China is the most prominent emerging location for IT offshoring. Though Chinese IT exports are far behind India’s IT exports, the IT industry in China is well established as 90 percent of China’s IT services work is done locally. According to the Ministry of Commerce in China, revenues of the Chinese software industry increased from USD 7.16 billion in 2000 to USD 19.3 billion in 2003, growing at a Cumulative Annual Growth Rate (CAGR) of 39 percent. During the same period, the exports from the Chinese IT industry increased from USD 0.25 billion to USD 2 billion at a CAGR of 100 percent.
According to research firm Gartner, China is yet to make a significant mark in the IT outsourcing domain due to lack of infrastructure, English language skills and cultural compatibility. However, the Chinese government is now taking active steps to increase the infrastructure by establishing software parks throughout the country and to increase the proficiency of the Chinese youth in English by making English a compulsory language in schools. These steps are expected to make China’s value proposition as a suitable IT offshoring destination stronger.
The opportunity posed by China in the IT domain is now well recognized by corporations all over the world. While US based IT companies such as Microsoft and IBM have already opened operations in China, Indian IT companies are also joining them. Indian IT outsourcing players such as Wipro, TCS, Satyam and Infosys have already made the move and are setting up their back end offices in China. The well established electronics and communications hardware industry in China has a huge market for software services. Indian companies, with their new centers, can cater to the global IT outsourcing demand as well as the Chinese local market.
What are the reasons for China’s emergence in the IT outsourcing industry? According to the Outsourcing Institute, there are five key drivers for the growth in Chinese IT outsourcing market. These reasons are: