITO sector is behind India's is not because China's software industry is weaker than India's, but because the main driving force is the domestic (in China) demand for IT services and software engineers. Think Baidu. Think Alibaba. And keep thinking. It's a long, long list. My point is that China should not be discounted; China can do a lot more than just localization (L10N) and manual software testing. How about conversion of UML system models into a rigorous RTPA notation (let's face it, UML is hardly rigorous), model abstraction as a route to cost-effective model checking, using use cases for requirements validation through simulation, or mixed language programming (because sometimes Java just isn't enough)? This is all about state-of-the-art software development; it's also all about what can be done in China.

One problem is that India's ITO sector gets India's best and brightest; unfortunately, the ITO sector in China gets China's dumb and dumber, the better software engineers opting for MNCs or domestic ISVs. Fortunately, there are exceptions to this general rule. Of course, we're an exception. (Hey, we're Tsinghua. What can I say? MIT-ish talent pool.) And other exceptions include Augmentum (a Silver Sponsor of SOFTWARE 2007), Achievo, Freeborders, iSoftStone, HiSoft and Neusoft. Best-of-breed: You're looking at the list. For my money, I'd say it's us and Augmentum – but I'm biased. But any way you slice it, this is the short list. Don't believe the goofy awards you may have seen; they're an absolute joke, groundless or worse. A web design firm hailed as a top five player in China, a “Top Gun” awarded to a firm that has 90+% of their revs from manual testing and L10N. All the awards are meaningless, a better demonstration of a firm's marketing and PR prowess than its technical development capabilities. But show is big in China. Here it's often not what a firm can do, but how well they can dance. Better metaphor: How well they can sing at a KTV bar.

So am I foolishly claiming that China is on par with India? No, I'm not. What I'm suggesting is that there are some good firms and there's a lot of good talent in China. Enter, software development. But there's one area where China is weak, extremely weak: Packaged apps integration. This is really where China falls flat on its face. Freeborders and iSoftStone do some of this, as does Achievo, but few firms in China can do it well. The best, quite frankly, is the China ops of the old IBM Global Services (I don't recall which name they're using this week.) And with 1,900 applicants for every open req, trust me, they get good talent.

But if I really needed packaged apps integration, even in China, I admit that I'd look at IBM and an Indian global, maybe one domestic pure-play. And if I wasn't in China, I wouldn't look for a China-based integration firm, even if the firm is headquartered in the States (in other words, if the development team is in China and you're in America, run as fast as you can). I'd look at Cognizant, maybe one other Indian global, one American SI. I wouldn't waste my time with a China option. Bottom line: When it comes to packaged apps integration, India is your best port of call. But when it comes to software development and ADM, China should, at the very least, be a port of call.

Next: It was recently “IPR Week” in China. I'm not kidding. A report in my next column.

Based in China, David Scott Lewis is SVP with Startech Global Corporation, the outsourcing hub for Tsinghua University (China's MIT). In addition to his bizdev/GAM responsibilities, he authors their Tech China blog.