Taming the Dragon, the TCS way

Non-English-speaking countries like China, Japan and even some European countries have always been a huge stumbling block for Indian software services companies. That is why the example of TCS, Asia’s biggest software exporter, is so relevant to the Indian software industry today. Srikanth R P looks at TCS’s recent foray into the Chinese market and the strategies the software major is adopting to crack a market that most experts say is akin to scaling the Great Wall of China

What does one do when confronted with a dragon whose firepower has scorched companies the world over? Well, one could run pell-mell, shouting oneself hoarse that the dragon if not controlled could kill one’s industry. That’s precisely what India Inc. did about a year ago when faced with the news that China was making serious attempts to dislodge India from becoming the preferred choice for software services. The Chinese threat was not taken lightly as China had demonstrated in the past that it could take apart any competition, assisted by the Chinese government’s drive and ambition.

‘How to tame the Chinese dragon?’ was the question increasingly being asked in industry circles, and Nasscom took the lead in finalising a white paper on the Chinese software industry. While the Chinese software industry was way behind the Indian software juggernaut, some alarming statistics emerged. The ratio of China’s IT spend to GDP was nearly five times that of India. China was also spending huge amounts in building a world-class telecom infrastructure, which was found lacking in India.

China: Threat or opportunity
While the shadow of the Chinese dragon loomed large over Indian software companies, a few were unrelenting. Rather than viewing China as a threat, they started looking at the country as a huge opportunity. Nasscom president Kiran Karnik was one of the few votaries who believed that while China would remain a huge competitor, a policy of engagement rather than direct confrontation would be a better approach. For instance, China’s domestic market was huge (estimated at close to $16.2 billion) compared to India, which had a minuscule domestic market. In this hullabaloo when every company worth its salt spoke about China and plans to enter the Chinese market, Asia’s largest software exporter TCS was busy fine-tuning its plans to penetrate the Chinese market. The idea came from global giant GE, which was looking out for a technologically competent partner to assist it in China.

After thoroughly analysing the Chinese market, TCS could clearly identify three vital business needs that justified the need to have a presence in the country. One, a presence in China was needed to service global giants like GE that had expanded operations into China. GE gave TCS a perfect opportunity to gain experience in the Chinese market and scale up as opportunities increased. China could also be used as a base for servicing other Asia-Pacific markets such as Japan, South Korea and Taiwan. For instance, Japan is the second largest economy after the US. But despite the opportunity, few Indian firms have been able to make a mark in Japan. This is not only due to the language issue but also because of the fact that Japanese companies have typically resisted external help relating to their IT systems. The few firms that do outsource prefer Chinese companies as there are many synergies between the two countries. Besides the geographical proximity, Japanese is the second language taught in the northern parts of China, where most Chinese companies are located. Since China is a natural trading partner for Japan, it made more sense for Indian companies to set up base in China and follow a strategy of partnerships with local players who have knowledge about and expertise in local markets. Other than the Japanese angle, there was the huge domestic market that China offered.

Like other markets, TCS is also leading the market charge in China. After nearly six months of setting up operations, TCS is looking at scaling up its manpower strength from the current 50 to around 250 in the next six months. The success of TCS is a pointer to the strategies that Indian companies need to adopt when they go into unknown markets. For instance, while Indian software companies are looking at entering Europe now, TCS had established operations way back in 1975, a period when the concept of software services was hardly known. Says Atul Takle, TCS’s vice president for corporate communications, “Our strategy in every market has been to enter into alliances with local partners. In China too, we have entered into an alliance with a telecom service provider called Zoom Networks. Like other alliances, this too will leverage on the synergies between Zoom’s extensive local market knowledge and vertical domain expertise, with TCS’s known strengths in system design. Besides the Chinese market, the local alliance helps us in tapping other markets in the Asia-Pacific region. For instance, a Japanese company would be more comfortable outsourcing to a company in China rather than India.”

TCS also religiously follows a policy of employing local manpower. In China, for instance, the project heads are Indian while the programmers are Chinese. The locations have also been strategically chosen. For example, TCS has announced plans of opening a development centre in Hangzhou, which is home to many Chinese educational universities. This has helped the company to actively tap the talent base available in the country.

Conclusion
While China remains a tough market to crack, the approach of companies like TCS could well pave the way for Indian software companies looking to make their mark in the Dragon Kingdom. With the help of a local partner, Indian companies can get a leg-up in scaling the Great Wall of China. The example of TCS, which is present in almost every corner of the earth (even Vietnam), is a pointer to the strategy that Indian companies could adopt.