Five years ago, when New Delhi-based NIIT Ltd. decided to establish itself in China, the idea was to set up a ground-floor presence in what it expected to be a booming Chinese outsourcing business in information technology (IT). But NIIT soon had to moderate its ambitions, recognizing that the local human capital needed was not yet mature—a problem it confronted head-on by organizing a wide array of local training programs.

Meanwhile, however, its essential thinking has been borne out, as more than a dozen other Indian companies have followed its lead and set up Chinese operations to provide IT services. These include top technology names like Tata Consultancy Services in Mumbai, with 24 000 professional employees; Satyam Computer Services Ltd. in Secunderabad; and Infosys Technologies Ltd. in Bangalore.

Raghvendra Tripathi, the regional manager for Satyam, believes that the company's Chinese operations will one day be as large as its offices in India, where it has10 000 employees. The firm, which is listed on the New York Stock Exchange and has development centers in nine countries, established Chinese operations in February 2003, but saw its plans derailed initially by the outbreak of the SARS epidemic a month later. Now, however, with the crisis having subsided, it boasts a new office in a Shanghai software park, with manicured green lawns, that could easily be mistaken for a campus in Silicon Valley. Tripathi says he aims to hire 100 employees by year's end.

Provisioning China's own growing IT market would be reason enough for Indian companies like Satyam and NIIT to be eyeing it hungrily. The U.S. research firm Gartner Inc., based in Stamford, Conn., expects Chinese demand for IT services to be the equivalent of US $25 billion to $30 billion by 2007, about eight times what it is now. "China simply may not have the skills, processes, or trained IT resources to meet this demand," says Girija Pande, Tata's regional director for Asia and the Pacific.

But equally, there is the worrisome possibility that China will emerge as a potent competitor of India's in the global IT outsourcing market. With outfits like Gartner predicting that each country will be raking in about $27 billion in IT sales by 2007, why not join forces and avert a beggar-thy-neighbor competition? Perhaps having that scenario in mind, China's premier, Zhu Rongji, visited Bangalore, India's IT capital, in January 2002. Last June, India's prime minister, Atal Bihari Vajpayee, paid a return state visit—the first to China in 10 years.

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Lesson Learned: A student is trained in Hangzhou.

During his first stop, in Shanghai, Vajpayee said that "it is self-evident that [China's and India's] respective core competence in hardware and software provides a natural ground for an effective alliance in the IT industry." Other complementarities, he might have added, are China's position in some East Asian markets versus India's in the English-language world; China's tradition of decisive, centralized action versus India's more democratic, market-oriented approach; and China's appeal to foreign investors versus India's more dynamic home-grown private sector.

Ironically, Indian dreams of penetrating China's domestic IT market and using it as a springboard for further conquests has turned out to depend on helping to train people who could turn in due course into arch competitors. Typical is a software training center that the Tata consultancy has set up in Hangzhou, a booming high-tech center two hours southwest of Shanghai. It trains local Tata employees not only in software engineering but also in software project management and international IT practices.

During Vajpayee's China visit, NIIT announced that it would set up centers in 15 provinces of the People's Republic to train high-level but far-flung employees in the hinterlands in the intricacies of project management and quality assurance testing. It's already training, at any one time, some 15 000 unaffiliated students—ranging from high school graduates to professionals—in 33 software schools scattered about China. On that basis, it hopes to launch a much-delayed software-outsourcing service soon.

Though the logic behind that strategy is compelling, the obstacles aren't trivial. Like NIIT, Tata had to delay plans for its service because the available personnel turned out to be inadequate. Infosys, which got permission to set up shop in China during Zhu's visit to Bangalore two years ago, still has but one person in China—its business development manager in Beijing. Obscure difficulties with the Chinese authorities have been behind the delays.

Differences in business practices and political culture are obvious, but language barriers also are nontrivial. Four years ago, when China native Jerry Cao began training teachers for NIIT in Shanghai, he could hardly understand his boss's thick Indian-accented English, he says. Conversely, if Sudhir Dahiya, NIIT's head of technical operations in Shanghai, were to walk into any of the classrooms NIIT has organized in China, he would have a hard time following along because the content is so localized and customized.

"The Chinese need clear, much more to-the-point instructions than Indian students typically do. They expect the teacher to do a bit more hand holding," says Dahiya.

India's National Association of Software and Service Companies (Nasscom), in New Delhi, has prepared a blueprint for collaboration and cooperation. It identified key Chinese sectors that Chinese IT services will not fully penetrate without outside help: banking, securities, telecom, energy, and large, complex systems integration projects in general. Besides IT, Nasscom sees opportunities for collaboration in Chinese chip design and telecommunications.

There are also "intangibles" that India can help with, notes Sam Flemming, the director of the consulting company ConnectITChina in Shanghai. "Service is still a problem in China," he says. "The Chinese are 'techies,' but they're not salespeople. Indians can help the Chinese with the selling."

Right now, the Chinese IT sector is still a fledgling business, estimated to have brought in only about $5 billion this year, by Gartner's account. But it's a sector determined to grow fast, with or without India's help.

"The Chinese are not waiting for Indians to train them," says NIIT's Dahiya. "We have to work together to create a win-win situation."