China's outsourcing sector faces challenges to catch up with India

08:27, June 20, 2011      

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by Xinhua writer
Zhang Zhengfu Faced with rising costs, fragmentation and possible overcapacity, and an inherent disadvantage in language and culture, China's software and outsourcing sector still has a long way to go before it can catch up with the world's leader India.

This is the consensus reached by Chinese business leaders at the ongoing China International Software and Information Service Fair in China's northeastern coastal city of Dalian, which has attracted industry heavyweights from around the world.

China's software and outsourcing sector grew 43 percent year-on-year in 2010 to reach 19.8 billion U.S. dollars, accounting for 5.4 percent of the world's total, compared with 4.4 percent in 2009, according to Qiu Hong, assistant minister of the Ministry of Commerce at the fair.

However, China's software and outsourcing sector has to overcome a number of hurdles and "it seems the golden age for the software and outsourcing industry is over," said Liu Jiren, chairman and chief executive officer of China's largest IT service provider Neusoft, when comparing the past and future of China's software and outsourcing sector.


As wages are rising, the RMB is appreciating and more Chinese cities have joined the bandwagon, China's software industry in the next 10 to 20 years would not follow the same trajectory of the past 10 years, Liu said in his speech to a forum during the fair.

Supported by low labor costs and government policy support, China's software and outsourcing sector has enjoyed an annual growth rate of nearly 40 percent in the past 10 years, according to the Ministry of Industry and Information Technology (MIIT).

"However, the age featuring low-cost software engineers has gone in China, and I don't think that age will come back," said Neusoft's CEO.

Running costs in the software sector have been growing by at least 10 percent annually for the past couple of years. Such increases were difficult for overseas customers to bear, Liu said.

The solution was to move up the value chain through innovation and investing in new technologies, like cloud computing and the Internet of things, he said.

"Technology itself will play less and less a role in the business success of the software and outsourcing sector, that's why I think a company won't be successful in the long run if it only has excellent tech staff."

It also needs to make breakthroughs in business models, consultation, and how to provide solutions and services which are best tailored to customers, Liu said.

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