China IT outsourcing to be 'next India'

Sheer scale of China's resources of IT talent and strong market growth make it the logical successor to India's current IT outsourcing crown, while other regional players will remain niche in appeal.
Written by Kevin Kwang, Contributor

China is gunning for India's IT outsourcing crown, and it will be reliant on the sheer number of its IT talent and strong economic growth to overtake its fellow Asian giant.

That said, there are still lessons Chinese outsourcing providers can learn from their Indian counterparts and, ultimately, businesses will choose their outsourcing partners according to bottomline considerations, said Liu Chu Tzer, executive vice president of Chinese outsourcing company Pactera.

In a recent interview with ZDNet Asia, Liu said China is the "new India" in terms of the IT capabilities available in the country. That, plus the fact that many companies are looking to make inroads into China or have links with the Asian economic powerhouse, means the country is well-positioned to be the alternative destination to India for businesses looking to portion off their IT requirements, he explained.

He pointed out that out of every 6 graduates produced by China's universities, one of them would be suited for the IT industry and even though every market has a pool of skilled IT workers, they cannot compete on the economies of scale that China boasts.

This argument also applies to competition from other Southeast Asian competitors such as the Philippines and Indo-China, particularly Vietnam. Liu said the Philippines, for example, can carve a niche for themselves by offering BPO (business process outsourcing) services such as operating call centers and data management-related functions.

However, it will not be able to offer thousand-man development teams to companies in the manner that Chinese outsourcing firms are able to, he pointed.

Similarly for Vietnam, it can appeal to companies looking for nearshoring options given that it has strengths in software coding and development, the executive said.

"But in terms of economies of quality, will they have enough to go around [for big-scale IT projects]?" Liu questioned.

Adapting to market forces

Asked if Pactera is facing similar global market challenges that its Indian counterparts like Infosys are facing, such as the tightening of visas for Indian IT professionals brought into the United States to work, Liu said these are part and parcel of the outsourcing business.

"Outsourcing is here to stay...and take away the political statements, companies will still make decisions based on their bottomlines." 
- Liu Chu Tzer, executive vice president, Pactera

He noted that such rules, should they come into effect, will affect everyone and not just specific Indian outsourcing companies or Chinese ones.

For example, the ongoing overhaul of U.S. immigration law will close loopholes that allow outsourcing companies, Indian and American, to pay guest workers in the U.S. at rates often below wages for equivalently-skilled Americans. Indian outsourcing companies will be hard hit though, given that they use more than one-third of the 65,000 high-skill visas, or H-1B, allowed under U.S. regulations, according to an earlier report.
"Outsourcing is here to stay...and take away the political statements, companies will still make decisions based on their bottomlines," Liu stated.

Pactera was formed on August 10, 2012, in a merger of equals between two Chinese IT companies hiSoft Technology and VanceInfo Technologies. Headquartered in China, it has offices in Singapore, Malaysia, Japan, Australia, Europe and the U.S.

In terms of its business performance in 2012, the Nasdaq-listed company reported net revenues of US$673.3 million in February this year. Greater China accounted for 38.2 percent of the full-year revenues, while the United States contributed 38.8 percent, and Japan, Asia South and Europe generated 10.7 percent, 3.9 percent and 8.4 percent, respectively. 

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