China's Outsourcing Industry Lags Behind India's

Filed in archive Outsourcing News on February 4, 2005

Consultancy firm McKinsey said, "It will be many years before [China] poses a threat to [India] in [the IT arena]." McKinsey cited in its 2005 quarterly report that China's biggest limitation is its fragmented software-outsourcing industry. Of China's 8000 software service providers, only five have more than 2000 employees.

By comparison, India has about 3,000 software service companies, and of these, 15 companies have more than 2000 employees. Additionally, some Indian IT companies -- Infosys Technologies, Tata Consultancy Services, Wipro Technologies -- have already established worldwide recognition.

Over the years, China has been building up its IT services to the current $6.8 billion industry. Factors that helped with this include an increase in the number of engineering graduates and software applications professionals. In addition, the country's English-speaking graduates in the work force rose to 24 million in 2004.

But even with these, McKinsey concluded that China's less prominent IT services providers aren't likely to attract top international clients. They explained, "In general, smaller companies are riskier and less reliable partners. They are more vulnerable to the loss of key personnel, may not have the financial muscle to survive for the duration of a project and often don't have the capacity or breadth to absorb large projects easily."