Gartner: Look to China for outsourcing services

Companies in the U.S. and elsewhere that are looking for offshore IT outsourcing services should keep an eye on China, according to a research note published by Gartner Inc.

As demand for offshore IT outsourcing services grows in the coming years, companies will be faced with the problem of limited outsourcing resources in more established markets for IT services, such as India, Ireland and the Philippines, Gartner said. To fill this gap, companies are already starting to eye China’s vast supply of skilled IT workers, even though China isn’t expected to become a mature market for outsourcing until 2007, at the earliest, it said.

China currently has 200,000 IT professionals involved in the software export industry, with an additional 50,000 entering the workforce each year, Gartner said. Chinese IT professionals, including software engineers and project managers, are also significantly cheaper than their U.S. counterparts, typically earning one-sixth of the salaries paid in the U.S., it said. In addition, many Chinese IT professionals have some experience working abroad.

But there’s more to outsourcing than finding experienced software engineers willing to work for less. Chinese IT professionals still fall short in areas such as language ability and cultural compatibility, Gartner said.

“While most Chinese IT service employees have strong technical skills, they lack proficiency in (spoken and written) English and a knowledge of Western culture,” the report said.

In addition, most Chinese project managers are short on experience, Gartner said, adding that most Chinese IT professionals with a few years of work experience and English proficiency have left China for jobs overseas. Many of these workers face a lack of opportunity abroad due to relatively poor language skills and return to China without valuable management experience or highly placed business contacts, it said.

Another challenge that China faces in its bid to emerge as an international IT outsourcing centre is its strong domestic economy. China has more than 100,000 large corporations and over 10 million small and medium-sized companies, Gartner said. With so much opportunity in their home market, smaller Chinese outsourcing companies are more likely to focus on providing services to domestic companies with only the largest players looking abroad for opportunities, it said.

China also has a limited, but growing, telecommunication infrastructure, Gartner said. But China has not invested as heavily in its telecommunication infrastructure as other countries, it said, pointing out that China spent US$5.9 billion on its telecommunication infrastructure between 1995 and 1999, just slightly more than the Philippines which spent $5.1 billion. China’s government has taken steps to address this problem, Gartner said.

Despite these obstacles, Gartner predicts that China will emerge as one of the top three countries for overseas IT outsourcing between 2007 and 2010. Companies should plan their offshore outsourcing strategies to take advantage of China’s emerging strength as an outsourcing centre, including looking for ways to take advantage of the country’s current software strengths, Gartner said.

Gartner Inc., based in Stamford, Connecticut, can be reached at +1-203-316-1111.