TCS Leads India's IT Push Toward China

With competition for homegrown talent on the rise and salaries rising with it, India's outsourcing vendors are pushing deeper into neighboring China, a country that's still largely untapped as a source of low-cost IT labor.

TCS plowed in last week, announcing agreements with three Chinese companies and Microsoft to launch a Beijing-based joint venture called Tata Consultancy Services (China). TCS is investing $12.6 million in the venture; Microsoft, one of its first customers, about $2 million. "We cannot afford to ignore the Chinese market," TCS CEO S. Ramadorai says.

TCS's goal of employing about 5,000 workers in China by 2010 is ambitious, but it plans to add even more in India--9,000 in the next year just in its home state of Maharashtra. Ramadorai acknowledges staffing up in China won't be easy in the early going. "An enormous amount of talent and an enormous amount of institution-building capabilities will have to be brought in," he says.

The monthly salary for programmers in high-tech hot spots like Beijing, Shanghai, and Shenzhen was between $600 and $960, according to a 2005 survey by InformationWeek China. That's about half the pay for a similar position in India, where tech salaries are rising at about 15% per year.

Another reason outsourcers are looking at China is because customers, especially U.S. multinationals, want them to be where they're ramping up their own businesses. "They want to work with partners that already know their operations," Ramadorai says.

TCS announced plans to launch the company last year. Foreign companies in China often need to partner with local companies to grease business relationships and navigate myriad regulations. TCS's three other partners in China are two property development companies and enterprise software developer Uniware. Uniware brings knowledge of the local IT market, Ramadorai says.

What Did He Say?

A few U.S. companies already have discovered China for software development. Mavent, which develops compliance software for the mortgage industry, tapped Chinese software developers after deciding that India's major players were getting too expensive. "We could have gone with a smaller Indian firm, but they tend to suffer from too much staff turnover," says Jason Connolly, Mavent's senior VP for product management. Mavent hired Freeborders, an outsourcer based in San Francisco that provides most services from Shenzhen, China. Connolly says Freeborders does quality work, and he's saving 60% on development costs compared with U.S. prices. But there are problems. "On conference calls, it can be a little difficult to understand the engineers," Connolly says.

Satyam in 2002 became the first Indian services vendor to launch in China, with a development center in Shanghai. Infosys Technologies maintains a development center in the city, staffed by 200 employees. In 2004, Wipro Technologies opened a 50-seat development center in Shanghai. Accenture, EDS, and IBM have operations there, too.

As a result, China's outsourcing market is growing quickly. Japanese customers account for 60% of the market, but big U.S. companies, including Coach, Motorola, and Target, also have sent IT or IT-driven business process work to China, accounting for about 15% of the country's outsourcing contracts, according to Beijing's Municipal Science and Technology Commission. If TCS and its peers can effectively do work for some of their blue-chip clients there, that number is bound to go way up.