Infosys sees multinationals driving China business

SHANGHAI (Reuters) - Infosys Technologies Ltd., India's second largest software exporter, said on Wednesday it expects foreign clients to be the main near-term driver to its young but rapidly growing China unit.

But over the longer term, the company expects to get a growing portion of its China-based business from domestic firms, said Vineet Toshniwal, head of sales and marketing for Infosys's Greater China unit.

Toshniwal said his company's current China revenue -- which totalled a modest US$1.9 million in its first half year of operation in the market -- is split about 50-50 between business from Chinese and multinational clients.

"But very soon the global portion will be major," he told Reuters on the sidelines of a conference in Shanghai. "The global business is big."

Infosys believes the China market is now worth about US$5 billion in annual sales for products and services that the company provides, such as customised software and applications development and outsourcing work.

The company could generate between US$50 million and US$150 million in China within two years, based on calculations by Reuters using headcount forecasts and productivity figures provided by Infosys executives.

Infosys competes in China with companies like homegrown outsourcing rival Tata Consultancy Services and U.S. outsourcing specialist BearingPoint

The broader overall Chinese software market -- which would also include mass market products like word processing programmes -- grew at an average annual rate of 39 percent between 1999 and 2003, reaching US$19.7 billion in 2003, according to official data.

Since entering China in its last fiscal year, Infosys has built up its current Shanghai base to about 250 engineers, with plans to boost the number to 1,000 by next spring.

It is also building a centre in the nearby city of Hangzhou which, when combined with Shanghai, will eventually be able to house 6,000 engineers.

While foreign business will be the major money earner for Infosys in China over the next few years, contracts from local companies should catch up over the long term, as domestic firms come to realise the importance of well-designed software systems for good operations, Toshniwal said.

Some companies are already making that discovery, with Chinese banks expected to spend nearly US$3 billion on hardware, software and IT services as they prepare for foreign competition when China opens the market at the end of next year.

"Eventually we feel the local and global mix can be about 50-50," Toshniwal said.