It is interesting to note that the very factors that have helped the Indian IT industry to flourish are responsible for the growth of its Chinese counterparts as well. Government initiatives and policies, sizable and low cost workforce, infrastructure, exports, etc have augmented the growth of IT/ITeS industry in both countries. However, China enjoys certain advantages that roll the ball in its favor. Firstly, unlike India, which is highly export-oriented, the Chinese IT industry has a huge domestic market as well to cater to, that significantly reduces its risk of over exposure to the western export markets. Secondly, the Chinese market also has huge penetration in the Japanese and Korean markets where India is yet to make a foray. And thirdly, China has immense control over the appreciation of Yuan against dollar which helps in maintaining its competitive edge over India.

For the Indian IT sector, labor arbitrage has been a key driver of growth. India has a sizeable workforce available at low cost as compared to western markets and this is the main reason why it has become a major preferred offshoring destination. Ironically, despite being labor surplus, there is an apparent talent deficit in comparison to the business growth that is transforming the landscape of the IT sector. Of the 450,000 annual engineering graduates in India, just 25% are considered employable by companies in the IT/ITeS industry. This threat of talent shortage is quite significant for IT/ITeS companies in terms of added cost of labor for talent retention, where companies are compelled to hike compensation. As per a study by ASSOCHAM, talent gaps in the IT/ITeS sector could lead to salaries growing by 30-40% in 2011.

After having suffered at the hands of falling US and European economies, the sector is now more cautious about its strategy and execution. For one, the Indian IT/ITeS sector has increasingly diverted its focus on the Indian market. With growth in technology adoption by MNCs and sunrise sectors such as Retail, Telecom, etc, the IT/ITeS sector is safeguarding its exposure to western markets. With skill shortage being a major cause of concern, a lot of IT/ITeS companies have tied-up with the National Skill Development Corporation and are even adopting ITIs to develop vocational skills. On the talent front, companies are launching innovative talent management practices to retain people. Focus on employee value proposition, deeper emphasis on high performers, flexible variable pay options, role diversity, career mapping and succession planning, improved work-life balance, etc are some of the initiatives that IT/ITeS companies are adopting to retain their talent.