China Pushing to Become IT Outsourcing Powerhouse
A new study by KPMG says more Asian companies are choosing China over India for outsourcing and shared services deals.
There certainly are other countries that are trying to give India a run for its money in the IT outsourcing market. I’ve written about Vietnam and Egypt (you can read about those two countries here). But clearly, no country is more aggressive in pursuing outsourcing business than China. And it looks like China’s insistence is starting to pay off.
Audit, tax and advisory firm KPMG says that China has replaced India as Asian-Pacific companies’ top choice for outsourcing and shared services, In fact, KPMG predicts that by 2014, China’s total outsourcing market will be worth $43.9 billion, according to media reports on a study that the firm released.
In this article in The Times of India, KPMG China’s global head Edge Zarrella says that while China’s outsourcing capabilities aren’t as mature as India’s, the growth of China’s outsourcing market is significant. “For executives within Asia Pacific the message is clear -- China is now leading the way," Zarrella is quoted as saying.
The survey found that 42 percent of the respondents (280 senior company executives across Asia were queried) said their companies have set up one of their shared services centers in China, and 41 percent said they have a third-party outsourcing provider in China.
Even more intriguing is that, according to market figures from KPMG and China’s Ministry of Commerce, China’s onshore and offshore outsourcing market was worth only $7.5 billion in 2007 but by 2009 had nearly tripled to $20 billion. And KPMG, the article states, estimates China’s total outsourcing market will be worth $42.9 billion by 2014. Now that’s growth!
No surprise—low labor costs are driving that growth. According to this article in People’s Daily Online, KMPG found in its survey that 51 percent of the respondents chose low labor costs as the top reason for contracting outsourcing providers in China. But language capabilities were also a big factor, the survey found (53 percent chose shared services from a Chinese provider because of language, the survey found).
Of course, Indian outsourcing providers are still pushing ahead, and based on some recent earnings reports, they are doing well. India’s largest outsourcing company Tata Consultancy Services (TCS) said that in the quarter ended June 30 its revenue had grown by 21 percent to $1.8 billion, while profits were up 29 percent to $403 million from last year. The company’s CEO, N. Chandrasekaran, said in a prepared statement that the company signed 10 large deals in the quarter and is currently pursuing 15 more large deals.
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