New players on the IT stage

Recent moves by a Chinese PC maker and an Indian teleco highlight the global forces reshaping IT

Legend, China’s $3bn PC specialist, is to join the elite of Kodak, Panasonic, Samsung, General Electric, Schlumberger and others in sponsoring the 2008 Olympic Games in Beijing. For the privilege, and that of sponsoring the 2006 Olympic Winter Games in Torino, Italy, it probably paid $65m.

Meanwhile, IBM has won a big and intriguing piece of business in India. It is to look after the hardware, software, datacentres, customer billing, CRM, helpdesks and disaster recovery facilities of Bharti Tele-Ventures, India’s largest private telecoms carrier. Over 10 years, IBM will earn $750m for this outsourcing deal, which will transfer some Indian jobs to IBM’s telecoms innovation centre in Le Gaude, southern France, as well as to its native US.

For Legend, the Olympics deals are essential if it is to build its Lenovo PC range into a world brand in short order. They are even more important if the company is ever to export complete PCs to Europe, in addition to the £100m of PC components it currently sells each year. It needs not just a distribution channel in Europe, but public exposure.

Predictably enough, some were dismissive of Legend’s move. The company has 27 percent of the Chinese market for PCs, but loses money on its new handsets and is planning to lay off 600 of its workforce of 12,000. Since China’s accession to the World Trade Organisation in 2001, it has suffered a squeeze on home-market margins at the hands of Dell. In the Financial Times, the magisterial Lex column recently pronounced the Olympics spending spree “less cheering for investors than for sports lovers”.

I think the FT is wrong. Legend’s chief executive, Yang Yuanqing, maintains that its R&D costs run at one-eighth of those of firms in the US. Certainly Legend’s advertising costs, at $24m, are low compared with its cash pile of $350m. Though I dislike any corporate relapse into branding, I think Legend’s Olympics moves are essential to raise its market share in the EU.

Similarly, Bharti’s choice of global IBM over local outsourcers has a lot going for it. Through the deal, it will become IBM India’s preferred supplier of telecoms services. More important, Bharti expects its base of mobile subscribers to shoot up from six million to 25 million people in just two years. IBM may be the only outside supplier who could really handle that kind of explosive growth. For Bharti, to lose some jobs in what could become a seminal example of offshore outsourcing-in-reverse must seem like a small price to pay.

Will French and American IBMers, manning Bharti’s helpdesks, ever understand enough of India to please the irate mobile Bharti subscriber who has lost his signal somewhere up the Ganges? Even to pose the question is to underline the condescending attitudes about the more typical despatch of Western call centres to India.

Over the next 20 years, Indian IT service providers, like Chinese IT hardware manufacturers, will be able to do a lot more than people here currently imagine. And they will use European and American speakers of the English language to build their businesses.