India poses threat to Chinese software outsourcing industry

For nearly a decade, China was projected to be the biggest threat to India’s supremacy over software outsourcing. But now it seems like the game is turning around. It is anticipated that China’s fast growing software outsourcing industry is likely to face stiff competition from software companies in India and Europe. According to analysts, the software outsourcing market in China is expected to grow despite the rising labor costs and increasing competition from overseas market. The reports suggests  that a robust domestic demand will drive the growth of the software outsourcing market in China but the Chinese companies will face competition from Indian software companies even in the domestic market.

According to annual report issued by Electronic Technology Information Research Institute, China’s software and information services industry grew by 40% year on year basis to reach 383 billion Yuan ($60) in the year 2011. Meanwhile, outsourcing sector contributed 20.8% of the total value to the software industry. The domestic demand helped the software outsourcing industry to achieve a turnover of 335 billion Yuan last year.

The rapid expansion of internet based services and globalization will boost the growth of software industry in China.  In addition, the market will witness an increasing number of deals as a result of demand from the domestic market. But the industry insiders are of the opinion that even though China holds advantage in price and services compared to India, there is an urgent need to upgrade the services by the Chinese software outsourcing companies’ in order to stay competitive in the market.  This is because global players in the software industry such as India have the competence to take on their counterparts in the Chinese market in terms of quality and depth of services being provided. The main reasons cited by analysts as to why India is a threat to Chinese outsourcing market is as follows:

  1. Indian Software companies are moving up the value chain to take over the leadership position from IBM and Accenture in the global market.
  2. Boom in the number of talented software developers in India.
  3. Indian software companies have the ability to evolve faster with the changing market and have the ability to offer customized services to the clients which is lacking with the software outsourcing companies in China.
  4. The experience of Indian software companies in the global market has been tremendous and that will help them in leveraging their position in the future.
  5. 12 software companies from India were able to make it to list of top 100 outsourcing companies this year and among them three made it to the top 10. On the other hand, China’s leading company, Neusoft Corp, hardly made it to the top 30.
  6. When compared to global vendors from countries like India, China’s firms still struggle to win overseas contracts.
  7. India software companies won the largest number of contracts from US companies in the year 2011.
  8. Increasing labor cost is forcing the companies in China to move their business to cheaper areas.
  9. Subsidiaries of Indian software companies in China have already affirmed their position in the domestic market.

It is expected that turnover of the domestic software market in China will be on a trillion –Yuan scale and Indian companies will keep a close eye on this market, posing a major threat to China’s software outsourcing industry.

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