India’s Edge Over China

China is in so many ways an unstoppable force in global business. Just don’t expect to add software outsourcing to that list anytime soon. Yes, the number of English-speaking college graduates in China has doubled since 2000–a good sign for outsourcing work. But according to a report from management consultancy McKinsey & Co., that proficiency is not translating into greater profits or international dominance. Reason: the industry is extremely fragmented, with the top 10 IT-service companies claiming only 20% of the domestic market. Compare that with India’s bustling IT-outsourcing industry, where the top 10 firms capture 45%. Smaller firms mean lower margins, since projects aren’t big enough to reap economies of scale. Yet Chinese firms show little interest in consolidation mergers. There is no Infosys or Tata or Wipro of China, at least not yet. –By Barbara Kiviat