For their part, Indian software developers welcome the prospect of easier access to China's red-hot economy. "We're urging all our member companies to adopt a China strategy," said Sunil Mehta, VP of the National Association of Software & Service Companies, a trade group for Indian IT vendors, speaking at the InformationWeek Spring Conference last week.

From the West's viewpoint, a possible downside to pairing the Chinese dragon and the Indian tiger is the potential for them to set IT standards and agendas that force the rest of the world to follow their lead. "The combination would create a region in which trade between the countries would be larger than each country's trade with the United States," says C.K. Prahalad, a University of Michigan business professor and author. That would translate into enough economic clout for India and China to impose IT standards throughout Asia and greatly influence technology adoption globally, he says. Indo-Chinese cooperation would "create real issues for the U.S.; it would reduce U.S. leverage in the region," Prahalad says.

China currently is choosing standards for radio-frequency identification, encryption, and other key technologies. The U.S. government, prodded by vendors and big commercial IT users, is urging Beijing to endorse standards already widely used throughout the West.

The biggest question is whether Indian and Chinese IT companies will deliver such world-changing standards and innovations. Despite their success, IT companies in India have been more order takers than innovators. But that's changing, and Indian software developers could use the Chinese market to become bigger global players, Prahalad says. A major Indian software vendor could enter the enterprise-application market within five years. "Improved trade with China would certainly help spur that," he says.

A Sino-Indian alliance also could spawn a non-Western PC vendor to challenge the dominance of Hewlett-Packard and Dell. The obvious candidate for that is China's Lenovo Group Ltd., which is acquiring IBM's PC and laptop business for $1.25 billion, including offices in India housing IBM's PC business.

Lenovo exemplifies the fact that IT goods and services from Asia offer a lot more than simply low prices. Its products feature innovations not seen in the West. For example, a Lenovo desktop system has an external dial to control processor speed in order to conserve energy when full horsepower isn't required. Another possibility: Lenovo could tap Indian software engineers to develop embedded features that give its products an edge.

Beyond the IT industry, other companies that have footholds in India and China stand to benefit from an economic alliance and are asking their tech executives to lay the groundwork for further expansion. UPS Inc. saw 45% growth in sales in India last year and an even higher growth rate in China, where it's expanding services, CIO David Barnes said at the InformationWeek Conference.

UPS has had operations in China in a partnership arrangement since 1988 and, as of February, has wholly owned operations in five of China's largest cities. The same handheld devices that drivers use in the United States and Europe have been deployed in select areas in China, and UPS has built a telecommunications infrastructure around industrial centers in Shanghai and Beijing to support the handhelds. "We've limited the deployment to these areas, but we'll rapidly expand as the technology and the infrastructure grow in China," Barnes said.

China and India still have plenty of longstanding issues between them that make the future of cooperation complex and uncertain. But last week's diplomacy suggests business leaders need to prepare for the many changes that would radiate globally from collaboration between India and China, tying the rest of the world more tightly to those two countries. Not a surprising outcome for observers like University of Michigan professor Prahalad, who concludes that "the essence of globalization is interdependence."

--With Elena Malykhina