17 Feb 11 Will China really overtake India as the number one offshoring destination


The China threat has loomed large over India’s dominance in the outsourcing industry for a few years now. English language skills and the availability of a large talent pool are often cited as the most fundamental reasons for the growth of outsourcing in general. China certainly has the capability to provide the talent pool.

A report says that there are 23 million higher education graduates and about 8 million high school graduates every year. Compare that to India’s 3 million graduates each year. On the flip side, India does produce a very high number of engineering and science graduates; about 750,000 engineers per year in India. 

In terms of English language skills, India surpasses China by a huge margin. India reportedly has about 100 million English speakers and about 350 million English users (people who understand the language but cannot speak it). On the other hand, reports suggest that China has anywhere between 100 to 200 million English users. The critical factor is the number of English speakers, which has a direct impact on their utilization in the outsourcing industry.

India still leads in the offshoring segment
Despite the odds, IT-BPO exports were pegged at $59 billion in 2010 and estimated to be $76 billion in 2011 for India. BPO exports were expected to grow by 17%. Compared to that, China has not yet reached the $5 billion mark in BPO revenues, inspite of the Chinese outsourcing market estimated at about $35-36 billion in 2010. Perhaps, this is because of the early mover advantage that India had.

India’s dominance in the outsourcing industry is not necessarily challenged by China because of its skills or business aggression. The governmental support in China for the outsourcing sector is huge. To quote a research by Accenture, “20 cities have been designated as China Outsourcing Model Cities and have been broken into two tiers. Tier One cities include Beijing, Shanghai, Dalian, and Shenzhen, while Tier Two cities include Chengdu, Xi’an, Tianjin, Hangzhou, Wuxi, Wuhan, Nanjing, and others designated by China’s government. Almost all of the major service providers are located in these model cities. The revenue of offshore business, in these cities accounted for about 90 percent of the total in 2008.” On the other hand, the Indian government is wanting in its support for the sector  

A synergistic approach
The key is not in comparing the two countries in terms of success in the outsourcing industry. There are now a lot of synergies in the sector among the two. Traditionally, each country has had a sort of USP (Unique Selling Proposition) when it came to outsourced services. China has always been stronger in software and product development, whereas India’s strength lies in the services – whether in the IT sector or outsourcing of business processes.

Secondly, some of the largest Indian origin IT and BPO service providers have a large presence in China. Infosys has more than 3,000 people in its offices in China, while TCS has about 1,100. A recent article in the Economic Times  cited a KPMG report saying that there are about 150 Indian companies in China, and 40 Chinese companies doing business in India.  

Going forward, it may be optimistic to say that there will be synergies between the businesses in the two countries. Their advantage will not just remain in the manpower and the language capabilities that they provide.  As the most populous countries and powerful economies, India and China will clearly pave the way for business and trade around the globe.

ValueNotes Research
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