IT Industry in India and China

In the backdrop of shrill-chill in US to stop outsourcing of software jobs, I thought it would be interesting to take a look at where the software Industry stands in these two countries. In August this year, China dalily reported, " China's software industry revenue expanded at faster pace to 152.3 billion yuan ($23.8 billion) in July, a year-on-year increase of 31.4 percent, the Ministry of Industry and Information Technology (MIIT) said Wednesday.
The software industry's growth rate in July was 2.9 percentage points higher than a year earlier."
   Nasscom, the association of software industry in India in a recent press release also said that," The growth in software and services export is expected to be 16-18 per cent and the sector is slated to bring in revenues of $68-70 billion. The growth in the domestic market is estimated to be 15-17 per cent, with revenues of about $19-20 billion. " The projected growth figure of 15-17% is very likely to come down to 11-12% as the year closes, as observed by an Industry leader.
Interestingly, China clocked higher growth compared to last year while India actually clocked slower growth compared to last year with projection following the trend.  The reason of this skew is quite obvious. India's software industry is majorly [almost 90%] export-based while China's software industry so far is mostly driven by domestic demand. As per NASSCOM, US and Europe contribute around 90% of IT/ITES revenue and with slowdown of those two economies, Indian IT industry has suffered the hit in the growth of this sector.
Chinese software export too were hit this year. Reading the same report from China daily:
Regarding the exports of the software industry, the growth rate fell sharply to 3.9 percent in July, the lowest monthly increase in the first seven months of this year amid economic uncertainty in the United States and the European Union.
Exports in the Jan-July period rose 15.7 percent to $15.46 billion, compared to last year's growth rate of 26.2 percent.
Interesting aspect is both the countries are betting big on the IT export. While Chinese Govt has provided some tax holidays, developed zones and offered incentives to the promoters to grow the software parks, India already has established regulations and tax-breaks [STP and now SEZ] to help the software export. Like China, software industry in India is also centred around few big cities.

Some key data from NASSCOM presentation and outsourcing portals:

1.  India's share in global IT and BPO sourtcing: 55% as on 2010.
2.  India's domestic IT market size in 2010 was Rs 659 billion i.e. $14.3 billion roughly
3.  As per NASSCOM, IT-BPO industry in India directly employs 2.54 million with approx. 2 million in IT alone and expects 10% growth Y-to-Y. Some claim that China too has around 2 million software engineers working as on 2010.
4. China's average software engineer's salary is almost double to the average salary of a software engineer in India and when it comes to customer service representatives, Chinese salary is differs in magnitude. In short resources are constlier in China. More details can be found at Sourcingline.
5. Almost all independent commentators rate Indian IT Industry more competitive compared to Chinese counterpart.

<><><>The table below provides a revenue comparison. As it shows, China's IT industry is dominated by domestic demand while India is slowly developing its domestic IT market.<><>

FY11 software revenue comparison	Domestic	Software Export
Indian Industry	$14.3 billion	$59   billion
Chinese Industry	$23.8 billion	$15.5 billion

One aspect that does not come out well, is China's industry has more product-centric. Huawei, ZTE are globally recognized names and they are showing fastest growth in telecom space [while US telecom companies are shrinking]. In fact Govt. regulation and control helped these companies to grow faster and become formidable competitor internationally. Even in the new world of social media, Govt. censor has helped coming up of Chinese counterpart of facebook and twitter. Weibo for example is a twitter equivalent in China and quite popular too. Renren procliams to be Chinese facebook but wetern commentators think renren is too small to be compared with facebook. However, there is distinct trend of product cumture in China just like India predominantly has services culture. One reason could be that the Chinese language and culture have created the necessary barrier for the product development culture to flourish, just like having the English as the link language in India helped Indians to flourish service culture.
The question however is, can India continue to grow its IT services revenue without the support of strong product-base? With the present negative job growth and associated negative sentiment against Outsourcing in US and Europe makes the question all the more important.  However,if we follow what NASSCOM and likes of Infosys, TCS are talking, Indian IT industry decidedly continue to see themselves as pure-play consulting/services vendors. It is to be seen though with continuous downward pressure on IT services rate and rising inflation pressure on IT salary, how long they continue the profitability and competitiveness of their present model of business.
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Later Updates: Vivek Kulkarni, erstwhile IT secretary of Karnataka wrote in ToI sometime back on Indian IT industry and its issues. I pulled the link for the curious lot: http://articles.timesofindia.indiatimes.com/2011-03-22/edit-page/29174251_1_manufacturing-sector-foreign-currency-tax-incentives