Enough room in outsourcing for both China, India

China is set to be fastest growing IT outsourcing market, but this should not be a threat for India because of ample growth in wider industry, says HiSoft CEO.
Written by Jamie Yap, Contributor

SINGAPORE--China is expected to outpace India in the IT outsourcing space, thanks to growth locally and abroad, but rather than eat away at each other, there will be enough business for both countries, says the chief executive of HiSoft.

Loh Tiak Koon, CEO of Beijing-based IT outsourcing giant HiSoft, said within the booming global outsourcing market, the Chinese market will continue to grow a lot faster than its counterparts. Citing research from IDC, China saw 25 percent year-on-year growth in 2011, whereas India grew in the mid-tens, he told ZDNet Asia in an interview Thursday.

Loh, a Singaporean based in Beijing, was at a media event here where HiSoft's Singapore office received the international headquarters (IHQ) status from the Economic Development Board (EDB), making it the headquarters for HiSoft's Asia South--excluding mainland China and Japan--business.

According to Loh, the Chinese IT outsourcing industry has grown well vis-à-vis the Indian players and will continue to be "extremely strong" in the next three to five years. He attributed his outlook to four main reasons.

First of all, there is the huge and rapidly growing domestic market in China, coupled with still low IT penetration, that local outsourcing companies can tap.

Second, there has been a tremendous push by multinational corporations (MNCs) to enter the Chinese market, which they increasingly realize that their systems must be localized in order to succeed.

Third, the size of the IT labor force including IT graduates in China is equal to that of India. But while the Indian labor force has been fully exhausted because Indian outsourcers have been fully deployed over the last 10 years, the Chinese labor force has not been tapped as much, meaning means room for tremendous growth in the "infant years", Loh explained.

The last reason is that Chinese outsourcing companies also have business opportunities in Japan which has an aging population, he noted. "In terms of proximity like geographical distance and cultural affinity, the best country to serve Japan's outsourcing [needs] is really China," he said.

China's growth not significant threat for India
On whether the upheavals in the Indian IT outsourcing landscape, such as the visa fee hikes and anti-outsourcing sentiment in the U.S., may mean India's lead could be taken over, Loh replied that even if non-Indian outsourcers wanted to bring their staff into the U.S., they would face the same issues since the government's aim is to not give out too many local jobs.

China, however, does have one advantage, he said. CIOs are getting a more global perspective. While these large MNCs have "practically outsourced 90 to 99 percent to Indian companies already", they logically want to diversify their reach, especially if the Chinese market will expected to take up more share of their total revenue and since "India cannot supply all the resources that the United States or the world needs".

"It's not like the [global IT outsourcing] pie is the same [size] and everyone has to kill the other."
-- Loh Tiak Koon
CEO, HiSoft

Loh emphasized that despite the intense competition, the global IT outsourcing industry is itself growing and can therefore accommodate both India and China. While China has the fastest growth rate, Indian IT outsourcing companies themselves are not stagnant or experiencing flat growth, he pointed out, and both countries will be "extremely successful" over the next few years.

"The Indian [outsourcing companies] are going up the value chain, so are the Chinese. The Indians are going up the value chain to take on the IBMs and Accentures of the world, because they're much larger than China. The Chinese are going up value chain too, doing a lot of the work that used to be done by Indian companies," Loh said.

The CEO noted that the IT outsourcing pie was also getting bigger. "It's not like the pie is the same [size] and everyone has to kill the other."

Loh also noted that the U.S. still has an IT skill shortage among locals, which is why companies there still need to outsource jobs overseas.

"15, 20 years ago, anyone with a computer science degree [in the U.S.] ended up in an IT shop of an organization. Today, graduates want to join Facebook or Zynga. The U.S., in spite of what the government says, must outsource because they don't have the labor force to support their needs," he pointed out.

HiSoft to expand portfolio
HiSoft was the fastest growing U.S.-listed China-based outsourcing company in 2010 and 2011, according to Loh, who said the company has to move up the value chain "or be irrelevant". Besides India, there is also competition from also countries such as Vietnam and Indonesia where the wage levels are lower than China's, he pointed out.

Beyond its core strengths in research and development and application development and testing for its clients, HiSoft has already branched further into SAP software, banking solutions and management consultancy, he revealed.

The focus this year, Loh said, would be strengthening its cloud management services, business analytics and business intelligence (BI), and mobile management services.

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