China beckons

But India's software companies would do well to lend an ear to Chinese tycoon Jonathan Koo-shum Choi's advice

Seafood king Jonathan Koo-shum Choi is very keen to make a feature film on the Buddha. That is one reason he's in India this time.

He plans on meeting Bollywood director Subash Ghai to sound him on a collaboration deal.

But that's not the only reason Choi has flown into India at least four times this year. The president of the Hong Kong-based Sun Wah group (assets: US $ 1.5 billion), which has interests in information technology, real estate and financial services, among other things, has close business and political links in China.

And he has been trying to convince Indian IT companies that mainland China offers a multi billion dollar business opportunity in the next few years that's waiting to be grabbed.

Provided, of course, that they go about it the right way. Choi believes that Indian companies need to find the right Chinese partners.

Without partners, they won't make much headway in a nation where it takes time to to build trust and political connections are crucial to bagging projects.

For starters, he says, to begin with they should set up shop in Hong Kong and use it as a springboard into the Chinese market.

Last week Choi made a breakthrough of sorts. He roped in key Chinese software associations to tie up with the Electronics and Computer Software Export Promotion Council, the autonomous organisation that comes under the ministry of information technology's umbrella, to set up a new organisation.

The China-India Software Association (CISA) is expected to help Indian and Chinese companies come together and leverage their strengths in the IT industry. Choi also meet top Nasscom executives, including Nasscom president Kiran Karnik, to rope them in.

Just how big is the Chinese software market. It's worth billions of dollars, says Choi. The Chinese government and the provincial governments are implementing e-governance projects.

Secondly, China's top business institutions "� the Bank of China, China Petroleum "� are planning on upgrading their IT systems. And virtually every state enterprise wants to implement enterprise resource planning (ERP).

The Chinese government has set a sales target of US $30 billion for the IT industry by the end of 2005. It thinks that only 60 per cent of this ($18 billion) will be met by domestic software companies. The remaining $12 billion is up for grabs.

What is more, Choi points out that many Fortune 500 multinationals are entering China and they have growing IT requirements which local companies cannot meet.

Says Choi: "Chinese IT companies do not have the expertise to implement these projects. So they have to look at India. Two years ago the political establishment would not allow foreign companies in government projects for security reasons. That has changed. So there is an opportunity. "

Choi backs his case by pointing out that only one or two companies at SEI level 5 exist in China versus 46 in India "� a key indication of the large catching up that China's IT companies need to do.

But, cautions Choi, these projects will still not automatically fall into the laps of Indian companies. They need to tie up with Chinese partners.

Says Choi: "The Chinese need to trust you. This can only happen with a partner. Secondly, you need political networking for which, again, you need a local partner. Thirdly, Indian companies do not know the Chinese language. So they need support from local partners."

Choi argues that Indian IT companies like Infosys have not made much headway in China despite various attempts and efforts because they came in too soon.

"Many of them entered too early when the country was not ready for them. They had to pay a heavy price because the market was closed."

Secondly, Choi says they tried to go on their own without establishing any political connections with the Chinese establishment "� is a recipe for disaster.

Thirdly, Choi suggests that the best way to make a dent on the Chinese market is to go through Hong Kong.

"Indian companies should set up joint ventures with Chinese partners in Hong Kong. The commercial laws are transparent in Hong Kong (unlike in China), they're based on UK laws which are similar to Indian laws, disputes can be settled though a well-established legal system and the main language is English and Chinese companies and the Chinese government have no problem in dealing with them, " says Choi.

Finally, Choi adds that Indian IT companies that are looking at the Chinese market in a big way have to eventually list themselves on the Hong Kong bourse.

That provides Chinese companies a sense of security and trust, which is key to getting large contracts as well as getting local investors.

Says Choi: "At the moment Indian IT companies list on the New York Stock Exchange and NASDAQ because investors know them as they do business in the US market. A similar attempt has to be made on the Hong Kong bourse if you want to become a large player in China."

Choi is also bullish about Chinese IT hardware companies like PC maker Legend joining hands with Indian IT service companies and leveraging their combined strengths to export to the US or to Europe.

"For that to happen the two need to talk and come up with products and see whether they are acceptable to the US market. At the moment this is too much in the realm of theory."

Choi's argument could be viewed as being self-serving. He makes no bones about the interest his group has in partnering Indian IT companies. Nonetheless, perhaps India's IT czars should ponder over Choi's advice.

China gambit

Tie up with a Chinese partner

Set up joint ventures with Chinese partners in Hong Kong

Get listed on the Hong Kong bourse