IT outsourcing to China increases 3 times. Is Indian IT industry in trouble?

December 08, 2011: For the past few years China has been on a winning streak in the information technology and business process outsourcing sector. The export of services from China to various parts of the world nearly tripled during a period of 3 years. In 2007 the export of services amounted to USD 1.2 billion and in 2010 it rose to USD 3.5 billion, 65 per cent of which is contributed by IT services. This information appeared in a report released by Everest Group, which provides consultancy and analysis services to the outsourcing services.

This makes China a stable and mature market for IT offshoring, say experts. The Chinese outsourcing market is expected to grow steadily and based on the forecast made by Everest, the market will reach USD 10 billion by 2015. China will remain as a perfect choice for IT firms looking for reduce labor cost for the succeeding 13 years. In a survey conducted by Everest earlier China ranks third in attractiveness to Information Technology buyers, with India and Philippines in the second and third position respectively.

In the case of China, it offers a different value proposition to IT firms compared to India and Philippines. In outsourcing IT function, majority of the organizations prefer India or Philippines for cost reduction, while outsourcing to China involves complex decisions. China as an offshore IT service destination does not offer any distinctive advantage that offer risk diversification. Most of the IT service buyers make use of Chinese service providers to serve their nearshore businesses in Japan, Hong Kong or Korea or to support their business in China. The decision to outsource IT functions to China is a part of the global strategy and is not an isolated move.

Even though China is the third most attractive outsourcing destination, it has drawbacks too. China is 30 to 40 per cent expensive than its rivals India and Philippines as far as IT and Business Process Outsourcing is concerned. In addition to this, China lacks in English speaking community in major cities which is considered as a major drawback by IT buyers. Another drawback is the size of the delivery center, which in most cases consists of just 300 to 400 employees.

A distinctive advantage that China enjoys is the large number of professional graduates. More than 50 per cent of the 5.8 million graduates were engineering and management students. The Chinese government has taken firm steps to attract investment from IT service providers from across the globe and even provides incentives.

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