A Background and History of China’s industry of outsourced IT

The software outsource IT in China is still in its infancy. Most of the growth and attention is recent. Cyrill Eltschinger, who started I.T. UNITED in 1998, before China was on anyone’s map as an IT destination.

China’s software exports, which include outsource software IT, were a miniscule $250 million in 1999. It grew to $2 billion in 2003 and is estimated to be $3.2 billion in 2004, according to International Finance Corp.

This is changing. China’s industries and institutions are starting to spend more on IT and are going beyond basic systems. Giving China an advantage toyour choice of outsource of your IT in China. “The longstanding habit of burying software costs inside the hardware costs, while still common, seems to be coming to an end as clients become more sophisticated and system demands increase beyond what is available from simplistic software solutions,” according to Mr. Brizendine.

A recent study by McKinsey concluded that China being able to outsource IT, often mentioned in the same breath as India’s these days, won’t pose a threat to its continental rival for many years. According to the study, “The Chinese must consolidate their highly fragmented industry to gain the size and expertise needed to capture large international outsourced IT projects.”

We could not disagree more about the prediction. On the contrary, China is in a remarkable position to become an outsourced IT superpower in less than five years’ time. Recent fundamental changes and trends also will accelerate the growth of the China IT services industry. China’s IT services growth in the domestic market should be seen as a sign of strength, not weakness.

China’s presence in the IT and BPO arena is good news for many organizations since much of the impetus to outsource IT is cost management. China’s labor cost advantage – as much as 70% savings over US salaries is simply overwhelming. China even appear much cheaper than India now, and this competitive advantage will be more highlighted as wage inflation drives costs up in India. Giving China an advantage to choose for your outsource IT.

But of course, there is more to China than simply low labor cost. Another pull factor is the vast and expanding pool of available skilled workers in China. Its more than 2,000 universities graduate an annual average rate of roughly five million. Of these, 600,000 are technical engineers. This would give you a more reliable reason to choose China for Outsourcing your IT. Needless to say, this is a huge pool of talent that companies can tap into. In comparison, India graduates some 400,000 engineers, United States turns out 70,000 engineers, and all of Europe only produces 100,000 engineers every year.

Both investors and workers are concerned about the possibility of service jobs moving offshore to locales like China. McKinsey & Co., however, believes this fear may be overstated. In its review of eight industry sectors (automobiles, healthcare, insurance, IT services, retail, consumer banking, packaged software, and pharmaceuticals), it calculates that only 18.3 million jobs worldwide could be effectively outsourced IT to another country. Projecting this outsource of IT onto all sectors of the economy, only 160 million service jobs, out of nearly 1.5 billion service jobs worldwide, are suitable for outsource IT offshore.

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