Set up by the Chinese government in February 2008, Chengdu's Hi-Tech Industrial Development Zone houses at least 30 Fortune 500 companies and 12,000 domestic companies, including China's own Lenovo. Victor Johan Jansson, vice-president of Chengdu Tianfu Software Park, talks about the opportunities Chengdu province holds for Indian IT and electronics companies.
What is your take on the Indian IT and electronics space? What opportunities does Chengdu offer to Indian companies in each of these verticals?
The Indian IT and electronics space in India is mature and experienced, and is about 10 years ahead of its counterparts in China. This sector has developed technologies and products that companies in China are still trying to develop. That becomes the key differentiator for Indian IT and electronics companies entering the Chinese or other South-Asian markets.
With the US and European markets getting saturated, a presence in China is important for any company considering South East Asia as a potential market. China's close proximity and cultural affinity to markets like Japan and Korea makes it the best road to take en route to South East Asia. Chengdu province, which is located in southwest China, has topped the charts in Oriental Outlook Weekly's 2009 evaluation of Chinese free market cities. So it offers Indian IT and electronics companies a good talent pool, low operating costs and a conducive business environment created by supportive government policies. It is an ideal match for companies looking for global cities to implant back-offices, development centres or manufacturing bases.
|"Chengdu welcomes foreign start-ups with open arms. Chengdu Tianfu Software Park provides office space and numerous services to start-ups, for free."
What makes Chengdu province ideal for an IT development centre, especially because IT development demands skilled professionals?
China has always been hailed as the manufacturing hub of the world. ‘Made in China' products have flooded markets globally. But in 2000, the government realised that it can't sustain a society dependant on manufacturing alone, and pushed for services and greener industries. Chengdu already had the foundation to foster R&D. Intense R&D is going on in telecommunication and defence technologies at national institutes. The Chengdu Municipal Government now looks upon the IT and software industry as a ‘strategic pillar' and has launched a series of preferential policies related to real estate, talent introduction, tax/fiscal support and overall industry support, to further promote Chengdu as an R&D hub. For instance, a company setting up a development centre in Chengdu can use the facilities at the National Public Technology Platform (Chengdu) for R&D, testing or demos --free of charge. Chengdu Tianfu Software Park allows members to use its data centre, IT design labs, etc, for free to develop innovative and futuristic technologies. The abundance of talent available has allowed IT companies to put down its R&D roots in Chengdu.
We have about 42 universities, 30 research institutes and 660 professional technical schools producing nearly 100,000 graduates every year. Chengdu province houses nearly 1.55 million technicians and engineers. Thus, there is no dearth of talent.
Today, IT majors like IBM, Microsoft, Accenture, SAP and Symantec, have set up their R&D centre in Chengdu. The Nokia-Siemens development centre conducts a lot of 3G R&D work while Unisys, ZTE, Fujitsu, Sony and Intel have been conducting extensive R&D in IC design for chip production. Among Indian companies, Wipro recently opened a software testing and R&D centre in April, employing about 105 people.
Despite your claims of an abundance of talent available, there has been a lot of talk about the absence of managerial skills in Chengdu, thus raising hiring costs.
Yes, Chengdu might be lacking in managerial talent. We understand the need for such skills by IT companies, and also the high costs associated with importing such talent from Tier 1 Chinese cities like Shanghai or other countries like India. We are trying to woo managerial and hi-tech professionals to voluntarily shift to Chengdu. We are doing this by offering strong HR incentives, like tax cuts, settlement subsidies, talent-training subsidies, etc, hoping to make Chengdu the dream workplace for every technology oriented professional. For instance, within 5 years, experts and senior managers with a yearly salary of over RMB 1,000,000 will be reimbursed 100 per cent of their income tax dues. Similarly, those with a yearly salary of RMB 500,000-1,000,000 will be rewarded 60 per cent of their income tax dues while those with a yearly salary of RMB 300,000-500,000 and RMB 100,000-300,000 will be awarded 40 per cent and 20 per cent, respectively.
The government also gives a settlement subsidy of RMB 1,000 per person, per month, to senior professionals or those with doctoral degrees, from outside Chengdu, if they sign a labour contract for over 3 years. We also conduct hiring drives and offer software companies a training subsidy to equip their existing staff with niche skills.
Chengdu also is the assembly and manufacturing base of MNCs. Comment on Chengdu as a manufacturing hub.
China has always been a global manufacturing hub and Chengdu is becoming one of the hi-tech manufacturing bases within China. Considering we aren't close to the sea, there isn't any heavy manufacturing happening in Chengdu. We promote hi-tech manufacturing in the semiconductor, telecommunications and security solutions space. Motorola, Intel, Ericsson, etc, are working on end-to-end product development and the manufacture of embedded devices. Chip giant Intel has located one of its IC assembly plants in Chengdu, while Hon Hai Precision Industry, the world's largest contract electronics manufacturer, plans to invest $1 billion in Chengdu to develop and manufacture ‘green products' like light-emitting diode backlights and liquid-crystal display modules. Further, Chengdu accounts for 50 per cent of the total income of the information security industry in China. It is in Chengdu that the national standard for information security was developed.
What role does Chengdu Tianfu Software Park play in helping foreign IT and electronics companies enter Chengdu?
Chengdu Tianfu Software Park Company Ltd, founded under the leadership of the Administration Committee of the Hi-tech Zone in February 2009, aims to improve services to enterprises operating in the park. We also offer support to foreign companies that want to set up shop in Chengdu. The support includes a whole range of services like office facilities, recruitment, human resource training, company set-up facilitation and outsourcing services. We also work hand-in-hand with the government to promote the development of IT and the services outsourcing industry in Chengdu.
What advantages does Chengdu hold for Indian electronics and IT companies?
The biggest advantages for Indian IT and electronics companies would be the shops provided by the government, which lower operational costs and the skilled talent pool available. The government is very efficiently creating the appropriate atmosphere for businesses to develop and grow. For instance, in Chengdu, you can set up a software development centre in just 10 days.
The talent pool at Chengdu is vast and cheap. The city offers expertise in the telecommunication, gaming and animation, and information security domain. Salaries for fresh graduates are around $250-$350 per month, which is 40 per cent lower than in Tier 1 cities like Shanghai, in China. For basics like non-English speaking BPO skills, one can save 50 per cent by hiring local talent. And the average annual attrition rate is as low as 5 per cent. However, some skills for banking and finance are still developing in Chengdu; therefore, not enough expertise is available. But with attractive HR incentives offered by the government, Chengdu has successfully attracted talent from outside. About 60 per cent of the talent in Chengdu comes from Tier 1 Chinese cities and other countries.
What financial support does the government offer to electronics manufacturers and IT companies?
The Chengdu government provides loads of financial and HR support to foreign IT and electronics companies setting up operations in the Chengdu Hi-Tech Zone. Any newly founded software enterprise after certification shall, from the year it starts to make a profit, be exempted from corporate income tax in the first and second years and allowed a 50 per cent reduction in the third to fifth years. Further, the company shall be exempted from business tax after examination by the tax authority, for its business in technology transfer, technology development, relevant consultation and other technical services. There are other exemptions and incentives we offer on VAT, rental subsidies, export earnings, etc.