China, India present threats and opportunities

Paris, Mar 3: China and India may be great resource pools for some of the world's top technology companies now, but their rapid growth could spawn some worthy competitors in a few years, industry executives said this week.

European technology companies have tended to view the world's two most populous countries as cheap labor centers and increasingly even as potentially large markets as their economies grow.

But those stereotypes are changing.

"In five years, I can see the emergence of a Chinese software company," Leo Apotheker, Chief Operating Officer of Germany's SAP AG, Europe's biggest software company, told the Reuters Global Technology, Media and Telecoms Summit in Paris.

China is already home to a large chunk of technology-based manufacturing, and industry experts believe it is only a matter of time before that capability seeps through in the area of software development.

"There are already Chinese software companies, operating in China; they are fast learners. If there will be a large software company emerging in Asia, it is likely to emerge in China first," said SAP's Apotheker, adding that this company could be an even bigger threat than arch-rival Oracle Corp.

India has already proved itself as a harbinger of that trend in software services.

India's IT companies have quickly moved up the value chain and have in fact become some of the biggest beneficiaries of technology outsourcing.

Large Indian IT services companies increasingly compete head to head with some of their large European counterparts for business.

BANGALORE, NOT SILICON VALLEY

"There are now more IT orientated brains in Bangalore than in Silicon Valley. That's where things are moving. That's where innovation will develop," says Paul Hermelin, chief executive of Capgemini, Europe's largest computer services company.

Like some of their U.S. counterparts, European technology companies are racing to ramp up their operations in India to emulate the model of their Indian rivals, which use cheap but highly-skilled technical work forces to service overseas clients.

Atos Origin Chief Executive Bernard Bourigeaud says his company planned to raise its workforce to 2,500 people by the end of 2006 from 1,500 now, and is even considering acquisitions of Indian firms to quickly add scale.

Capgemini is also talking to several small Indian IT firms with a view to acquisitions to bolster its strength. The company has some 4,000 employees in India already and is hiring 400 employees there each month.

Until now, many Western players had shunned Indian IT acquisitions on grounds that valuations were too pricey, but the desire to ramp up quickly appears to have changed this view.

It's not just in the world of technology that the shift is happening.

France's Thomson plans to locate more of its film post-production and DVD manufacturing businesses in India in coming years to cut costs and to serve local clients.

"We are pretty heavily weighted towards Western Europe and North America in terms of post-production labs. We need to move more to India," Chief Executive Frank Dangeard said.

"We need to locate some special effects in Bombay (Mumbai), some post-production in Bombay. That is work for 2006 ... We tend to see today these countries as very significant, which is why we want to locate some R&D there. Of course, what is true for India is also true for China," he said.

REUTERS