Your laptop was Made in China. Will IT Services and Outsourcing be?

Since about 2000, there has been the anticipation of the development of Chinese based services providers, distinct from delivery of services from Chinese offshore centres. This was based on the growth of the domestic IT market in China and the expectation that this would lead to the emergence of Chinese domiciled services providers with global ambitions.

It looks like it wont be until at least 2011 that Chinese based IT services providers will start to appear more readily in the global IT marketplace. Clearly the initial impact will be modest to start.

The reality has been that despite the growth in the Chinese economy and IT market, local and export orientated IT services and services providers in China have struggled to make a significant impact until very recently. The lack of Chinese vendor development is largely due to cultural and business factors. These factors include the slow development of IT services in the domestic Chinese markets, depth of English language capabilities and the relative lack of support by the Chinese government.

The initial leading providers coming out of China include, VanceInfo, Neusoft and HiSoft. Neusoft is the largest with over 15,000 employees. (Note, not all are dedicated to offshore client delivery)

Whilst they use Indian based firms as benchmarks, Chinese firms are significantly different from Indian based services providers. Despite sharing the same offshoring based model, Chinese firms are more engineering focused and significantly less mature. Given the slow rate of development, it is difficult to see China creating providers of the scale of Wipro, TCS, Infosys or HCL.

Benefits and Challenges of Working with the Chinese Providers: The primary benefit of working with a Chinese provider is access to the Chinese marketplace. If your organisation is directly involved in China, the opportunity exists to leverage these capabilities in China.

IP protection is a challenge that needs to be focused upon and Chinese IT service provider are aware of this. The lack of scale of the Chinese providers means that local in country delivery will be difficult for organisations. The depth of skills and resources available in Australia, the US and other markets is limited. For clear geographic reasons, Japan remains a focus. US based services delivery is also a priority, for clear reasons and as a result of the location of capital for these firms.

Lessons learnt for organisations from the growth of Indian based Services Firms: With revenues in excess of $4 Billion and a typically well structured global delivery and operational capacity, leading Indian firms such as Tata Consultancy Services, HCL and Wipro, are orders of magnitude larger and more mature than the emerging Chinese firms. Indian based firms are at least 10 years ahead in terms of presence and capability. That is not to say that the Chinese vendors have not experienced a stock market bubble similar in scope to the Indian providers.

Emerging Chinese firms are modelling themselves on the Indian firms, and looking to learn from their mistakes. For example, HiSoft has employed a number of executives from HCL and Infosys across their organisation and are looking to replicate the Infosys model with selected focused global locations allowing for a merged global and local or onsite delivery model.

The focus on Indian providers as role models means that the Chinese firms realised early on the importance of processes that drive quality and standards in services provision. The execution of this quality and standards by the Chinese firms in terms of client engagements will be more consistent as they mature.

There is still a long way to go before the Chinese providers have an impact that changes the market. They have a lot to learn in terms of scale and depth of capability but it is very difficult to ignore the potential given by the market.

About capioIT - Phil Hassey

If you require further information, please contact Phil Hassey, CEO of capioIT. capioIT is an advisory firm focused on helping organisations to understand emerging technology as the world becomes Digital. Phil may be contacted easily in the digital and real world. +61422231793
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