China could overtake India in IT-ITES
Source: http://letswatchstocks.blogspot.com/2007/11/china-could-overtake-india-in-it-ites.html
Date: November 1, 2007
China could overtake India as the most preferred outsourcing destination in the next 3-5 years on the back of an educated workforce coupled with strong government emphasis on IT-BPO sector, according to a study. "The IT-BPO industry in China is still in its early phases of evolution but it has the potential to develop a large IT-BPO industry," the study on 'Tracing China's IT Software Services Industry Evolution' by industry body Nasscom said. The software and services revenues in China is estimated to grow at 22 per cent to reach 28 billion dollar by 2010 including domestic market at over $20 billion, the study said. China has recorded $12.3 billion of revenues in this sector in 2006. India's IT Software and Services Revenues is likely to reach 50 billion dollar in 2007-08, according to Nasscom. The current industry landscape in China bears some resemblance to earlier years of Indian IT-BPO industry but systemic weaknesses and comparatively evolved demand and competitive environments are some of the challenges. Nasscom also suggested a collaborative partnership between Indian and Chinese companies. Nasscom President Kiran Karnik said that the Indian expertise in IT sector combined with manufacturing dominance of China could be one of the possibility for a partnership. Indian IT-BPO exports are mainly serving the US and the UK markets, which together account for over 80 per cent of the total exports. On the other hand, China's key export market areas are Japan and Korea, where it has certain inherent linguistic/cultural advantages, the survey noted.
China and India 'could lead in IT'
Source: http://news.bbc.co.uk/2/hi/south_asia/1765525.stm
Thursday, 17 January, 2002, 12:23 GMT
India is ahead of China in software - for the moment
China and India could dominate the global information technology market if they combined forces, according to Chinese premier Zhu Rongji.
You are number one in terms of software we are number one in terms of hardware
Chinese premier Zhu Rongji
Mr Zhu, addressing Indian IT leaders in the southern city of Bangalore, said that if Indian software was combined with Chinese hardware, it would lead the world.
The Chinese leader is on an official visit to India - the first by a Chinese premier in a decade.
He has already called for the two Asian giants to boost trade and economic co-operation, and has voiced his condemnation of the recent attack on the Indian parliament.
Future 'rivals'
Mr Zhu used his address to IT leaders to give approval to India's best-known software firm, Infosys, to set up an operation in the city of Shanghai.
Beijing is eager to develop ties
He said that China's huge population and vast potential market made it an attractive location for Indian firms.
However, the head of Infosys, NR Narayana Murthy, had earlier given a warning that China could overtake India in the global software market if it was not careful.
He told the BBC on Wednesday that India should learn from the Chinese experience in opening up new markets, implementing quick decision making and improving basic infrastructure.
In 2001, Indian software exports reached $6.2bn while China's have yet to reach $1bn.
However, the business research group Gartner has said that China could eventually overtake India as the main IT outsourcing hub for US companies.
Possibilities 'immense'
Kieran Karnik, the President of the National Association of Software and Service companies in India told the BBC's World Business Report that he welcomed the comments of Mr Zhu.
"China is strong in hardware, their facilities, their abilities and their costs are such that they are already dominant in a large part of the manufacturing arena," he said.
"India is a major leader in software, we have a lot of things going for us - quality, productivity and of course cost effectiveness," he added.
"If we marry the two, I think particularly in certain areas like embedded software, like consumer durables which use a lot of computer technology within them, where manufacturing quantities are large and cost need to be low and the software needs to be cleverly designed, I think the possibilities are immense."
Co-operation urged
Mr Zhu has said on his currenthas said the two countries should work more closely together in other fields.
He called for them to envisage a future based on "harmony and friendship."
Bilateral relations have been overshadowed for decades by a still unresolved border dispute and by China's close ties with India's rival, Pakistan.
But analysts believe China may be ready to overcome years of mistrust in order to counter growing US influence in South Asia.
Software Wars: China vs. India
Source: http://www.wired.com/techbiz/media/news/2002/04/51706
Manu Joseph 04.25.02
MUMBAI -- The Indian software industry has been afflicted with "China-phobia" for over a year, the fear being that its neighbor could supplant India as the digital software giant of Asia.
But the National Association of Software and Services Companies (NASSCOM), which had earlier issued warnings, has now said that China is not a threat until at least 2005.
"Indian industry is substantially ahead of the Chinese software industry, not only in terms of revenues but also quality, skilled manpower, project management capabilities and execution skills," said Sunil Mehta, vice president of NASSCOM.
Mehta, who recently visited China, said the Chinese government has officially projected it would achieve $1.5 billion in software exports in 2005; the Indian projection for 2005 is $23 billion. Chinese exports between April 2001 and March 2002 stood between $400 million to $600 million, while Indian exports for the same period were $7.8 billion, Mehta said.
Yet while those projections comforted Mehta, a top executive of a software firm in Hong Kong scoffed: "No Indian company in its right mind should fall for this false sense of security," said the executive, who spoke only on condition of anonymity. "Figures lie. One fine day India may wake up to the fact that China has beaten it to the finish line."
The executive declined to elaborate on what exactly China is doing to achieve this end. And while the executive's decision to remain anonymous might seem unnecessary considering the innocuous nature of his boast, one Indian investor says it's all part of the way the Chinese do business.
"Many corporates there have taken a policy decision not to react to the Indian software industry. They don't want Indian companies to get a clear idea of what they are thinking," said investor Mahesh Murthy, who watches the industry and the markets closely.
Murthy, and others in the industry spoken to for this article, dismiss NASSCOM's newfound optimism as little more than cheerleading for the home team.
"I can tell you that this talk about China not being a threat only helps in guarding Indian software companies at the stock market," Murthy said.
The reality, he and other industry people said, is stark. While until about a year ago top Indian service firms were charging American companies $75 to $90 an hour, today the figures are merely $6 to $9. Murthy believes that China will very soon do the same job at about $3 an hour -- and that will bleed Indian firms to death.
The projected growth rate for the Indian software firms between 2002 and 2003 is about 20 percent, a tremendous decline from the recent days of more than 100 percent annual growth. "Even steel companies grow at 20 percent," an observer said.
One of the factors that Indians count on in securing software contracts is their mastery of English. The Chinese, meanwhile, have only recently begun to emphasize English in their schools.
When China was bidding for the 2008 Olympics, the mayor of Beijing announced that every man in his city will learn to speak English if the sporting event comes to his town. China has bagged the right to hold the Olympics in 2008, and there are some Indians who think it's a bad omen.
Ironically, China's rapid growth in Internet technology could wind up being a plus for India; many are beginning to view China as a great market rather than as a potential competitor.
The size of the Indian domestic market fades in comparison with China's. India has just 7 million Internet users while China has 34 million. This means that while 68 Indians in 10,000 have access to the Net, the corresponding figure for China is 260.
"Indian IT companies seeking to globalize their operations should evaluate China as a huge potential market in telecom, financial services and manufacturing sectors," said Nandan Nilekani, CEO of India's Infosys, which is very serious about doing business in China. "China could also serve as a base for software development for Indian companies."
Budget 2007: Causing concern for the Indian IT industry
Source: http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=51104
NASSCOM Web Architects
The 2007 Budget has spelt dismay, rather than delight for the Indian IT-BPO industries. The February 28 announcements by Finance Minister P. Chidambaram on the floor of the house, have drawn more frowns than cheers from the IT sector.
Commenting on Budget 2007, Rahul Gupta, Vice Chairman, Storage Networking Industry Association (SNIA) said it was disappointing and did not recognize or acknowledge the substantial contribution of the Indian IT industry to the country’s economy.
A quick study of the Budget indicates the concern areas, that are likely to have a detrimental impact on the growth of the Indian IT-BPO industries. Meanwhile, here are the changes that have been ushered in by Budget 2007.
Effective corporate tax for domestic companies up from 33.66 to 33.99 percent as a result of an increase in the education cess from 2 to 3 percent. Limited relief in the form of abolition of surcharge for companies whose income is up to one crore rupees.
Dividend distribution tax increased from 12.5 to 15 percent, resulting in effective DDT going up from 14.025 to 16.995 percent.
Proposal to extend MAT to income in respect of which deduction is claimed under sections 10A and 10B. This introduces a 11.33 percent cost to such operations—while creditable in future, there will only be a three year window beyond the expiry of the tax holidays under these sections to set-off the MAT paid during the year 2007-08. SEZ units seem to have been left out of the applicability of the MAT.
SEZ units faced with restrictive covenants imported from Chapter VIA and sections 10A/10B. These now restrict tax holidays to units that are not formed by splitting up, reconstruction, and clearly spell out the intent of law to provide section 10AA exemption only to “new” units, contrary to the belief held in some quarters.
ESOPs brought under FBT. The value of the fringe benefit to be determined, in accordance with a prescribed method, on the date of exercise of the option. Introduction of FBT on ESOPs likely to hit several compensation schemes, burdening employers with additional cost. The entire Fair Market Value will be the taxable value of the fringe benefit, resulting in a tax rate of 33.99 percent on such costs.
Indirect Tax
Test of Export of services made simple, instead of delivery and use outside India, the test to be “provided from India and used outside India.” This could help determine the eligibility for exemption of certain IT services with more clarity
Service tax extended to rentals on leasing of immovable property for commercial and business purposes. Introduction of service tax on commercial renting of premises to add to the costs of software companies which will be badly hit as their services are treated as “non-taxable” and hence, refund of such service tax would not be possible
Content services for on-line information and database access or retrieval services liable for Service tax
Maintenance or repair services to include software services as well
Rs.33 crore allocated for a new scheme of manpower development for the software export industry
The IT-BPO industry feedback
Budget 2007: Maintaining a fine balance
The plus side
fiscal deficit brought under control
education and healthcare given a focus
the allocation for eGovernance increased by nearly 100 percent
surcharge on Income Tax for companies with taxable income below Rs. 1 crore removed (case for hiking this limit further to Rs. 5 crores, if the objective is to really benefit all SMEs)
enabling mechanism suggested to permit Indian companies to unlock a part of their holdings in group companies for meeting their financing requirements by issue of exchangeable bonds. Specific details of this awaited
The minus side
IT companies brought under the Tax Net with the levy of FBT on ESOPs
a 2.5 percent increase in Dividend distribution tax
no attractive deals for individual tax payers (including the IT people)
new education cess (of one percent), and add on service Tax for houses being used as commercial office premises had been levied
increase in CTC per employee for the employers on account of above moves
By Vikas Kakade, CEO, Yaan eSites Ltd.
The Indian IT-BPO industries have expressed apprehension at some of the regulatory changes suggested by Budget 2007, stating that these could have a negative impact on the growth of the sectors in the years ahead.
Lathika S. Pai, CEO, Fides Global Consultants said India’s competitive edge in IT and ITES as the preferred destination for off shoring was currently being threatened by various factors including rising costs in real estate, salaries and a shortage of skilled workers. Overall the budget had not been favorable to the industry, as the cost advantage was getting severely diminished. “Factors like the talent shortage, would result in global CEOs and CIOs reconsidering their reasons for off shoring to India.
A “MAT”ter for worryNASSCOM, meanwhile was also unhappy over the proposal to extend MAT on export incomes which were exempt under Sections 10A and 10B. “This is a regressive step that withdraws the government’s commitment to provide tax incentives till 2009, on the basis of which companies have made their business plans and investment decisions. This could affect investor confidence and growth in this sector which is not only India’s biggest exporter (US$31.6 billion in 2006-07) but the biggest employer in the organized private space,” stated a Press statement released by the organization.
NASSCOM’s expectation was that the introduction of MAT would be accompanied by an extension of the STPI scheme (and Section 10A, 10B benefits) by 10 years, a move that was considered critical to sustain the growth momentum of the IT-BPO industries.
Expressing his disappointment over the imposition of MAT, Ankur Lal, CEO, Infozech Software said that it was a disincentive for the entire industry and more particularly emerging companies, that were constantly trying to garner and preserve cash to help in their growth. Lal urged NASSCOM to take up the matter with the Government and redress the situation. The opinion was reiterated by Amit Godbole, Director-Finance, BMC Software. “The Budget was a big disappointment as far as the IT Industry is concerned. The introduction of MAT, the levy of FBT on ESOPs and the levy of the Service Tax on leasing commercial space will have a significant impact on the cost structure of IT companies and adversely affect the business planning that has gone in growing operations in India,” he said.
The Proposal to extend MAT to income in respect of which the deduction was claimed under sections 10A and 10B also elicited a strong reaction from T.S.T. Ramanujam, Vice President Finance, Serviont Global Solutions.
“This is definitely a retrograde step in the Budget. This amendment has definitely been introduced too early without clarity on the sunset clause of 2009. It would have been a welcome measure if this was taken up in the year 2009 coupled with an extension of the 10 year holiday period for 10A and 10B companies.” According to Narasimha Nayak, Chief Financial Officer, California Software, the Government, through the extension of the MAT had taken away the tax holiday status of export-oriented IT units two years ahead of the originally planned expiry date. “Even if the Government had not extended the scheme, it need not have tinkered further and dealt an additional blow to the industry by extending MAT. Such moves will make it difficult for any industry to believe in the validity of the tax holiday, introduced in the future. The additional cess of one percent has in fact increased the burden on almost all Infotech companies,” he stated.
Industry Wish List
Continuation of 10A tax holiday for at least another five years.
Extension of the STPI tax holiday beyond 2009 for aperiod of 10 years or more that is coterminous with the current IT-SEZscheme.
Change in the norm of area notified for the SEZ regime (1 mn sq ft built up area in a single location), which is not feasible for SME companies
Assessing officers to avoid absurd interpretations of the term Export turnover U/s Sec10B and avoid using any and all pretexts to disallow some or all part of export profits from software sector which are otherwise exempt u/10B.
Removal of ambiguities related to explanations of Section 10B that are used out of context by assessing officers and without proper application /understanding of the rules.
The other loopholesThe IT-BPO sectors also voiced concern over the selective pass-through status for venture funds and service tax on property lease, steps that would affect SMEs and start-ups. According to NASSCOM, the pass-through did not seem to include the BPO sector (including animation, gaming and KPO), a segment which accounted for about three-fourths of the IT sector venture funding.
It was stated that the higher costs for leased space would adversely affect SMEs, which did not own office space, and reduce the competitiveness of India vis-à-vis other destinations. A change proposed with regard to ESOPs was not in keeping with international practices. The tax needed to be payable by the employee only at the time of exercising the option.
It was also felt that issues like transfer pricing and the method of computation of export turnover had not been addressed by the Budget. The former was iof particular significance with regard to attracting foreign investments in this sector.
On a more optimistic noteOn the positive side, the IT-BPO industries welcomed the Government’s thrust on education, through the Sarva Shiksha Abhiyan and the ambitious new scheme of awarding one lakh fellowships to bright students every year, for secondary and higher secondary education. The IT industry was also happy about the creation of the Vocational Education Mission, the Upgradation of the ITIs and pleased about the Rs. 33 crore allocation for software manpower development.
Commenting on the boost provided to education and healthcare through Budget 2007, Krishan Dhawan, Managing Director, Oracle India said, it was a welcome move and important for the overall development of the economy.
“Education, as I have often said, needs greater attention, as this is where the future lies. Proper training and skill sets need to be imparted to the youth, if India has to attain and maintain a top rank in the global digital economy,” Dhawan said.
Dhawan also applauded the Government for its continued interest in supporting e-governance initiatives. “The increased budget allocation for e-governance at the center and state levels is a step in the right direction. Also, targeted funds allocated for computerization of the Public Distribution System can aide in enhancing the country’s food supply chain to ensure the supplies reach where they are most needed,” he added.
Infrastructure Scenario
Source: http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=6301
Credit for India’s rapid growth in the IT software services and ITES/BPO domains must go in part to the availability of a robust infrastructure (telecom, power and Roads) in the country. Relevant telecom facilities are an important prerequisite for the success of the software industry and over the years, the Government has taken steps to ensure that telecom remains a priority area.
Similarly, regular, reliable, uninterrupted power, a major necessity for running IT software and services businesses, has also received substantial attention from the Government. Recent steps to privatize the distribution of power and bring in greater efficiencies and customer centricity in the market, have been welcomed by the ICT industry.
The overall roads and highways scenario in India has also witnessed major improvements over the last few years. Most cities and fist and second tier towns are connected and interlinked to each other. Major investments have gone into the development of highways, both on the side of the central and state Governments. Clearly, the Indian Government has understood the importance of infrastructure to industries such as IT and created a conducive environment for its development and expansion.
