Subsidiaries of Indian firms in China get caught in crossfire

Experts said that Indian software services providers that service global companies in China may risk losing those projects, which will impact their investments in Asia’s largest economy.

India is witnessing a strong anti-China sentiment with the government on Monday announcing a temporary ban on 59 Chinese apps.

Actions by the Indian authorities could lead to retaliatory measures by China, Indian companies fear.

The companies have been eyeing the Chinese market as part of their strategy to cut dependence on the US and UK, which together make up more than 70% of Indian IT exports.

The current hostile environment is expected to affect their plans, experts said.

Last year, information technology industry body Nasscom launched the third phase of the Sino-Indian Digital Collaboration Plaza, an initiative to bring Indian IT companies and Chinese enterprises on a single platform.

According to Nasscom estimates from 2019, Chinese IT services spending was more than $35 billion, of which India’s share was around $500 million. Now, websites for all three phases are inaccessible.

According to data from the Shanghai Indian Consulate, Shanghai gets the maximum Indian investments, including from companies such as Tata Consultancy Services Ltd, and Infosys Ltd.

Regions of Zhejiang and Jiangsu house manufacturing units of Mahindra and Mahindra, Tata Jaguar Land Rover, Sundram Fasteners and Dr Reddy’s Laboratories, among others.

Nasscom as well as the IT companies did not respond to queries on any measures they are taking to safeguard their Chinese operations.

After China ended its covid-19 lockdown in early April, Indian businesses that were affected elsewhere were able to restart operations in the country.

According to data from Gartner research, Indian IT services providers such as Infosys, Wipro and Tata Consultancy Services have multi-location footprint (including Beijing, Shanghai) in China.

The average employee strength may vary between 1,000 and 5,000 for each of the leading service providers.

“Indian IT service providers leverage China to engage with local businesses as well as serve their global IT/BPO customer base. In the near term, continued geopolitical tensions may lead to no additional investment in these countries, coupled with identification of new neighbouring locations with a positive climate," said Naveen Mishra, senior research director at Gartner.

Mishra said that the worst-case business continuity plan scenarios will include shifting the client work to other locations (including India) as these IT services providers have a global footprint.

According to industry experts, the immediate risk of exposure to Chinese local businesses is minimum.

“However, if the situation demands, the global MNCs (multinational companies) can decide to reduce their exposure to Indian service providers in China. More importantly, while business might not be significantly impacted, the trust factor will take a hit," said Pareekh Jain, founder of Pareekh Jain Consulting.

Jain added that most IT service providers inked deals with 5G equipment maker Huawei in the past as every company wanted to ensure it had resources that can work on Huawei technology.

While those partnerships are likely to suffer, there would still be scope to work with non-Chinese 5G telecom technology providers now, he said.