When Infosys Technologies began scouting for an alternative to India as a source of unlimited, low-cost human resources, the rapidly growing company came up with one answer: its home country's archrival, China.
Now, a year after the Infosys Technologies (Shanghai) Co. was set up, the venture center has 200 employees and four multinational customers.
Infosys, the Bangalore-based software services company, and other top Indian outsourcing rivals, including Tata Consultancy Services and Wipro Technologies, are doing application development and maintenance work in China as they grow rapidly to keep up with booming demand from the West for their services.
And they are quickly concluding that only China has a worker base equal to India's in terms of cost, quality and scale. Expansion there also offers the ability to cater to -- and possibly garner more of -- the local and regional markets, including Japan.
Vigorous global demand -- revenue from India's information technology exports was US$12.5 billion in the year ended in March, up 30 percent from the previous year -- has resulted in a 10 percent to 15 percent annual rise in wages in India's software and back-office services industry.
According to a KPMG study for the National Association of Software and Services Companies, or Nasscom, an industry trade group in India, the country will face an acute shortage of technical employees by 2009, falling short by about 250,000 workers.
"We need a deep reservoir of talent as well as an alternative low-cost center like India as we continue to grow," said Nandan Nilekani, chief executive of Infosys, who has talked of his company's scaling up to become the Wal-Mart of outsourcing.
"And only China can match up," Nilekani said.
In the quarter ended in September, Infosys alone added more than 5,000 employees, for a total of nearly 33,000. And Wipro added 5,500 employees, reaching more than 36,000.
Though its software export revenues were just US$700 million last year, "China will soon be competing with India as an outsourcing destination," said the Singapore-based Girija Pande, director for Asia Pacific of Tata Consultancy, India's top software services exporter. It set up operations in China in 2002.
And a presence now, these companies say, positions them to grab such future business.
China has some 200,000 information technology workers -- compared with India's 850,000 -- in 6,000 local companies, according to some estimates. More than 50,000 Chinese software programmers are being added to this pool annually.
Some important ingredients that have made India a formidable global software services exporter are in place in China as well, like the high value put on education and a focus on engineering in higher education.
The Chinese government is sweetening the deal for the Indian companies, as well as for global competitors like Accenture and IBM Global Services, by offering high-quality infrastructure at low costs and offering alliances with local universities to recruit Chinese talent.
China also offers Indian outsourcing companies a low employee turnover rate. For instance, Tata Consultancy's staff turnover in China is less than 6 percent a year, compared with 15 percent in its Indian operations. The company says it may double the number of employees in China in the next 18 months from its current 180.