China’s expanding software outsourcing industry is rebooting to face competition on the domestic front from countries in Europe and India.
In spite of facing the twin challenges of increasing labour cost and stiff rivalry from foreign companies, industry insiders have said the industry is likely to grow hinging on robust domestic demand. But even in the domestic market, Chinese companies expect competition from India.
"Although Chinese-made software holds advantages in terms of price compared with overseas competitors such as Europe and India, local outsourcing providers are in urgent need of upgrading their services to protect the domestic market from incursion by overseas companies," state-run China Daily said on Monday. It said India’s IT (information technology) outsourcing sector expanded as the number of talented "software writers boomed."
"We should move fast to keep the business in the country because global players, such as India, are ready to compete against their Chinese counterparts in the Chinese market," the newspaper quoted Guo Xin, former president of IDC Greater China.
Entrepreneurs across the industry have to find out ways to improve the added value of their products in a bid to survive as overseas outsourcing providers start to enter the Chinese market, said Guo.
Japan was the largest importer of China's software products over the past four years, followed by the United States.
China's capacity to digest overseas contracts remains weak compared with global players.
“Indian companies are able to absorb a transaction value 10 times larger than their Chinese counterparts, Shenzhen-based consulting firm askci.com Group reported,” the newspaper said.
Quoting data from the International Associated of Outsourcing Professionals, it said as many as 12 Indian companies were on the list of the top 100 outsourcing companies in the world this year and three Indian firms have found a place in the top 10; China's top-ranked company, Neusoft Corp, barely made it into the top 30.
In fact, India’s Tata Consultancy Services’ China subsidiary was listed among the “2012 Top 10 Global Service Provider in China” in June. The award was presented by the China Council for International Investment Promotion.
On the positive side, the sector is expanding rapidly: In 2011, the output value of China's software and information services hit a record high of more than 383 billion Yuan ($60 billion), up by nearly 40 percent year-on-year, according to an annual report issued by the electronic technology information research institute under the Ministry of Industry and Information Technology.
Chinese demand for software outsourcing hit 335 billion Yuan last year, taking more than 87 percent of the market share.
"Domestic demand will become the major driver for the industry. The turnover of the domestic market is on a trillion-Yuan scale," Li from the Dalian Software Industry Association, said, adding: “The Chinese market will be one of the largest.” But it’s very likely that foreign companies, especially those from India, will be keeping a close track of that.