Battleground Software:India and China

Battleground software: India and China

Roopen Roy

(Views are personal)

Some economists and politicians love to compare China and India. There are several books devoted to the subject. While most of them are serious and well-researched, some simply play to the Indian gallery.

It is also almost universally believed in our country, that we are better than the Chinese in IT services and software development. We argue that our skills in English, the language of global business, set us apart from the Chinese. One of my Chinese friends once told me with a touch of arrogance, “We do not have to be colonized by the British for centuries to be fluent in English.”

There is a new theory on why India will excel in software development and China will fail. We have been blaming our democracy (and its lack of speed) for our poor infrastructure. But two eminent Economics professors are now telling us that democracy is our secret weapon against China in the battle for supremacy in software development.

In their book grandly titled, “India’s Tryst with Destiny” Jagdish Bhagwati and Arvind Panagariya have argued India’s advantage over China : “Finally, China’s authoritarian regime, compared to India’s democracy, leads to two important consequences that militate in India’s favor. First, China is fearful of samizdat : it cannot afford to have software develop to a point where people can communicate freely and even dare to undermine political control. The result is that that the PC (the personal computer, and all that it implies today) is incompatible with the CP (the Communist Party). But much technical progress comes today through software developments. So, India, which is a freewheeling democracy like the US, has an enormous advantage over China”.

These profound conclusions are, however, not backed by any data demonstrating a correlation between “democracy” and “software development”. There is evidence, on the contrary, that software development has thrived in those countries which have strong traditions of education in mathematics, science and technology. Large investments in defense have also spawned inventions and breakthroughs in information technology.

In early 1961, the “authoritarian” Krushchev regime was successful in sending Yuri Gagarin to outer space ---ahead of the “democratic” US. There were many famous scientists and mathematicians in societies that were not “freewheeling” democracies e.g. Hitler’s Germany.

According to Nasscom, the Indian IT-BPO industry crossed the $100 billion watermark in 2012. $69 billion of that number was accounted for by “exports”. Here is another revealing statistics: India’s market share in the global sourcing industry increased from 51% to 58%. It shows that we have a “cobbler’s son” problem. We make shoes for the rest of the world. But our own people go barefoot. Our domestic IT investments and usage are abysmally low.

The Nasscom-Mckinsey report predicts that the industry will grow to $ 225 billion by 2020. Even in that year, $185 billion will constitute “exports” and $45 billion will be derived from “the domestic market”.

What is happening in China? According to IBISWorld –a US-based market research firm- the software development industry has generated $349.81 billion in 2012 up 19.5% from 2011. The industry has grown at an average annual rate of 29.2% over the past five years due to strong demand from downstream software users and the government in China. Software products, including design, programming and shipment, are the principal source of the industry's revenue, accounting for 50.0% in 2012, up from 48.3% in 2010.

The Chinese software industry will grow at an average rate of 25% to $868.21 billion in 2016. One can argue till the panda comes home that the Chinese are fiddling their numbers. But there is no doubt in the minds of anyone who is familiar with the software industry that China will emerge as a formidable player. We need to be skeptical about prediction of false dawns.

Did you know that Google is not the leading search engine in China? It is Baidu. When he set up the search engine company, Robin Li, the founder of Baidu (which literally means numerous times) was inspired by two lines of a romantic poem by Xin Qiji “ Last Night of the Lantern Festival”.

The two lines which are emblazoned on Baidu’s website (and guides its vision) are:

“I searched for her again and again until my patience was wearing thin. Suddenly I turned back and Oh! There she was standing alone in the dim light of lanterns.”

Rooted in its native language and culture, Baidu provides an index of over 740 million web pages, 80 million images and 10 million multimedia files. It is listed on the US Nasdaq. China also has its own Facebook called Renren which claims to have 160 million users. While the US is screaming about protectionism, these Chinese companies are listing on US stock exchanges and raising funds from American investors!

In contrast, the Indian software industry is largely based on the services model. With the impending disruption by technologies like cloud, mobility and analytics, Indian companies have no option but to innovate and adapt to stay ahead of the curve.

There are creative Indians within and outside the country who, in a connected planet, can re-shape the industry through innovation. But there are a number of urgent “to do’s” on the agenda: 1.Significant investments in our academic institutions in science and technology 2. Expansion of our domestic market in IT 3.Diversification of our portfolio with a tilt for product development and 4.Forging of global partnerships to co-create a new generation of applications.

It would not be such a sound idea to wait for our “freewheeling” democracy to conjure some black magic or for the Communist Party of China to self-destruct its own software development industry. Thought leaders in our software industry must chart the new road map into the future through the mist of disruption and uncertainty. Our destiny is in our own hands.