Global IT (SaaS) outsourcing can be defined as a strategy that allows corporations to redesign, redefine, and reshape organizations by transferring the management and/or day-to-day execution of a business function to an external service provider. Used responsibly, new technologies such as mobile cloud computing and software as a service (SaaS) can generate enormous company benefits (35% cost savings) as organizations seek internal restructuring to increase earnings and overall efficiency. Worldwide there are two countries that stand at the forefront of the global outsourcing movement: India, which is considered the standard for outsourcing IT services, and China, which has a strong reputation in the outsourcing of manufacturing work.

India made the decision to focus on IT expertise early on; it also made developing competency in the English language a nationwide priority, thus increasing its competitive advantage in the global marketplace. India’s economy has developed through the promotion of internal consumption rather than on exports.

According to Gartner IT research and advisory firm, reports that the worldwide SaaS market forecast that it would grow to $19.3 billion by the end of 2011. In January, IT research company IDC estimated that 76% of American organizations would use at least one SaaS-delivered application by the end of 2009.

India’s top IT companies make up approximately 45% of the entire global market. Companies like Tata, Infosys (INFY), and Satyam (SAY) enjoy worldwide reputations and attract and land multinational deals every year. In addition to English language competency and IT expertise, trust in those companies, and in India as the go-to-country for IT outsourcing, has grown because the nation successfully combines low labor costs with Western management skills.

The software and services SaaS exports segment grew by 29% (in USD) to register revenues of $40.4 billion in FY07-08, up from $31.4 billion in FY06-07. The domestic segment grew by 26% (in INR) to register revenues of $ 11.6 billion in FY07-08. According to the latest Nasscom rankings, Tata Consultancy Services Ltd., Infosys Technologies Ltd. (INFY) and Wipro Technologies Ltd (WIT) are the top three revenue generators in India.

The Indian software industry is set to keep up its growth rate despite the slowdown in the economy. The National Association of Software and Services Companies (Nasscom) has forecast a strong outlook for FY10-11 strong with software and services revenue seen growing by 21-24%. The software and services SaaS exports are set to hit the $50 billion-mark. Below check out the top ten players in the Indian IT industry.

Tata Consultancy Services
Founded in 1968, TCS is one of India’s largest corporate houses. It is also India’s largest IT employer with a staff strength of 111,000 employees. The company began as a division of the Tata Group, called the Tata Computer Centre. Its main business was to offer computer services to other group companies. Soon the company was spun off as Tata Consultancy Services after it realized the huge potential of the booming IT services. Its annual sales worldwide stands at about $5.7 billion. During the year 2007-08,TCS’ consolidated revenues grew by 22% to Rs 22,863 crore ($5.7 billion). S. Ramadorai, is the chief executive officer and managing director of TCS.

Wipro
What started off as a hydrogenated cooking fat company, Wipro is today is a $5 billion revenue generating IT, BPO and R&D services organization with presence in over 50 countries. Premji started Wipro with the ‘idea of building an organization which was deeply committed to values, in the firm belief that success in business would be its inevitable, eventual outcome’. The company has over 72,000 employees. Wipro’s revenues grew by 33% to Rs 19,957 crore (Rs 200 billion) for the year ended March 31, 2008. The net profit grew by 12% to Rs. 3,283 crore (Rs. 32.83 billion). The revenues of the combined IT businesses was $4.3 billion with 43 per cent YoY growth.

Infosys
Infosys Technologies Ltd was started in 1981 by seven people with $250. Today, the company boasts of revenues of over $ 4 billion and 94,379 employees. The company is now headed by Kris Gopalakrishnan. The income for the quarter ended June 30 2008 was Rs 4,854 crore (Rs 48.54 billion). The net profit stood at Rs 1,302 crore (Rs 13.02 billion).

Satyam Computer Services (SAY)
Established in 1987 by Ramalinga Raju, Satyam has a staff strength of 51,000 employees. In 2008, the company’s revenues crossed the $ 2-billion mark. A simple, yet extensive management model to create value, which promotes entrepreneurship, a focus on the customer, and the constant pursuit of excellence,’ is the company’s mantra for success. In FY2008, its revenues saw a growth of 30.7% to Rs 8,473.49 crore (Rs 84.73 billion) compared to fiscal 2007. The net profit stood at Rs 1,687.89 crore (Rs 16.87 billion), a growth of 20.2% over fiscal 2007. Satyam is among the youngest IT service companies to reach $1 billion in annual revenues.

HCL Technologies
HCL is a leading global technology player with annual revenues of $4.9 billion. The HCL Enterprise comprises two companies listed in India, HCL Technologies and HCL Infosystems. Founded in 1976, HCL is one of ‘India’s original IT garage start ups’. The HCL team comprises 53,000 professionals of diverse nationalities, operating across 18 countries.

Tech Mahindra
Tech Mahindra was incorporated as a joint venture between Mahindra & Mahindra and BT plc in 1986 under the name of ‘Mahindra-British Telecom’. Later, the name was changed to ‘Tech Mahindra’, in order to reflect the diversification and growth of the client base and service offerings. Tech Mahindra is a global systems integrator and business transformation consulting firm focused on the communications industry. Tech Mahindra’s net profit rose 8.57% to Rs 196.4 crore (Rs 1.96 billion) on 6.09% growth in net sale to Rs 911.6 crore (Rs 9.11 billion) in Q3 December 2007 over Q2 September 2007.

Patni Computer Systems (PTI)
Patni Computer Systems Ltd one of the leading global providers of information technology services and business solutions. The company has clients across the Americas, Europe and Asia-Pacific locations. The company has serviced more than 400 Fortune 1000 companies, for over two decades.

i-flex Solutions
iflex started as a division of Citicorp (now Citigroup (C)), wholly owned subsidiary called Citicorp Overseas Software Ltd. (COSL) in 1991. In the mid-90s, CITIL developed Flexcube at its Bangalore development centre. After the launch of Flexcube, all of CITIL’s transactional banking products were brought under a common brand umbrella. CITIL changed its name to i-flex solutions to reflect its growing independence from Citicorp and to strengthen its Flexcube brand.

MphasiS
MphasiS Limited was formed in June 2000 after the merger of the US-based IT consulting company MphasiS Corporation has staff strength of 27,000 people.

L&T Infotech
L&T Infotech is a global IT services and solutions provider. It is a subsidiary company of is Larsen & Toubro Ltd. (L&T), an engineering, manufacturing and construction conglomerate, with global operations. Originally founded as L&T Information Technology Ltd (LTITL), a wholly-owned subsidiary of Larsen & Toubro Ltd (L&T), the company changed its name to L&T Infotech on 1st April, 1997. In 2004, it tied up with Fidelity Information Services, a division of Fidelity National Financial to provide banking solutions for the Indian banking industry. In 2007-08, L&T had recorded revenues of Rs 29,600 crore (Rs 296 billion).

In comparison, China has long been known for its low cost of labor and its evolving infrastructure, and the country has attempted to develop its economy by focusing on exports as opposed to growth through internal consumption. China is a classic example of an emergent economic power. Since opening its doors to globalization, China has efficiently utilized its resources, which mainly focused on cost advantages. Conscious of its deficit in technological expertise, China concentrated on a practical business – manufacturing.

The government, aware of the value of diversification, has continuously sought other strategies to ensure growth and has undertaken efforts to support other economic sectors, particularly its IT industry. In 2008, it handled approximately $1.6 billion in IT outsourcing services and about $14.2 billion in software exports. Japan, for one, outsources many of its IT needs to China.

China versus India

In comparison, China has long been known for its low cost of labor and its evolving infrastructure, and the country has attempted to develop its economy by focusing on exports as opposed to growth through internal consumption. China is a classic example of an emergent economic power. Since opening its doors to globalization, China has efficiently utilized its resources, which mainly focused on cost advantages. Conscious of its deficit in technological expertise, China concentrated on a practical business -manufacturing.

The government, aware of the value of diversification, has continuously sought other strategies to ensure growth and has undertaken efforts to support other economic sectors, particularly its IT industry. In 2008, it handled approximately $1.6 billion in IT outsourcing services and about $14.2 billion in software exports. Japan, for one, outsources many of its IT needs to China.

China’s international deals focus mainly on product development, but it has conducted a great deal of testing for IT projects as well. China has mostly handled low-end, relatively uncomplicated IT applications, but it can and does manage mid-sized applications, primarily orders from Japan and Korea. The country desperately hopes to land multinational deals in order to prove itself as a leader in IT outsourcing. As such, the Chinese government is making a significant effort to heighten the IT industry’s appeal to foreign companies and investors.

Currently, standardized IT services are outsourced to China and the more complex IT services are entrusted to India. This pattern will likely continue until China develops its IT industry and addresses its major weaknesses. The issues cited most often in the literature are the level of IT expertise of Chinese workers and concerns about intellectual property rights.

While many people claim that conditions for IT outsourcing in China are not as ideal as those in India, this statement was far truer in the past than it is today. India itself is aware of the rising Chinese competition and the country’s business experts expect that it will not be long before the Chinese improve their deficiencies in order to attract more customers.

Infrastructure

China: The government has built entire cities and towns dedicated to the IT industry, presenting almost perfect conditions for companies. The most prominent example is Shenzhen, one of the fastest-growing cities in China and a preferred location for foreign investors. Moreover, the government offers tax deductions, financial support, and subsidies for new establishments. Large companies, such as TCL, China’s largest electronics manufacturer, have established themselves in Shenzhen.

India: India is considered to have a fairly weak infrastructure and many external companies claim that it is insufficient and inferior to China’s. In addition, the public interest sometimes prevents changes. In China, however, once a decision is made by the government, it is implemented quickly, as with IT infrastructure expansions.

Market Structure

China: Unlike India, China does not have many large IT companies. Market experts often note that the highly fragmented nature of the IT industry in China needs to change as small companies are riskier and less reliable partners than major players. Many people argue that China’s IT market needs to consolidate in order to become more competitive.

India: The history of headlines about the Indian IT industry has been a source of alarm. For example, at the beginning of 2009, it was revealed that the Satyam company had accounting discrepancies and the resulting negative publicity has affected the entire industry and raised the question of whether such problems could have occurred in China. Many foreign companies and investors see their businesses as endangered due to these revelations as it showed that regulations and laws in India were not as developed as expected.

To deal with the impending threat of China, Indian companies are also starting to acquire Chinese IT companies, opening the door for India’s involvement in the burgeoning market. In 2005, India invested nearly $50 million in the Chinese IT industry, mainly comprised of stakes in Tata and Infosys.

Quality/Track Record

China: One of the major concerns for foreign companies interested in investing in China is the country’s lack of protection for intellectual property in the form of trademarks, copyrights, or patent laws. The nation has updated its laws to fulfill international demands and in 2004, China announced stricter laws on intellectual property rights. Penalties for defiance of these laws have been raised significantly since then.

India: India has more Capability Maturity Model (CMM)-certified companies than China. CMM is a program that determines the quality of software processes in organizations. While all of India’s top 30 companies are CMM certified, only 6 of the 30 top companies in China are certified, clearly showing the gap that the country will have to fill within the next few years.

Labor Availability

China: Two serious issues linger in China—English language and IT skills. English is obligatory in interacting with foreign businesses, and while the Chinese educational system tries to emphasize the advancement of English, the population still seems to be lacking in this area. In 2005, about 0.77 percent of China spoke English, compared to 10.66 percent of the population in India.

In addition, the country’s IT expertise is not yet at a desirable level. Although many students graduate with IT degrees from universities every year, the majority of China’s IT professionals still have less than five years’ experience. Employees will require more training in order for China to become a competitive global force.

India: India has the disadvantage of higher labor costs than China. Although India has been known for its large pool of talented, low-cost workers, its wages have jumped by 25 percent since the onslaught of globalization.

Conclusion

As China continues to develop, there will be fewer reasons for an external company to avoid establishing itself there. In fact, it may be that in order to stay competitive and decrease additional costs, companies will be obliged to outsource their IT needs to China. The country’s potential has already been recognized by companies like IBM, General Electric (GE) Medical, CISCO (CSCO), Oracle (ORCL), Salesforce (CRM), Microsoft (MSFT), Google (GOOG) and Hewlett-Packard (HPQ), all of which have established major SaaS presences. If the IT industry develops as expected, China could capture opportunities worth $56 billion by 2015. India’s acquisition of Chinese companies is a direct indicator of China’s growing IT outsourcing power.

The country is trying to entrench itself in the Chinese IT industry because it anticipates China’s future capabilities. Many authors argue that China and India should consider working together in the field of IT—China would gain access to important IT expertise, while India would benefit from cheaper labor costs and a better infrastructure.

Today, India still has the lead over China in IT outsourcing and its advantages over China are still distinct. While China will almost definitely become an important force in the IT industry, the country still needs more time to develop its competencies. Many think that the Chinese IT industry will have to consider acquiring or partnering with foreign IT companies in order to grow and compete. Lenovo’s (LNVGY.PK) acquisition of IBM’s computer hardware business is an example of how Chinese companies can expand and “go global.” China’s leading software company Huawei Technologies has also established joint ventures with Western companies such as IBM, Siemens (SI), 3Com (COMS), and Symantec (SYMC).

Conversely, as China closes the gap between itself and India, India will have to make adjustments in its laws to prevent further scandals and companies will have to reconsider their strategies to make their offerings more attractive and maintain their customer bases. If India wants to sustain its reputation as the leader in IT outsourcing, it must also focus on both innovating and furthering its talents.