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February 01, 2005

"China will take several years to catch up with India in IT Services"

From McKinsey Quarterly:
A recent McKinsey study of China's software sector, however, shows that it will be many years before the country poses a threat to its continental rival in this arena. For starters, the Chinese must consolidate their highly fragmented industry to gain the size and expertise needed to capture large international projects. Currently, there is little movement in this direction....

...To compete effectively in global outsourcing, China's software industry must consolidate. The top ten IT-services companies have only about a 20 percent share of the market, compared with the 45 percent commanded by India's top ten. Furthermore, China has about 8,000 software-services providers, and almost three-quarters of them have fewer than 50 employees. No company has emerged from this crowded pack; indeed, only 5 have more than 2,000 employees. India, on the other hand, has fewer than 3,000 software-services companies. Of these, at least 15 have more than 2,000 workers, and some—including Infosys Technologies, Tata Consultancy Services, and Wipro Technologies—have garnered international recognition and a global clientele...

...Fragmentation exacerbates the Chinese industry's other problems, including weak process controls and product management. Only 6 of China's 30 largest software companies are certified at levels five or four of the capability-maturity model (CMM);3 by contrast, all of the top 30 Indian software companies have achieved these rankings.




Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.