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Thu, May 31, 2007 19:22 EDT
India vs. China: Forrester right on facts, wrong on conclusions?
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Topic: Partner/Vendor Management
Current Rating: |
Forrester recently published a report entitled China's Diminishing Offshore Role which has been widely quoted by the likes of Computerworld, Times of India, the Hindu Business Line, and China Economic Review. The Computerworld article says:
Forrester Research came out with a report with a rather downbeat assessment of offshoring successes there to date. According to analyst John McCarthy, the market "has not taken off as expected. While there continues to be demand from Japan and multinationals with operations in China, the offshore business from the US and Europe has been slow to materialize. In fact, China’s percentage of GDM resources for the top services firms like Accenture has dropped, while India and the Philippines have seen far greater investment."
The findings in the report , China's Diminishing Offshore Role, were based on interviews with executives at 10 large IT services firms. Reasons cited for disappointing growth included high attrition rates, a lack of English speaking workers, and inadequate intellectual property laws. According to one executive interviewed for the report, offshoring to China "would have to be 20% cheaper than India to be viable." Currently, McCarthy says, the costs are about he same.
Forrester’s facts are 100% right, but their conclusions are almost certainly 100% wrong. The original Forrester report states: “What we found is that while Chinese services firms are supporting a vibrant local IT market, China has not achieved the offshore growth that people expected.” I care much less about the absence of a significant offshore market, but the vibrant local market is certainly of interest to me. These Chinese vendors serving local customers do not enjoy a labor cost advantage relative to their customers and thus have to be much more labor efficient than the Indian vendors. Once these Chinese firms figure out how to credibly serve US customers, they will become a credible threat to the Indian vendors unless India can get a lot more labor-efficient. You can see more details on China’s threat to India at this recent article in a leading Indian newspaper [disclaimer: the article quotes me but that is not why I think its good] or at my post on theChinese BPOs’ secret weapon at the Rational Outsourcing Blog.
The competition between China and India is heating up at all levels, including outsourcing. We can see a direct consequence in the media that are now relaying quite often opinions of outsourcing leaders, who of course defend their corporate points of view.
An article published by the Financial Times on April 25, 2007 illustrates perfectly my point (“High China staff costs prove hurdle for TCS”). In this article, Executives at Tata Consultancy Services were quoted saying that for many senior positions, engineers can command 50-70 per cent more money in China than in India.
This is to me the perfect example of corporations using the media to leverage their corporate messages. Do not get me wrong; I understand this practice, which is perfectly legitimate. After all, the journalist can perfectly decline to write on a given press communication.
The entire purpose of the blogosphere is to bring a different light to what’s happening in our world. While the media see things from the top, bloggers usually see them from the “roots”. For the average person, getting a better sense of what’s going on certainly requires a subtle reconciliation of the two points of view.
Generally speaking, blogs are very successful because they present a point of view rooted in everyday-life, and not necessarily “politically correct.”
And if it is true that we create our own reality, allow me to stand by mine. Not a single day goes without me speaking to prospects and customers, who are engaged or about to engage in IT outsourcing, in one or more outsourcing countries.
Each point of view is different, but all provide with very valuable information, which I am in turn sharing with the readers.
And the findings are clear. In the Silicon Valley, more and more companies question their current outsourcing source, and generally redirect their outsourcing strategy to China. Is it going to yield China to take over leadership over India? Future will tell!
An Indian newspaper just did an expanded version of this story partially quoting this post. You can see it here.
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