China and India: An Opportunity, and A Threat

Never thought that we would see something as a threat and an opportunity, all in the same package. Still, this seems to be the case with India and China. While their population presents a huge opportunity to mobile providers, these regions also offer their own providers that are growing and could one day pose a real threat to Western providers.

One of the false assumptions made by many Western commentators is that Chinese and Indian vendors do not need to export, given their huge and often untapped domestic markets. Of course, another is that they do not have the skills or expertise to compete against Western vendors — something the 80,000-plus software developers that graudate each year or the more than 3 million Java developers in India proves simply isn’t true. There are four main reasons why the Indian and Chinese vendors are looking to export.

One, government initiatives exist in both countries to create global players. As is widely known, both China and India have clear long-term IT growth plans. In China, the Ministry of Information Industry is typically looking at least five years ahead, and up to 15 years. Equally, in India, groups such as Nasscom (the National Association for Software and Services Companies) have typically ten-year horizons. A key aim in both countries is to create global titans.

Two, they are using the expertise created in the country, partly by the joint ventures with Western vendors, to create export opportunities. In China, this is known as the “inside-out” strategy: building up a strong domestic player and then moving into international markets. These domestic players have already become strong, as shown by their ability to lead joint ventures — such as Chinese handset vendor TCL taking a 55% stake in its JV with Alcatel — or make huge acquisitions, such as Lenovo’s purchase of the PC-making arm of IBM for $1.25 billion.

Three, they are looking to escape increasingly intense domestic competition. It is not just Western vendors who have faced margin and market share pressure, particularly in China, over the last several years. Domestic vendors also want to grow and diversify.

Four, the Chinese and Indian vendors see demand from international markets. It is falsely assumed this is always at the low-end and low-cost part of the market, although this is sometimes a starting point. Sometimes it is in similar markets, which are either at comparable stages of development or are close geographically and culturally. In other areas, it can be where the vendors see they could be potential global leaders.

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