The great Asian divide
(SCMP.com) - Bangalore, a leafy southern city, has established itself as a recognised hub for renowned software companies, such as Nasdaq-listed Infosys Technologies.
Beijing's Zhongguancun, by comparison, is known by locals as a hodgepodge of small stores reselling foreign hardware components, no-name computers made from spare parts, and pirated software.
There is no denying China's software development lags behind India's. Last year, India exported US$4.6 billion worth of software products against the US$50 million accomplished by China.
"China is very far away from challenging India in software development," said the head of technology and Internet research at investment bank UBS Warburg in Hong Kong, Bethany Chan.
"I am talking about years, at least three to five years."
It is hard to believe that just 12 years ago China and India had comparable levels of software exports.In fact the countries share striking similarities. Both are behemoths with more than a billion people and economies where agriculture is pivotal.
Known for cheap labour, both are also famous for their over-achieving youngsters, who regularly score brilliantly in competitions such as the International Mathematics Olympiad. They also possess large elite migrant communities in the West - many of them working in computer-related fields.
And so, why has India surpassed China in the field of cutting-edge technology? Especially as China would appear to have more going for it - a faster-growing economy, higher disposable incomes, greater telephone density, and few of the ethical and cultural conflicts which bedevil India.
One reason for India's achievement is English.Due to its colonial past, India has higher standards of proficiency in English - the language of the technology and Internet revolution. English remains one of the country's official languages. Chinese, by contrast, traditionally have had difficulty in writing and speaking English.
Most Chinese software engineers can operate effectively in an English-based computer environment, and are proficient users of Western software programs. The key problem, however, is communication, according to Professor Yin Zhihe, executive chairman of the Beijing Software Industry Association.
"To win a contract, one needs to present ideas, negotiate the deal and write manuals. Those are Chinese weaknesses," he said. The language gap, although a hurdle, is rapidly being closed. Foreigners are often impressed with the English proficiency of young Chinese, especially in large cities such as Shanghai. As well China has a successful overseas community in North America, that can operate with ease in both the West and the East and is eager to act as a bridge.
Many say it is China's lack of respect and protection for software products which has contributed to the divergence."China's emphasis was never on software," said Ms Chan, citing its history of industrial development, which tilted heavily towards machinery. "How can you develop the software industry when you do not have the respect, the attention, and the resource for the products?"
With China's notoriously cavalier attitude towards intellectual property rights, there is little incentive to spend months developing software which will be copied overnight.
Mr Yin also believes centralised government control and red tape are to blame for China falling behind its southern neighbour.
"It takes months to obtain clearance from customs to export [software products], putting us in a disadvantageous position when bidding for a contract," he said.
"Obtaining a passport is also painfully long and troublesome. It makes it impossible to provide software support within 24 hours."
Pamela Yatsko, author of New Shanghai - the Rocky Rebirth of China's Legendary City and the former Shanghai bureau chief of the Far Eastern Economic Review, says China's strong government, although highly effective in building highways, elevating the skyline, and cracking down on crime, is stifling creativity and entrepreneurship.
On the other hand in India, where the business-politics nexus is arguably looser, and the power of the state less pervasive, entrepreneurs have more scope to do their own thing - be it wiring villages with pirated cable TV systems or setting up a seven-day start-up in Hyderabad.The uncensored Internet communication between Bangalore and Silicon Valley allows India to offer "overnight" programming solutions to software problems encountered by United States firms during the day.
Contrast that with China's command-control mind set. Beijing has strict controls on Internet access and services and, citing national security concerns, has placed restrictions on the use of encryption software.
Asia2B.com executive vice-president business development, marketing and strategy Hans Tung thinks the history of out-sourcing trends plays a more important role in the gulf between the two countries than China's tight rein on economic affairs.
When software out-sourcing began in the 1980s and 1990s, countries such as Taiwan, Singapore, the Philippines and Korea already had their hands full from hardware out-sourcing, which began a decade earlier, he said.
India, with its English language ability and software talents, naturally picked up the slack.
Also, in the 1970s and 1980s, the Indian Government imposed high tariffs on imports of memory chips. This proved a blessing in disguise. The expensive chips forced software engineers to program more efficiently, creating a fertile talent base ready to be exploited by US technology companies.
"India was in the right place, at the right time," Mr Tung said. "I do not think [China's political system] had much to do with it."
Mr Tung, who has information technology experience in North America and Asian countries, says it does not mean China is missing out.
Through its links with overseas Chinese, the mainland is picking up another wave of hardware out-sourcing as manufacturing bases transfer to China from countries such as Taiwan and Singapore, he said. At the same time he does not think rampant piracy of intangible products is threatening the vitality of the software industry.
Mr Tung points out that: "Microsoft took advantage of piracy of its software to make its products the industry standard."
Piracy could damage profits but, paradoxically, if managed well it could promote the product and help to establish a dominant market position.
Software produced for the mainland's huge domestic market is generally seen as sub-standard.
Ms Chan saw this as a problem of "low-hanging fruit".
Abundant domestic demand meant software companies did not have to develop products of export-quality.
"Exports become secondary," she said. "Therefore China does not have the same exposure as India."
However, Mr Tung thinks the huge domestic demand is actually to China's competitive advantage.
"That should be the right strategy for China," he said. "China has established an edge in developing Chinese-character related programs, which can be leveraged to other parts of Asia.
"Serving the domestic market does not mean that China cannot be successful.
"China should develop both [software and hardware].
"Hardware companies which leverage into software develop the most advantage due to their distribution channels."
Mr Yin stressed that this decade could be the last opportunity for China to spawn a world-class software industry, as time was running out.
"There are about 10 years left before software development becomes automated. By then, low-cost labour will not be such an advantage," he said.
"China has lost many opportunities. It cannot afford to lose this one."