Ask anyone: China places only second to India when it comes to offshore outsourcing desirability. Operational costs may be cheaper in China, but as we have discussed in earlier articles, some aspects of doing business in that region come with considerably higher risk.

A recent study by global research firm McKinsey tells us that China is inferior to India specifically when it comes to IT services.

Revenues from information technology services may be rising in China, but they are still barely half of India’s $12.7 billion a year. The study also points out that despite lower costs, operating margins in Chinese software companies average only 7 per cent, compared with 11 per cent at similar companies elsewhere.

The McKinsey team, which interviewed executives from 32 Chinese software companies and analysed corporate data for the study, notes that management of talent is another weak link. Most do little to develop their employees and very few use stock options, training programmes or other incentives to build talent.

The study also reveals an interesting point: while China has over 8,000 software providers, three-fourths of those companies have less than 50 employees – and only five have more than 2,000 employees. This might well be a move to prevent unionization, thus keeping China attractive to foreign investors.

The competition between China and India is fierce. One can perhaps say that the Chinese government has accepted India’s supremacy, and treats it as a mentor in some cases.

However, Chinese software firms have also recognized the potential of India not only as a teacher, but also as an outsourcing destination.

A month ago, China established the Sino-India Cooperative Office. This government division is staffed by 12 software experts, and is meant to “woo” the four India-based software giants TCS, Wipro, Infosys and Satyam, into expanding their operations in China, especially Beijing.

The Shenzhen government also inked a deal with Pune-based RPG company Zensar Technology Ltd. This deal created the Center of Excellence (CoE), an organization which would provide learning materials and work experience to China’s software professionals.

This deal would also enable some 1,000 Chinese software programmers to fly to India for specialized training. The end goal is for the city of Shenzhen, with its grand Shenzhen Software Park, to become the outsourcing capital of China.

Source: www.offshoring-digest.com/index.php?p=146

This article is powered by A-1 Technology, an offshore outsourcing company.