China will become the world's biggest provider of software outsourcing, according to analysts at the China International Software Outsourcing Summit 2006 held in Shenzhen in south China on Wednesday.
The analysts claimed that in a few years time about five to 10 percent of U.S. and European software outsourcing will be diverted from India to China.
Increased outsourcing contracts will boost mergers and acquisitions within China's software industry, so that enterprises can scale up and win more contracts, according to the analysts.
A recent survey shows that in the mid-1990s, only 15 percent of China's software companies were under contract to foreign companies to provide outsourced software, but in 2005 the figure had climbed to 40 percent.
Outsourcing contracts with U.S. based companies doubled in 2005 over the previous year, while business with EU firms was up 85.7 percent.
The global service outsourcing market is worth between 300 billion and 500 billion dollars. Business insiders have predicted the market will reach one trillion dollars in 2008 with an annual growth of 7.9 percent.
India, the world's biggest software outsourcing contractor, exported software worth 23.6 billion U.S. dollars in the 2005-2006 fiscal year, accounting for 80 percent of the country's total software industry revenues.
China only exported 3.59 billion U.S. dollars worth of software that year, representing eight percent of the country's total software revenues of 50 billion U.S. dollars.
Chen Meifeng, analyst with Haitong Securities Co. said that in the face of declining profits in the domestic market, Chinese software firms would focus more on the more lucrative outsourcing business from overseas markets.
The Chinese government has taken measures to boost the software outsourcing industry. The Ministry of Commerce (MOC) has approved a plan to develop 10 outsourcing base cities by 2010.
Assistant Minister of Commerce Fu Ziying said the scheme would encourage 100 multinationals to shift offshore outsourcing services to China and foster 1,000 large and medium-sized outsourcing firms.
A report by the United Nations Conference on Trade and Development said China was already a favorite choice for multinationals' research and development and could build on that to provide a range of outsourced services.