Infosys building Shanghai campus with an eye on future, industry fears it may burn fingers
Defying conventional wisdom, Infosys is building an 8,000-seat campus in Shanghai. Although the announcement has astonished the industry, the company says it is building the Shanghai campus with an eye on the future. It wants to lock up people supply.
Infosys, headed by S.D. Shibulal, wants to harvest the talent in China and build a large offshore development centre there
In the fall of 2011, Chandrashekar Kakal, Global Head of Infosys's Business IT Services, dispatched a planeload of executives to Shanghai. The 26 or so vicepresidents and senior vice presidents were told to "review" China: tour its cities, meet the company's partners, visit other companies, and interact with Chinese engineers. Reason: Infosys has big plans for the Middle Kingdom. The company wants to harvest its talent and make it an offshore development centre. But if it is to convince its North American and European customers to use China as an outsourcing destination, its own executives need to be comfortable with the country first.
The tour came in the wake of a surprise announcement by Infosys in May 2011 that it will set up a 15-acre, 8,000-seat campus in the Zizhu Science and Technology Park in Shanghai. In another two years, the campus will become the company's largest software development centre outside India. The investment: at least $125 million. Thus far, Infosys has only operated out of offices in Shanghai, Beijing, Dalian and Hangzhou. "We are the largest among Indian (IT service) providers in China. We want to take our capacity to 10,000 in next two to three years," says Kakal.
"China is still going through an acceptance phase in terms of being a global delivery location. To take customers from the US or Europe to China, you need to take them through a pilot phase," says R. Chandrasekaran, Group Chief Executive of Technology and Operations at Cognizant. "There is no significant push to move work to China. People are quite comfortable with India."
The reason people are still comfortable with India is costs - Chinese cities are more expensive and in a depressed economic climate, no customer is in the mood to consider more expensive locales. An engineer with three to seven years experience earns $15,000 in Bangalore but nearly $21,000 in Shanghai annually, estimates Chandramouli C.S., Director of Globalisation Advisory Services at management consulting firm, Zinnov.
Infosys accepts that Shanghai is 15 per cent more expensive than other Chinese cities such as Hangzhou. "Of course, costs are slightly higher in Shanghai but the city attracts good talent. We looked at Shanghai because we can scale up here, and also because of global awareness and the city's proximity to businesses," says Rangarajan Vellamore, CEO of Infosys China.
According to a TCS executive, having one, large campus in China does not make sense because of the country's Hukou or household registration system, which seeks to stem urban migration. Among other restrictions, the Hukou system does not allow migrants access to health care benefits or education for their children. Spreading development centres across the country makes more sense, says the executive.
TCS has offices in five Chinese cities. "The strategy of building a large centre is not about the constraints of today. You have to look 10 years ahead. China is a rapidly changing country," says Vellamore. Many expect the country to relax its Hukou system soon to boost consumption in a slowing economy. Infosys is also hoping that building a campus will indicate to Chinese employees that the company is serious about its presence in the country and that they can build a career with it.
The tour came in the wake of a surprise announcement by Infosys in May 2011 that it will set up a 15-acre, 8,000-seat campus in the Zizhu Science and Technology Park in Shanghai. In another two years, the campus will become the company's largest software development centre outside India. The investment: at least $125 million. Thus far, Infosys has only operated out of offices in Shanghai, Beijing, Dalian and Hangzhou. "We are the largest among Indian (IT service) providers in China. We want to take our capacity to 10,000 in next two to three years," says Kakal.
SPECIAL: The Infosys dilemma: Revenues or Profit?
The announcement astonished the industry. Large Indian IT firms have operated in China for almost a decade with nothing much to write home about. They have attracted little local business and only had moderate success in making the country an alternative delivery centre. TCS, India's largest IT exporter, entered China as far back as 2002 and currently has about 3,000 people there. Infosys started its China operations in 2003 and now employs 3,092 personnel. Cognizant began in 2005 and has a headcount of 900. Given this, Infosys's decision is a little hard to comprehend.
The company says it is building the Shanghai campus with an eye on the future. It wants to lock up people supply. "From a long-term perspective, we should look at alternative pools of talent. We can't depend on India for supply and the next best alternative we have is China, which produces 600,000 engineering graduates," explains Kakal. "And Greater China, Japan and Korea are best served from China."
Unlike Infosys, other companies are not as enthusiastic about China and remain unimpressed by its plans. Most believe the company will end up burning money with its Shanghai campus. They contend that although China has a large pool of engineering graduates, servicing North American customers out of that country is a difficult task. Allowing the Chinese access to intellectual property is one more concern that will weigh on clients' minds.
PERSPECTIVE: Despite challenges, Infosys won't change tack
The announcement astonished the industry. Large Indian IT firms have operated in China for almost a decade with nothing much to write home about. They have attracted little local business and only had moderate success in making the country an alternative delivery centre. TCS, India's largest IT exporter, entered China as far back as 2002 and currently has about 3,000 people there. Infosys started its China operations in 2003 and now employs 3,092 personnel. Cognizant began in 2005 and has a headcount of 900. Given this, Infosys's decision is a little hard to comprehend.
Unlike Infosys, other companies are not as enthusiastic about China and remain unimpressed by its plans. Most believe the company will end up burning money with its Shanghai campus. They contend that although China has a large pool of engineering graduates, servicing North American customers out of that country is a difficult task. Allowing the Chinese access to intellectual property is one more concern that will weigh on clients' minds.
PERSPECTIVE: Despite challenges, Infosys won't change tack
"China is still going through an acceptance phase in terms of being a global delivery location. To take customers from the US or Europe to China, you need to take them through a pilot phase," says R. Chandrasekaran, Group Chief Executive of Technology and Operations at Cognizant. "There is no significant push to move work to China. People are quite comfortable with India."
The reason people are still comfortable with India is costs - Chinese cities are more expensive and in a depressed economic climate, no customer is in the mood to consider more expensive locales. An engineer with three to seven years experience earns $15,000 in Bangalore but nearly $21,000 in Shanghai annually, estimates Chandramouli C.S., Director of Globalisation Advisory Services at management consulting firm, Zinnov.
Infosys accepts that Shanghai is 15 per cent more expensive than other Chinese cities such as Hangzhou. "Of course, costs are slightly higher in Shanghai but the city attracts good talent. We looked at Shanghai because we can scale up here, and also because of global awareness and the city's proximity to businesses," says Rangarajan Vellamore, CEO of Infosys China.
According to a TCS executive, having one, large campus in China does not make sense because of the country's Hukou or household registration system, which seeks to stem urban migration. Among other restrictions, the Hukou system does not allow migrants access to health care benefits or education for their children. Spreading development centres across the country makes more sense, says the executive.
TCS has offices in five Chinese cities. "The strategy of building a large centre is not about the constraints of today. You have to look 10 years ahead. China is a rapidly changing country," says Vellamore. Many expect the country to relax its Hukou system soon to boost consumption in a slowing economy. Infosys is also hoping that building a campus will indicate to Chinese employees that the company is serious about its presence in the country and that they can build a career with it.
