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China’s IT Services Industry Challenges India In Outsourcing

 September 15, 2010 11:41 AM
 


by Tony D'Altorio, Investment U Research

India's information technology outsourcing companies have taken over everywhere.

Everywhere, that is, except for one of the most promising markets in the world: China. India's software executives recognize their neighboring country as one of the hardest markets to crack.

Language issues prove one problem. So does the difference between Indian entrepreneurship and China's more complicated, personal network-driven approach.

And Indian companies are used to dealing with private sector companies, not the state-driven enterprises that China runs.

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Still, most Indian outsourcing companies have set up operations in China. TataConsultancyServices, India's largest IT outsourcing company, plans to double the number of employees there from 1,100 to 2,200 over 2011.

Pramod Bhasin, the CEO of India's largest business processing company Genpact (NYSE: G), may have put it best: "In China, we are Chinese."

Indian outsourcing companies took a while though in creating that identity. In fact, they may have already missed their chance…

China's IT Outsourcing Industry

Out of seemingly nowhere, Chinese IT outsourcing companies have appeared to challenge India's dominance. According to the accounting firm Deliotte, those Chinese companies grew their revenues to $26 billion last year.

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And according to Edigio Zarrella, a partner at KPMG, "The Chinese outsourcing sector is bound to see the same curve the Indian industry had before – they are in for incredible growth."

India is well aware of the doors such growth opens up. Its own outsourcers remember all too well how they rolled up western markets in just a few years' time. Now, they fear China will do the same to them. And the Chinese government seems to be betting on that possibility as well.

Authorities there have offered strong support to such local companies. This includes incentive packages and paying no business tax on offshore contracts until 2014.

It hopes to create millions of jobs in the industry, along with 10 internationally competitive outsourcing hubs. It also wants to encourage 100 multinational companies to outsource to China and develop 1,000 Chinese outsourcing services vendors that can serve the global market.

As a result, the Chinese are now increasingly picking up orders in the U.S. and Europe… both traditional strongholds for Indian companies.

Last year, those areas brought in sharp revenue rises for all top 10 Chinese outsourcing service vendors.


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(2)
 
12/18/2010 7:27:17 PM
Competition is good by Roy W.
It is good to have an alternative to India. Competition is always good for customers. China still has a long way to go to pose any meaningful threat to India's outsourcing industry. It will need to overcome the intellectual property issue which is a paramount concern from western companies. As China's labor cost increases in the manufacturing therefore threatens the profit margin and local companys' survival, it needs to find a way to upgrade its model and IT outsourcing is a logical step to take.
Rating: (0) (0)
12/11/2011 10:13:11 AM
China outsourcing is maturing by Eric Li
This article focuses on the supply-side of outsourcing to China - e.g. outsourcing vendor maturity levels and government support. The demand-side is also important to understand - e.g. the reasons world-class organizations outsource IT and business processes to China. The primary driver I see is companies are expanding operations in China, and have found that it makes strategic sense to partner with a China-based provider.
Rating: (0) (0)

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