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Is China Ready To Be A Major Force In IT Outsourcing? — Yes And No

Posted in China Business

Just came across an interesting debate in Information Week’s Optimize Magazine on whether China is ready to become a major force in IT outsourcing.  The magazine asks the question and received “opposing” answers from the two professors questioned.

Peter Williamson, a professor of Asian business and international management at INSEAD in Singapore answers,”no,” because a fragmented industry and a dearth of English speakers are holding China back for now.”  Go here for that article.

Oded Shenkar, the Ford Motor Company chair in global business management at the Fisher College of Business, Ohio State University, answers, “yes, because government prodding and market pressures are propelling China onto the IT outsourcing stage.”  Go here for that article.

A close reading of the two articles however, reveals more agreement than disagreement.  Shenkar, who answers, “yes,” concludes his article with the following:

Finally, China has more science and engineering students in the United States than any other country, and increasing repatriation rates translate into a flow of a highly capable and globally experienced workforce back to the mainland. The bottom line: You can ignore China at your peril. In five to 10 years, the factory to the world may well become its outsourcing mecca.

Williamson, who cast the negative vote, concludes his article with the following:

For these reasons, China isn’t ready to be a major outsourcing player today. Nevertheless, it would be wrong to write that nation off as a viable competitor in IT-enabled services long term. China is rapidly strengthening its base of software development, and clusters of excellence are emerging: Dalian, in northeastern China, for example, is home to 18 of the world’s top IT companies, including Accenture, General Electric, and IBM. This, in turn, is attracting outsourcing and service activities.

China has another big advantage fueling this growth over India: a large home market for IT. And there are many other potential customers in neighboring, higher-cost Japan and Korea. Given the capacity for rapid learning in Chinese companies and the pool of more than 3 million university graduates entering the market each year, many trained in IT, China is unlikely to confine itself to competing for regional business.

As in the manufacturing sector, after a base is established, China tends to be aggressive in looking for new global markets. While it’s years behind India in these services today, China may be a serious alternative for evaluation in the future.

Seems Williamson and Shenker agree more than they disagree and both agree China is likely to eventually become an IT outsourcing powerhouse.

For more on China IT outsourcing, check out the following:

1.  My post of about a month ago, entitled, “China Outsourcing — Consolidation Waiting (And Waiting) To Happen

2.  “The 2006 China Outsourcing Fair” on China’s big outsourcing fair, taking place from September 7 through the 16 in Beijing, Xiamen, Wuhan, and Tianjin.

3.  “China IT Outsourcing,” which concludes China is five to ten years behind Indian IT and “foreign companies in China are spending a small fortune subsidizing China’s education system.”

  • http://www.talktalkchina.com DD

    By “IT outsourcing”, I assume we’re NOT talking about some fanciful “The Word is Flat” factoid to make everyone hum and haw. What we are talking about is plain old IT services.
    China can’t become a major force in IT outsourcing. There are two major discrepencies here:
    1) salary
    2) education
    3) English
    You’d think #1 to be English, but it’s not.
    The salary issue is accute with China’s east coast becoming far too expensive to hire qualified college graduates from. Hiring from the inland, such as Sichuan, has proved disasterous in terms of skills. IT education and applicability is not particularly strong anywhere in China.
    And then there’s the English…
    How do I know all this? I was in IT outsourcing for 5 years in China.

  • http://www.chinalawblog.com China Law Blog

    DD –
    Thanks for checking in.
    Yes, we are talking about plain old IT services. Coding, updating sofware, software/hardware tech support, etc.
    I am not at all surprised by your comments as I hear that places like the Ukraine and Belarus are better and cheaper, but….
    I also hear that places like Dalian, are pretty good at this stuff and that many Koreaon and Japanese companies use people there. Are you saying there will be no growth or just that China still has a very long way to go on this front?

  • http://ancientscience.spaces.msn.com/ David Li

    DD, doing IT outsourcing in China for North American market? Ouch! I agree with your observation. I spent a couple months surveying outsourcing for my Japanese clients both in Enterprise and Game. It’s hard to link up the pipeline and workflow.
    Enterprise IT in the states lives and dies by regulation and customers mandates. The break point for Indian IT outsourcing is infamous Y2K which is dubbed by SAP’s Shai Agassi as “Mandate from God.” The year is 1996 and every warm body capable of writing codes in the US were getting sucked into this giant gold-rush called Internet. The only place on earth to find enough college graduated, English capable programmers to fix up the massive messy COBOL codes was India. Billions of dollars pumped into fixing the problem and gave Indian IT outsourcing the giant boost. After Y2K, Internet bubble bursted and every CIO needs to watch his/her spending. Indian programmers marched on. Then with Enron, it came SOX and more IT spending and makes Indian IT outsourcing unstoppable as by this point they are so familiar to the backend offices of the major American IT spenders.
    Companies in cities like Dalians are mostly doing BPO (Business Process Outsourcing) instead of IT outsourcing for their clients in Korea or Japan. I heard GE was doing great business transporting boxes and boxes of papers from Japan to be inputed in Dalian.
    Few of the true IT outsourcing in China happened in the R&D centers of multi-internationals such as SAP, BEA and Oracle which use their Chinese “R&D” centers to maintain the old products. BEA is doing Tuxedo in Beijing Lab and SAP Business One in Shanghai.
    Indian outsourcing giants such as Tata and Infosys’s ambitions for the Japanese IT outsourcing markets are the only hope for IT outsourcing in China. Because of the racism and culture/language issues in Japan, Indian companies have problems breaking into Japanese market. The recent investment by Tata/Infosys and others are key to the IT outsourcing growth but this is subjected to the growth of Japanese IT market which is terribly SLOW.

  • Jenn

    I definitely think China is more than ready and capable to enhance its IT outsourcing work. Many of the things that are being said about China now were being said about India at the beginning of its outsourcing work and look at where it is now.