China has become the world’s largest economy. Consequently, it is also one of the world’s largest markets for IT and IT-enabled services. While Indian IT service providers have a large presence in western markets (for example, the Americas provide 60% of Infosys revenues), their presence in China is negligible. Why? This question has troubled the top managements of these firms for many years. Based on the views presented in the recent article, it seems that managers are still far away from finding all the answers to this riddle.
The Indian IT industry, which has of late been eyeing the Chinese market, will have to sweat to gain entry here, a top Infosys official has said.
It is often said that the first step to solving a problem is acknowledging it. IT service providers from India seem to be stuck in a time-warp – a bubble of their own making. The challenges they face in the China market are not replicas of the hurdles Indian firms overcame when they entered the US or European markets. These are unique challenges, which call for a unique approach. Entering China requires a China-specific strategy and anything less does not do justice to the potential revenue growth possible from the world’s largest economy. Below are a few challenges that have not been identified in the above article, and some ideas by which these can be turned into opportunities.
Language Barriers: Historically, the Indian IT services industry was able to grow in the US and other western markets due to the language advantage – client facing personnel were able to communicate effectively in English. In contrast, China’s market has significant language barriers and a working to excellent knowledge of Mandarin is essential. To overcome these barriers, Indian firms should have ‘localized’ client facing personnel who will be able to understand client problems and deliver feasible solutions.
Price-Arbitrage Disadvantage: Another key advantage that Indian service firms have historically had is the low cost of labor in India. However, compared to China, there is no real price advantage of India based software engineers. Once coordination and communication costs are taken into account, it might actually be cheaper to hire talent locally. Many Indian firms have been attempting to do so (for example, Infosys runs a development center in Shanghai), but complain that they are unable to get high quality talent. The reason is not the unavailability of talent – rather, Indian firms are not employers of choice and hence fail to attract the best people.
Reputation Barriers: The challenge is not that Indian IT firms do not enjoy any brand recall in China. Indian firms have to actually overcome a negative reputation. Low costs are associated with a perception for bad quality work. To overcome the reputation barrier (in context of both potential clients and potential employees), firms should use a counter-intuitive approach. Use their success stories with F500 companies as a basis for a premium positioning.
No Guanxi: Doing business in Greater China is heavily dependent upon the ability to leverage personalized networks of influence, or Guanxi. Indian firms need to hire business development managers and top management who bring not only business acumen, but contextual information and guanxi on board.
Services versus Solutions: It is believed the size of the US IT market as a percentage of its economy is larger than the ‘perceived’ size of the China market. This has been explained by the following logic:
“In terms of purchasing power parity, the US will have a revenue productivity of two-and-a-half times compared to China. …It translates the market size by less than two-and-a-half times,”
In line with this argument, it can also be said that the potential productivity gains from IT in China are much more than the potential gains in the US market. Therefore contrary to the ‘common perception’, the IT market in China is not oversaturated a-la the US. However, unlike their US counterparts, firms in China may not be actively soliciting IT services as many are unaware or more likely, unconvinced of the potential benefits. The size of the potential market is huge; the size of the market (of addressable) that is actively looking for an IT service provider is small.
Indian IT firms can penetrate the market by offering solutions, not services. This is not a market where sales personnel cannot passively wait for a RFP (request for proposal) to be floated by a possible client. An active sales approach is required. By the same logic given above, the gains per dollar of IT investment in China would be more than the gains per dollar of IT investment and thus easier for IT service firms to create business cases and deliver value.
In a nutshell, to crack the China market, Indian IT service providers should re-position themselves as premium players who offer a value-for-money proposition to F500 firms. They hire local talent for business development and client facing roles that are well versed in the nuance of business (and guanxi) in China. Finally, instead of waiting to answer requests for proposals, firms should actively solicit business and focus on growing the market by offering solutions.
Data is Money. The pace at which User Generated Content is being created increasing, and consequently so is the wealth of the IT companies that own it. This animated gif provides an understanding of the scale of this data deluge.
Click the animation to open the full version (via Penny Stocks Lab).
Sticking with the theme of advertising and analytics, here is the video we use in #hkuiom to illustrate why ‘Analytics’ cannot be viewed in isolation.
Nest, Hong Kong’s preeminent startup incubator has launched Investable.vc, a platform through which Hong Kong based startups can receive equity funding. Though TechCrunch is reporting this to be a ‘crowdfunding’ platform, it is less KickStarter-ish and more AngelList-ish (#hkuiom folks will appreciate this common misconception regarding ‘crowdfunding’). Startups that pass the Nest vetting process, but cannot be funded due to lack of expertise or funding, can raise equity via this platform. Investors who use this platform must be accredited (i.e. have a portfolio of US$ 1 million).
Good news for the startup community in Hong Kong in general, and #hkuiom and #hkuisad communities in particular!
Now NEST, a Hong Kong incubator, has launched Investable.vc, an accredited equity crowdfunding platform for startups, giving founders yet more options when seeking funding.
Investable says that within the first day of the site’s launch, more than 100 professional investors sign up. Three investors have already committed $150,000 to startups on the platform, which currently lists 15 companies for its beta launch. One hardware startup called Simple Crossing, which makes wearable tech products for elderly people, has already raised 75% of the total $100,000 that it is seeking.
Solar Roadways, a US based start-up that is developing a “modular paving system of solar panels” has raised $1.4 million in crowd-funding, within 7 days, on Indiegogo. While the concept of solar-powered smart roads is exciting and a peek into possible future, the success of Solar Roadways’ ‘viral’ marketing campaign raises several discussion points for our #hkuiom meetings!
The wonderful video that powered this superb effort is below:
FirstBank advertises its mobile app by parodying Google Glass type wearable computers. This reflects the worries of several – technology will distance us from the real world.
One of the ET projects during last term’s #hkuiom showcased several videos on human augmentation. This video is a promo of Lockheed Martin’s HULK Exoskeleton, which is designed to enhance the capabilities of a human soldier.
The folks over at HootSuite (my current favorite Social Media Management Dashboard) recently came up with this wonderful Dr. Seuss-Inspired Guide to Twitter. Very nice, humorous way to showcase several Twitter Tips for brands (remember #hkuiom – you are also a brand!).
Cubli, a cube shaped robot can walk across a desk by jumping up and balancing on its edges. Another step towards the future we talk about in #hkuiom!