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Despite China's Rapid Growth, India is Still Outsourcing Leader

IDC is forecasting that China will beat out India as the destination of choice for offshoring by 2011. IDC says China's investments in infrastructure development, technical skills and Internet connectivity will be key in helping to push it to the top of the offshoring list. Although China is experiencing rapid growth, it has a long way to go to surpass India in the outsourcing segment.

IDC last summer came out with a prediction that China would overtake India as the globe's favored site for outsourcing by 2011.

While there’s no doubt China’s outsourcing industry is experiencing rapid growth, it has much ground to cover to catch India. According to a Reuters story, China exported an estimated $1.8 billion in software and services in all of 2006, vs. India's estimated $41 billion in such revenues in 2008’s first quarter.

Its limited exposure to the U.S. recession is currently working in China’s favor. U.S. companies account for three-quarters of India’s outsourcing business, leading Indian companies like Infosys and Wipro to expand their presence in other parts of the world as slowing economic conditions cause some U.S. clients to delay major IT projects.

China's crowded outsourcing industry has yet to produce dominant giants like India’s Tata, Infosys and Wipro. One of the leaders, according to Reuters, is VanceInfo Technologies, with clients IBM and Microsoft accounting for 40 percent of its net revenue in 2006. It has logged an astonishing 80 percent annual revenue growth over the last three years.

Yet VanceInfo’s CFO, Sidney Huang, says it will take “years, if not decades” for Chinese companies to match their Indian competitors. Most Chinese companies do not yet have the scale or sophistication to snag contracts like the multi-million dollar deal to modernize the China Foreign Exchange Trade System’s trading system, won by India’s Tata last year.

Tata, Infosys, Wipro and Satyam Computer Services have all established operations in China over the last three years, according to Reuters. Among their challenges are intellectual property issues and difficulties recruiting local workers.

Multi-national companies like EDS are also making major stakes in China. As I wrote in November, EDS expects to increase its Chinese staff more than five times over by 2010, with a goal of employing 5,000 workers.

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