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China outsourcing sector no match for India
Leslie D'Monte & Ishita Russell in Mumbai | July 04, 2007 11:11 IST
China is promoting its information technology outsourcing sector as a rival to the market leader, India. The figures, however, paint a different story.
In 2006, the Chinese IT services market reached $7.7 billion, a growth of 17.8 per cent compared with that of the previous year. On the other hand, software and services exports from India for 2006-07 grew by 33 per cent to mop up $31.4 billion and the domestic segment grew by 23 per cent to garner $8.2 billion, according to Nasscom's figures.
Analyst said there is more demand in India - around four times more - than in China.
"China has the potential, but India has the edge," claimed Nasscom Vice-President Ameet Nivsarkar.
He said, "Clients of Indian outsourcing vendors just expect more out of the services provided, leading the Indian vendors to set up base in places such as China."
The myth that China is a key challenger to India in offshore supremacy is gradually dwindling with language, attrition and intellectual property issues plaguing multinationals, noted a recent Forrester report.
The other global delivery model locations such as the Philippines and Brazil are growing at a faster pace. The former grew two-and-a-half times the rate of China on the strength of its English-speaking people and large investments led by Accenture.
As such, China does not enjoy any significant cost advantage, noted analysts. The average IT salary in China is around $10,000 a year and the average BPO salary at $7,634 a year, according to a KPMG-Nasscom study. The figures are close to the Indian average salary of $9,867 and $7,779 a year in the IT and the BPO sectors, respectively.
A relatively small number of IT professionals with English language proficiency allows these employees to command higher salaries.
Vikash Jain, engagement director, Everest Group, a research firm, said, "Besides, as of December 2006, China's headcount with regard to outsourcing was less than one-tenth of that of Indian firms.
The Chinese IT consulting market benefits from various IT consulting projects of the telecommunication industry. The Beijing 2008 Olympics has helped the system integration market to garner a high-speed growth.
However, due to the historical interdependencies, cultural and linguistic similarities and physical proximity, China has been able to establish itself as a key player near shore destination for Japan and Korea. They contribute around 60 per cent of IT services export revenues and also a significant chunk of BPO revenues. The US and the UK markets account for the rest.
However, according to IDC, North American and European markets accounted for 75 per cent of the world's $320 billion IT service and outsourcing market. And these two markets are expected to expand more than 60 per cent annually in the coming years - almost twice the speed of the Japanese market.
Everest Group Research Director Sheetal Bahl said: "China is unlikely to substitute for India or other mature offshore destinations in the short or the medium term - it will work best as a supplement that matures over the years."