Ovum: China lacks IT services powerhouses

Despite plans by the Chinese government for a stronger emphasis on services, IT services powerhouses to challenge global big players will not emerge in the "foreseeable future", a new Ovum report has pointed out.

The lack of Chinese equivalents of Tata Consultancy Services or Infosys, would see Western and Indian outsourcing vendors reaping the benefits of China's increased importance as an outsourcing destination, Patrick O'Brien, senior analyst at Ovum, said Tuesday in a statement.

According to him, domestic outsourcing demand in China is driven mainly by Wholly Foreign-Owned Enterprise (WFOE) customers, which typically have existing relations with, and favor, global providers.

"The domestic vendor market is highly fragmented and while there has been some consolidation, the market needs this to be much more rapid for some strong leaders to emerge," London-based O'Brien said. "In the meantime, Western providers have invested in Chinese delivery centers, having learned their lesson from the procrastination many showed when India emerged, which effectively allowed India's domestic vendors to build themselves into global players."

Yet, he noted, the Chinese government has been "intent on providing first-class infrastructure in which IT services and BPO (business process outsourcing) vendors can flourish". Authorities, he cited, have designated 20 cities for outsourcing, pumping "extremely impressive" investments in infrastructure, education and training as well as tax incentives. The government has also established software parks "rapidly and on a large scale".

The IT and BPO industry also has access to a huge labor pool--some 6.1 million graduates are expected into the workforce this year--that is cheaper than India.

According to O'Brien, lack of marketing is "perhaps the biggest" barrier to China achieving its full potential as an outsourcing powerhouse. "This is amplified by the lack of an industry organization such as [India's] Nasscom (National Association of Software and Services Companies) to promote China's impressive abilities to the international market.

"Currently there are two government ministries working on the outsourcing industry--the Ministry of Commerce and the Ministry of Industry and Information Technology--which have, confusingly, both begun separate attempts to develop a 'China Sourcing' brand," he explained.