India and China are long considering the primary and secondary outsourcing countries. While China has a head start  benefiting from  the manufacturing outsourcing boom, India scored big on the IT outsourcing with its huge English speaking skilled graduate pool.  China hurt itself due to lack of English knowledge which it is trying to make up now to level with India at some point.   Communist China in 80s and 90s continued to adopt the policy of keeping English out which immensely helped India entrench itself in an enviable position today.

China continues to invest heavily on all fronts – training its people, providing sops to IT providers, currency devaluation support to keep rates in check, infrastructure support, investing in English language education and vocational training.

No doubt China dominates the hardware market and is flexing its muscles to drive advantages to translate into software side.  It is trying the acquisition route too gobbling up smaller niche firms to forge an entry into western markets.  India’s strength is in IT and software now extending slowly into broader areas within the ambit of outsourcing of IT extended services. However the labor is not cheap anymore – it used to be in the nascent stage, but the values are eroding faster than expected.    India does have  some of the brightest talent in the world that keeps the business leaders to keep going there. Some of the biggest companies in the world have more Indians on their board than Chinese. Look at the silicon valley startups, more and more of them have the Indian connection than Chinese.

What is worrisome is both India and China are not looking at long term prospects to sustain the growth  – growing inflation, increasing wages, infrastructure worries, lack of talents, language barriers, in some cases fraud with its judicial system  a major challenge, lack of governance from NASSCOM are top reasons.   The prospects for growth are tremendous.  By its own admission, NASSCOM predicts another 30 lakh jobs or 3 million jobs will be added in the IT sector by 2020.  That is not a lot of jobs. By adding 3 million jobs,  India will double the workforce that  they have now. 6 million IT jobs may seem a lot. But, it is not. The population of India is well over a billion. The number of IT jobs is below 1% of its population.

Let’s deal with India the outsourcing giant.    In 1990s, IT services in India was the next big thing. There were so many obstacles for industry leaders to get a head start in this businesses.  The IT industry together with NASSCOM did a good job of removing obstacles and created a new breed of industry which is now stable and growing.   It is now an established  industry and considered a cash now that even has been spared from taxation to a large extent.   Here is where the leadership of NASSCOM comes into play.  It needs to be more open and supportive, create a congenial and level playing field for all its stakeholder and create more transparency and offer governance to  surmount new challenges.  The judicial system is a major challenge with most matters settled out of court.  It needs a major revamp.

Both India and China have Outsourcing business as one of its global aspirations to emerge as world leaders by 2020.  To achieve greater success and drive the growth to its advantage both  need to create conducive climate and the overall infrastructure, training and education capabilities  for its IT providers to create products and brands which command a global premium and compete in this emerging market. The only way to do it is to improve their overall capabilities.   As competition from smaller countries heat up, both these giants will have to concede some of their portfolio.  Their near term outlook looks strong.