A growing concern for any Western high-tech firm is what to do about the increasing importance of Indian and Chinese IT companies. These two countries are not only producing some of the world’s best trained computer scientists and engineers — which more and more Western firms are tapping into — but also creating intellectual property and innovation that is posing a challenge to the same Western companies that are sourcing from them.

In addition, there is an emerging alliance between Indian and Chinese IT companies that is allowing them to compete globally in the IT services market, among others. So say James M. Popkin and Partha Iyengar in their book, IT and the East (Harvard Business School Press, 2007).

Popkin, group vice president and research fellow emeritus at Gartner, Inc., and Iyengar, India-based research vice president at Gartner, discussed with CSC the growing importance of and challenges posed by the “Chindia” bloc.

CSC World: Your book, IT and the East, reviews how the center of technology has been shifting steadily west for over 200 years, from Europe, to the Eastern U.S., to the Western U.S. and now, most recently to China and India. Why is this occurring?

Popkin: There are two things happening within the IT industry that make the Asia Pacific region interesting. One is that you have a very large number of people living in emerging economies and roughly 60 percent of the world’s population in Asia-Pacific. The economies themselves are growing very rapidly, and modernizing. Along with this economic growth comes a very fast growing adoption of Information and Communication Technologies (ICT). And ICT is going to be adopted in those economies a little bit differently than in the United States and Europe because there are differences in culture, in the way they think about process, in the way they transact business, in the way people conduct their daily lives.

On the supply side, wealth is being generated in low-cost manufacturing, which is very important to the ICT hardware
industry. And with Y2K, the Indians hit the world stage with IT services and outsourcing application development. That created a new service industry, based on a highly educated, low-cost labor force.

CSC World: Are China and India beginning to create innovation that drives products and services, as opposed to innovation coming from the West?

Popkin: Yes, we’re beginning to see that in a couple of different ways. The Indian business process outsourcing industry is exploring innovative ways to deliver outsourced services. And that has led to new types of business process improvements, or, in many cases, Indian companies are writing software to help them automate processes that they were supporting through outsourcing arrangements. They are not solely relying on low-cost labor arbitrage to build their business; they are focusing on ways in which they could actually do those processes better and, in some cases, new types of software products are created, as well as the services that are being provided.

We’re also seeing a lot of investment by Western companies. For example, the Microsoft Development Lab in Beijing is generating a significant amount of patent activity for Microsoft. And they’re not there simply because it’s a low-cost location. They’re taking advantage of very smart people who think differently and are interested in dedicating themselves to the ICT industry.

Iyengar: The trend, especially amongst the Tier-1 Indian providers, is to do an increased quantum of “higher end” work in addition to the low-end — and increasingly commoditized — work. This definition of higher end is significantly broader than just business process  improvement, and I’m not sure we could specifically characterize or segregate that category from the remaining areas. However, if I broadly interpret business process improvement to mean things that have direct business value — characterized by business-level SLAs as opposed to “technical” SLAs — then I’d have to say that, conservatively, probably 25 to 30 percent of the work being done by at least the top 10 providers out of India would be in this bucket. For the next 10 to 15 vendors down, that percentage would still be somewhere in the range of 10 to 15 percent.

CSC World: You devote a section of your book to an examination of the possibility of China and India (“Chindia”) combining their complementary economic strengths to compete for world dominance in IT. What has to occur before “Chindia” can dominate? And when do you think it will happen?

Popkin: There are a couple of points that we’re making. Regarding “Chindia,” we think there will be significant measurable progress over the next five years. It means that there will be Chindian companies that take advantage of working together and either provide services for export in a way that is unique or they develop scale, such that they become very large in serving not only the international markets, but the Chinese and Indian markets. And, these Chinese and Indian companies will have the potential to disrupt international markets outside
the IT industry as well.

1 | 2 | next page >