India and China in software outsourcing

Wednesday, July 27, 2005

Before few years, when some American companies opened their offices in china for software outsourcing and hired Chinese programmers for offshore software development, the initial response from their prospective clients was not good. At that time, all western companies were looking for software outsourcing to India. Because India was very successful in offshore software development and people were very much satisfied with Indian programmers for their coding related work.

But with the number of US companies increasing their operations in India, wages in India are going high. It has also increased manpower turnover and in turn delivery problems. Because of this, clients are seeking alternatives like China, Philippines, Russia, Poland, Romania, etc. In a survey by management consulting company DiamondCluster, in 2004 not a single company mentioned that they are outsourcing software development to China. But in the year 2005, 6% of companies mentioned they are in china. Companies that are expected to open software outsourcing operations in China have risen from 8% to 40% in just one year. The bigger attraction for china is its reliable infrastructure and skilled workers. Although wages in developed cities like Shanghai have gone up, overall they have remained lower than India’s. But the biggest obstacle in their path is deficiencies in English fluency, unlike India.

On the other hand, many Indian companies have started their operations in China. Infosys is planning to have an office near Shanghai. Accenture is also looking at China. And the cost of a development center in China is 25% lower than cost of the Indian development center. Although, it is considered that, India will move up on the ladder and handle more consulting work.