China catching up in the outsourcing race

China is rapidly catching India in the outsourcing race

Chinese cities will overtake their Indian rivals as the top destinations for offshore IT delivery by 2011, predicts analyst IDC.

Substantial investment in infrastructure, internet connections, technical skills and improved English language skills will result in China moving ahead, says IDC’s inaugural Global Delivery Index report.

But India is unlikely to give up its crown as the offshoring destination of choice easily, with new figures showing its IT software and services market has exceeded expectations to grow by more than 30 per cent in the past year.

Indian IT trade association Nasscom predicts sales will continue to rise, from £19.3bn in 2006/07 to almost £25bn in 2007/08, an increase of up to 27 per cent – see research world, below.

Affordable rent, low-cost labour and language skills are some of the reasons companies still choose to set up offshore delivery centres in India.

But Nasscom president Kiran Karnik admits there are some short- and medium-term challenges to be addressed, including rupee appreciation, suitability of available talent and infrastructure development.

IDC’s survey compared 35 cities in the Asia/Pacific region as potential offshore delivery centres. Bangalore and Mumbai remain the leading destinations, but Chinese cities such as Shanghai and Beijing are on the rise, says IDC research manager Conrad Chang.

‘There are different risk factors to consider when evaluating outsourcing, offshoring, onshoring, and nearshoring,’ he said. ‘Often what differentiates leading cities is their focus on deal-clinching factors.’