Offshore IT Outsourcing China

China: Strong Competitor in Offshore IT Outsourcing

China is fast emerging as a preferred location for IT offshore outsourcing. While India remains as the top IT exporter in the region, China is increasingly giving its rivals strong competition. Ninety percent of the well-established Chinese IT industry relies on local talent. In 2006, revenues were projected to reach approximately USD 9 billion, growing at a rate of about 19 percent annually. The market for Chinese IT services grew over 40 percent each year from 1997.

In a period of 3 years from 2000-2003, the software industry in China generated about USD 12 billion with a 39 percent Cumulative Annual Growth Rate (CAGR) and a 100 percent CAGR for the country’s entire IT Industry exports. Indeed, offshore IT outsourcing in China is the fastest-growing segment in its IT-enabled services market.

Today, companies worldwide recognize the value offered by offshore IT outsourcing in China. Indeed, many of the top US-based IT corporations including some Indian companies have already established their operations in the country. Offshore IT outsourcing in China serves the huge local communications hardware industry and electronics market as well as the domestic and global demand for IT outsourcing.

The growth of offshore IT outsourcing in China was brought about by several factors, one of which is the initiative of the Chinese government to build the necessary IT and communications infrastructures through software parks established across the country.

Moreover, the government has set up several state owned and supported enterprises, which private companies can merge or acquire. These active steps from the government make offshore IT outsourcing in China more competitive.

In addition, the Chinese government is continually working to improve the English language skills of its youth to address the need for an English-proficient workforce. In Chinese schools today, English is a mandatory language. Likewise, the government is working on further increasing the IT talent pool in the country to respond to the increasing demand for offshore IT outsourcing in China.

China already has a vast resource of IT specialists (est. 400,000) such as software developers (est. 2 million) and also engineering graduates (est. 5 million). Additionally, each year 50,000 graduates are joining the workforce resulting not only in a steady supply of manpower but also lower costs per worker.

Indeed, lower labor rates is one of the main motivating factors behind offshore IT outsourcing in China or offshore outsourcing, in general. An IT worker in China costs US $15 dollars per hour compared to the US $80 dollars per hour rate of a US-based IT worker. The combination of availability and affordability of labor offers clients sustainable value.

Moreover, a great driver of growth of offshore IT outsourcing in China is the mass movement of what the industry refer to as the “sea turtles’ – these are the IT and business people who were born in China, educated in the United States and are now returning to their homeland bringing with them their education and work experiences to put up their own IT enterprises.

Another strong reason for the emergence of offshore IT outsourcing in China is the country’s zero duty policy on IT products and services, which encourages foreign ventures and at the same time compels domestic companies to stay competitive. Additionally, the Chinese judicial system will be strictly enforcing its laws on the protection of Intellectual Property Rights and has made tougher penalties. It has also created explicit regulations against online software piracy.

The strength of the local IT industry points to the great global opportunity of offshore IT outsourcing in China. With the development of technology standards, the IT industry in the country as well as offshore IT outsourcing in China will continue to flourish and with China’s current position as one of the fastest-growing economies in the region, the development of its IT industry will influence the standards used in the global market.

All the above-mentioned factors – government support, low labor rates, abundance of IT talent and business friendly policies – all contribute to the optimistic view that offshore IT outsourcing in China is set to play a dominant role in the global market.

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