India China IT Giant

The IT industry of India has been a blue chip industry not only for the country but also worldwide because of its global contribution of the English speaking knowledge workers especially from the areas of IT and management. However, recently China is emerging as a very strong competitor for the same reason. The author does a comprehensive analysis of the scenario.

In the last one-decade Indian IT industry – both in India and abroad, especially its presence in the USA – has become a case study for many analysts and institutions. The phenomenal growth and its economic, cultural, and social impact could be seen in the entire Indian subcontinent. Mushrooming of It institutions, presence of qualified and trained IT engineers in every house of middle class became a mass phenomenon in India. The sky rocketing share prices of the Indian IT companies on the stocks created a mass hysteria in the entire business and social community of the country. IT in the last one decade not only became fashionable but also necessary for each and every sector of the Indian human race to be part of it. The race of IT and the brain drain of IT human resources became a business model for the Indian IT industry.

Let us look at step-by-step analysis of the Indian IT industry, which for the last couple of years has started facing competition from its neighbor China. Incidentally China proposes to be less a competition and more a challenge to India in this blue-chip industry revolution.

Consider the wider Arena before defining the industry (widen thought process of the arena the industry is set in)

  1. Indian IT industry has a deep root in its political legacy, starting from its regime under the British.
  2. British gave India the system to run the country, have a formidable and scalable education system, and most of all India learnt to adopt English as one of the language of not only communication, education but also work and adapt to the English culture and English language
    to become an extended part of the global phenomenon.
  3. Incidentally, Jawaharlal Nehru, the first Prime Minister of India, learnt from the Britain the modalities on which the country should be established as an independent and self-dependent sustainable and scalable country. He created world-class Public sector business units with foreign collaborations, beside having absolutely international level management and engineering institutes.
  4. All those 5 IITs (Indian Institute of Technology), and 5 IIMs (Indian Institute of Management), established in 60s and 70s, became the breeding ground of managers and engineers to finally spread across the world acquiring leading positions, and influencing business strategies and finally becoming the source of inspiration of the rest of Indians to adopt acquire managerial and engineering skills to excel in the global business scenario.
  5. The success of Indian engineers in the emerging IT business across the world inspired the average economy class Indian so much that every house started producing engineers.
  6. This chain reaction ignited education, business, economy, and average life style.
  7. In the last 20 years every corner of the country mushroomed with management and IT training institutes, producing IT engineers in bulk, and all of them speaking English language
  8. Even being the second biggest population in the world, India converted its population into advantage of producing skilled engineers in high population.

Mapping the industry’s Activity Chain (all the stages involved in the industry)

a. The Indian IT industry is a gamut of following activities
b. Mass level IT training and Education
c. Mass level availability of IT institutes
d. Mass scale facilitation of place and business centers across all states
e. Adoption of IT friendly policies by the government
f. Tax Holidays
g. 100% foreign direct investments
h. Easy availability of Venture Capital and VC institutions
Emergence of casual and formal entrepreneurial guidance by the successful Non Resident Indians
i. Emergence of the trend of establishing offshore development center by major MNCs
j. Mushrooming of establishing eCRM and Call Center companies in order to
remotely manage their customers anywhere in world
k. Natural expansion/diversification into the IT business by majority of traditional business houses
l. Government’s time bound plan to migrate to e-governance
m. Development of Language technologies to fight digital divide

The Industry’s Structural Attractiveness

a. Supplier Power: In the case of the Indian IT industry, the supply lies in
the availability of IT engineers and IT managers at a mass level to fulfill the requirement of not only the domestic market but also the international market. Although, the supply power is quite strong so far, however, Indian IT industry is still short of fulfilling the International scale of IT HR requirement, and China is fast emerging as the source of IT HR facilitation.
b. Entry Barrier: Mass level production of IT skills and availability of such
skills in English have some the major entry barrier that Indian IT industry has created. But this may not last long, as china is emerging as a very strong competitor to offer IT skills to the world market. In addition, China is offering in many cases, better quality than India, and facilities in their country than Indian counterpart on Indian Territory. It is also learnt that china’s environmental attractiveness is superior to India, as the latter’s political environment is unstable.
c. Industry Rivalry: There is however no internal rivalry in the IT industry
in India. In fact, Indian IT industry is considered to be extremely common-sensual, forthright, accommodating, and entrepreneurial.
d. Substitute: Globally, there is not substitute to IT per se. However, IT
itself is innovating many substitute within itself for its various ingredients, for example, wireless technologies as an alternative to Wire technology.
e. Buyer Power: The buyers of the Indian IT industry belong to worldwide. It
has been learnt that there is hardly been any alternative to buyers as far as their need of IT solutions and skills are concerned. However, buyers have been innovating new ways to cut the cost of buying Indian IT skills and solutions. For example, many of the multinational giants have started establishing their Labs, R&D units, and development centers in India to use the Indian IT skills and human resources locally at a local cost.
f. Government’s Role: The role of the government in the context of the Indian
IT industry can be analyzed, if not as favorable, but certainly as non-interfering. However, in a competitive market scenario where China is emerging as a very strong contender and facilitator of IT based skills and knowledge, the Indian government needs to be more proactive, aggressive, and innovative to keep the edge.

Fleshing out industry knowledge with Fact Sheets

a. Refer Annexure 1
Subdividing competitive approaches into Strategic Groups (individual approach from companies to the industry or inside the industry)
b. Many companies inside the industry expanding into creating knowledge and
skill based services for what IT-enabled services like call center, eCRM, training and educational institutes, etc.
c. Telecom companies are proactively establishing creating information infrastructure like information highway, or countrywide information backbone, and data centers
d. Many NRIs (Non Resident Indians) are investing in India after having made lot of money
e. Many NRIs belonging to VC and investment companies motivating the investor institutions to invest in India
f. Many IT companies are expanding into biotech area

Specifying key factors for Success

a. Highly skilled IT/IS engineers, managers, and other human resources
b. English speaking Industry
c. 24 hour working zone
d. Highly economical labor
e. Mass level facility of training and management institutes for IT and IS

Competitor Analysis (China is the best competitor to Indian IT industry)

a. China, the nearest and potential competitor is a more organized and economically
better country
b. China is catching up fast becoming English speaking country
c. China has better manufacturing facilities and experience
d. Better value chain
e. Competitive Price and cost policies
f. Far better infrastructure, both traditional and information
g. Better literacy and education level
h. Better Environmental attractiveness
i. Better political situation or Politically more stable than India
j. China is good at Hardware and software both, whereas India is weak in Hardware manufacturing and innovation

Annexure – 1

Industry Fact Sheet

1. Industry Size: Approx. USD 10 Billion (Average annual growth = 35%)
2. Customer Descriptors: Information Technology users across the world,
major from US, Europe, and south East Asia
3. Product/Services Description: All kind of Information Systems solutions
4. Price Behavior: Competitive and affordable
5. Cost Behavior: Cheap Skilled Labor, Low Cost
6. Channel Structure: Management and IT training institutes à Mass production of IT & Management Knowledge workers à Mass deployment as well as brain drain of such skilled HR à Mushrooming of IT solutions companies and Entrepreneurship à Investment back in the industry by Entrepreneurs and VCs and Industries à Cycle in process
7. Competitive Structure: More countries like China is into mass production
of knowledge workers, the dire need for India to scale up their advantage and also get into high quality mass manufacturing capability, to offer knowledge workers in European and pacific languages as well, scale up the capability from services level to product level, and so on
8. Supply Structure: Almost on the same lines as Channel structure
9. Other Key Descriptors: Very high population of English speaking software
and IS/IT engineers, managers.
10. Key Factors for Success: English speaking, high Mathematical skills,
well educated, adaptability to foreign especially English culture.
11. Key Environmental Considerations: Easy and affordable availability of IT/IS training and management institutes, fast adoption of international trends, 24 hour working time zone
Annexure – 2
Typical Factors used to Evaluate SPACE dimensions

1. Key Considerations for Competitive Advantage

Factors                Favorable / Unfavorable (Scale 0-6)
Market Share    1
Share Trend     3
Product Quality    4
Customer Spread    6
Customer Loyalty    5
Price      4
Value Proposition    5
Technology Know How   5
Investment Level    5
Asset Utilization    5
Labor Productivity    5
Direct Cost    3
Level of Control    4

Total Score    55
Divided by 13    4.2

2. Key Considerations for Financial Strength

Factors    Favorable / Unfavorable (Scale 0-6)
Return on Investment   5
Return on Sales    5
Cash Flow    5
Leverage     4
Liquidity     4
Capital Required/ Available   4
Ease of Exit    4
Risk Involved in Business   4
Relative Financial Performance  4
Relative Share Price Performance  4

Total Score    43
Divided by 10    4.3

 
3. Key Considerations for Industrial Attractiveness

Factors                Favorable / Unfavorable (Scale 0-6)
Growth rate     6
Life Cycle Stage    6
Competitor Concentration   4
Ease of Entry    4
Differentiation    5
Customer Concentration   4
Capital Intensity    5
Industry Occupancy    5
Technology    4
Labor Productivity    6
Price/Cost Trend    5
Profit Potential    6
Financial Stability    5

Total Score    65
Divided by 13    5
4. Key Considerations for Environmental Stability

Factors                 Favorable / Unfavorable (Scale 0-6)
Social Trends    3
Economic Climate    3
Political Change    2
Legal Compliance    3
Ecological Outlook    3
Technological Change   4
Demand Variability    3
Barriers to Entry    2
Cost/Price Balance    3
Competitive Pressure   3

Total Score    29
Divided by 10    2.9

SPACE Analysis

The SPACE analysis of the Indian IT industry gives an interesting result. It falls strongly in the area of CONSERVATIVE and DEFENSIVE. This is serious scenario as far as Indian IT and IT-enabled services are concerned, especially in competition to the emerging competition by China. China’s leadership in being a better country for manufacturing, political stability, and economic strength are creating better situation for the rest of the world to choose China in competition to India.

It is therefore, extremely important for India to work on its political and economical stability, besides developing strong base for manufacturing. Also, since Indian IT industry has an advantage only in English, it has to develop its skills availability in majority of European languages and Far-east languages.

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