Asian heavyweights China and India continue to battle it out for major slices of the increasingly lucrative outsourcing pie. While China has long been considered a hub for manufacturing and research and development (R&D), India has traditionally attracted the lion's share of the services and information-technology (IT) projects.
However, as China leverages its superior infrastructure and cheaper labor, and expands its pool of highly qualified, English-speaking personnel, the dynamics are set to change.
According to a recent report by the market-intelligence firm IDC, total revenue from China's offshore software outsourcing market will grow fivefold over the next five years, and the compound annual growth rate of the market will reach nearly 38%. China's offshore software outsourcing market continued to grow rapidly in 2006, with reported total revenue reaching nearly US$1.4 billion, up more than 48% year on year.
In addition to cheap labor, other drivers for the expansion of the Chinese IT outsourcing market include market deregulation, large-scale investment in technical education, better intellectual-property protection, IT core standards and infrastructure development, and the flourishing Chinese economy. Despite promising growth, however, China still needs to consolidate its workforce capabilities in terms of English-language proficiency, project-management skills, and experience to step up its challenge to India in the global market.
Kenneth Wong, a managing partner at SmithWong Associates, a China-focused US consulting firm, commented: "Language issues are no longer the major handicap to China-based outsourcing that they were before. In the past, the big advantage of the Indian market was that a lot of Indians spoke English. However, many IT personnel in China today are US-educated with undergraduate and graduate degrees.
"Soon there will be more people speaking English in China than in the US. The Chinese government knows it has a way to go in this area, but the signs are encouraging."
Tao Ye, president of Objectiva Software, a leading provider of software outsourcing services to China with offices in the US and Beijing, commented: "More and more customers are confident of doing business in China.
"Two years ago potential clients would say to us, 'Why China?' Now they say to us, 'Why you?' Since I founded this company in 1999, we have employed two full-time English teachers - language skills are very important in China's outsourcing sector. To say Chinese employees have no English is a myth."