Wednesday, April 13, 2005

India Ahead in Software Outsourcing


China is unlikely to create a software outsourcing firm that can rival the Indian giants of the industry for some time to come. This is largely due to limited domestic demand, piracy and lack of skilled personnel, the International Finance Corporation, the World Bank's private sector funding arm, has said.

Despite English being a top priority in the Chinese education system, China cannot compete in language-intensive outsourcing areas with countries where English is a native language, such as India and Ireland. On the other hand, growth of Indian firms in China would clearly present a competitive challenge to Chinese outsourcers.
According to an IFC report, titled "The ICT landscape in the PRC: market trends and investment opportunities in China," released in March, given the small size of China's pure-play outsourcers today, it may take years for a company comparable to leading Indian outsourcing firms to develop. Unlike India, where large Indian firms dominate the software outsourcing market, foreign companies moving their own software development operations to China are key drivers in China's outsourcing market.
The report is crucial as the Chinese prime minister Wen Jiabao has called for cooperation and collaboration between India and China to lead the world IT market.
"According to the company interviews, as much as 95% of all office software in China is pirated. Despite China's entrance into the World Trade Organisation, government initiatives to stop piracy have moved slowly," the report said.
In India, top software outsourcer employees almost 30,000 people and has total revenues of more than $1 billion, with over 90% of resources devoted to software outsourcing. This stands in stark contrast to China's largest software group, Neusoft, which has 6,000 employees and total revenue of $265 million, with only 10% of its revenue derived from software outsourcing.
DHC, one of the largest pure-play software outsourcing firms in China, has just 1,700 employees and revenues of $33.9 million.
Curiously, Indian outsourcing firms are attracted to China in view of proximity to Japan and access to skills sets (language) to better target Japan. At least five major Indian outsourcers have already entered China, with most taking aim at both the domestic market and the export market in north east Asia. Infosys has even suggested that one-fifth of their software outsourcing contracts would be outsourced to software development centres in China in the future.