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India's Infosys looks to China to diversify

The company entered China in its last fiscal year, generating a modest $1.9 million in its first half year of operations there.It will double, triple, quadruple this year.

SHANGHAI – Infosys Technologies Ltd., India's second biggest software exporter, has begun a rapid build-up in China, developing a market that could someday account for up to 10 percent of its global revenue.

The company entered China in its last fiscal year, generating a modest $1.9 million in its first half year of operations there, James Lin, chief executive of the company's fledgling China operations, told Reuters.

"It will double, triple, quadruple this year," said the Taiwan-born Lin in an interview at a suburban Shanghai software park dotted with trees, bushes and open grassy areas, one of two main campuses the company is developing in China.

Since entering China last year, Infosys has built up its current Shanghai base to about 250 engineers, about 10 percent Indian. Lin said he plans to boost the number to 1,000 by next spring.

The company has also begun work on a second China campus in the eastern city of Hangzhou, about a two-hour drive from Shanghai. It expects to spend a combined $65 million to build up the two centres over the next five years, with room for about 6,000 programmers.

Given those figures, the company could expect to be generating up to $50 million in annual revenue in China within the next two to three years, with the potential to derive a tenth of its global total in China in the next decade, according to calculations by Reuters.

Infosys, which reported $1.6 billion in revenues for its last fiscal year, made its first major move out of its home market in India when it decided to open the two China centres, said Lin, a tech industry veteran who has lived in both Shanghai and Hangzhou for the last decade.

One of the firm's chief domestic rivals, Tata Consultancy Services, has also been expanding in China as India's $12.5 billion software sector looks for hedges against an over-reliance on a home market where costs are rapidly rising.

Others interested in increasing China-based software outsourcing operations include U.S. giant BearingPoint and venture-backed Freeborders. Companies such as Sun Microsystems and Microsoft Corp. are also developing major in-house software development labs in the country.

Infosys's China centres will complement its global network of about 10 locations, which doesn't include local support offices that cater more to individual geographic markets, Lin said.

"They have been evaluating China for a few years," he said. "Many people come here for three reasons: the local market, because your customers are coming here and because of the rich manpower here."

Lin added that operating costs in Shanghai, where living standards are rising fast, are roughly on par with those in India, but that such costs are still well below those for more mature markets such as the United States.

He said Infosys expects its China operations to get 75-80 percent of their work from the company's global operation going forward, but that the company will also try to develop its own locally-based business, mostly from major multinationals.

China's software market has been growing at an average rate of 39 percent per year to reach $19.7 billion in 2003, according to official data. Exports are making up a growing portion of the total pie, accounting for about 10 percent that year.

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