It may sound like a stretch to say that Chinese companies are “so much cheaper” than those of other nations.
However, that’s exactly what the Indian IT industry is facing.
A study published by the National Institute of Public Finance and Policy (NIPFP) in January revealed that Chinese-listed companies are generally cheaper to acquire than those in other markets.
In fact, Chinese-based companies tend to be cheaper than those from India, Indonesia and other nations that do not have an extensive presence in India.
It is, therefore, a bit of a paradox when it comes to the “sales” of Chinese-led companies in India, says Vijay Singh, co-founder and chairman of NIPFP.
“The fact is that the Chinese-controlled companies are more competitive in India,” he says.
The NIPF study was done to determine whether Chinese-influenced IT services are better than those that are offered by Indian-owned firms.
It looked at the cost of the services offered by the top 10 IT companies in the country, with the data gathered from online sources such as PricewaterhouseCoopers (PwC) and the Bureau of Economic Analysis.
The study found that the cost difference between the services provided by the three largest companies was in the range of 12-18 per cent.
“These are very good prices,” says Jaspreet Singh, chief executive of IT services provider, HCL Infosys.
“They are also lower than the costs that the Indian companies are offering.
It’s a competitive advantage for them.”
Singh says that the pricing gap between Chinese-dominated and Indian-led IT services is due to the fact that both companies tend towards outsourcing their work to third-party contractors.
“This is done to ensure that the contractors do not come up with their own solutions,” he explains.
The companies have been selling IT services to contractors across the country for over a decade.
“Many of these services are now being provided by third-parties,” says Singh.
“It is a competitive disadvantage for them, but the customers don’t seem to care,” he adds.
Another problem for Indian IT companies is the growing number of third-Party contractors that they are not able to compete against.
“We are seeing more and more third-country suppliers of services for our companies, which is good news, because these companies have the advantage of being able to bring in talent from outside India,” says Amit Keshav, managing director of consultancy firm, Wipro.
The outsourcing of services to third parties has been a major problem for the Indian technology industry, and is a major reason why it is facing a shortage of skilled staff.
“Even in India with all the software that is being deployed, there are still people in IT that are not in the IT field.
We are getting the shortage of staff.
There is no one in the industry that can fill this gap,” says Keshab.
The cost gap between Indian- and Chinese-run IT services can be explained by a number of factors.
“First, the IT services offered are not cheap.
A recent survey by Deloitte found that a third of Indian IT workers do not make enough money to cover their basic expenses.
The average monthly salary of a full-time employee is Rs 6,800, while the minimum wage is Rs 1,000,” says Prakash Chavan, CEO of Wipron India.
“Second, third-way vendors are more expensive, too,” he notes.
The most expensive third-tier vendor is Flipkart, which has been able to increase its revenue in the past few years from Rs 5,000 to Rs 10,000 per month, which translates into an additional Rs 20,000-30,000 profit a year.
“Third-way vendor salaries are also higher than those offered by their Indian counterparts,” he points out.
The third- and fourth-tier vendors, on the other hand, are often the least expensive.
According to the study, third and fourth tier vendors charge around Rs 1.50-1.80 per hour per month.
“In comparison, Indian IT employees can expect to earn between Rs 3,500 and Rs 6.50 per hour.
The third and fifth tier vendors, meanwhile, are charged between Rs 4,000 and Rs 7,000 a month,” says Chavan.
In order to compete in India’s IT market, the Indian tech industry has been growing rapidly over the past five years.
This is because the IT sector is being targeted at a range of sectors, from financial services to healthcare.
“A good portion of our clients are multinationals that want to expand their operations into India,” adds Singh.
In the past, outsourcing was only done by local IT companies.
However with the growth of outsourcing, the cost structure of the sector has changed drastically.
“There is an explosion of third and second-party outsourcing now, as well as third-