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Offshore outsourcing: Can China steal India's thunder?

Stephanie Overby | Nov. 19, 2010
China is touted as the only threat to India's dominance in the IT services industry. But can China really overtake India's current position?

India had much of what Master calls "the soft infrastructure" in place—English capabilities, a cultural and business affinity with its Western customers, rule of law—and struggled with the physical infrastructure required for a robust IT services industry. China faces the opposite conundrum. In addition to China's world-class technology parks, it boasts modern airports, new roads, even high-speed magnetic levitation trains. But the country has just 10 million English speakers versus India's 232 million. "Things happen in China when the government sets its sights on doing something," says Master, pointing to the development of its manufacturing sector which now rules the global market. "Stunning things." But the kind of advances necessary to overtake India in the outsourcing export market will take time.

China's Unique Value Proposition

There are areas where China has surpassed India, most notably in embedded systems engineering. Major hardware and software vendors are eyeing China—and Asia as a whole—as a future source of revenue and must localize their products. "It's China's number one area of exported outsourcing, but it doesn't get much press or fanfare because the customer is not an enterprise buyer like the CIO," says Karamouzis. "It's someone in product development or R&D."

In fact, it's that massive domestic market—boasting the highest growth rates in the world and 20 percent of the global population—that has drawn most IT service providers—and even some customers, to make early bets on Chinese outsourcing. The local economy makes China "independently attractive to virtually any company with any kind of international growth aspirations," says Master. "Accessing ITO capabilities can be part of an overall program of introduction to China."

An IBM or a Wipro sets up shop in China not just to provide additional low cost IT services to its existing customer base. They want to cement deals with Chinese companies. "They're eager to not miss out on the early phases in China as most did in India," Master says. "They're taking advantage of the attractive infrastructure and facilities and incentives China has established in its quest to develop the services market."

Whereas customers who offshored IT to India in the early days did so independently of any enterprise plans for Indian expansion, customers offshoring IT to China are doing so in conjunction with other business functions sourcing materials, establishing manufacturing operations there, or launching joint marketing ventures there "The dabbling they're doing in China is not just limited to the IT outsourcing deal," says Karamouzis. "It's often concurrent to other business activity in three or four different channels."

IT Customers Taking the Slow Boat to China

 

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