· China’s Unstoppable Rise to an IT Superpower

 

 

The mercurial rise of China as an economic superpower has earned for itself remarkable distinction from the global business community. China’s booming economy, which annually grew at an average of 9.7% since it instituted economic reforms in 1979, has caught the world attention, particularly foreign investors who aspire to carve out a significant market share in the world’s fastest growing economy.

After emerging as the world’s manufacturing hub, China is joining English-speaking countries like India and the Philippines as one of the most sought-after destinations for information technology (IT) and business process outsourcing (BPO) services. China’s progress over the past few years has been so phenomenal that it is now posing a major threat to India’s supremacy.

 

In 2003, China’s IT outsourcing market was just US$0.4 billion, with almost all activities centered on lower-end IT services involving modular programming and testing. Its inherent competitive advantages however, make Gartner Research confident that its market will grow at 44 percent annually that became a whooping US$2.5 billion industry in 2008.

 

Recent flurry of activities that have put China on the outsourcing map were the influx of East Asian companies that moved much of their Research and Development programs to China, Indian vendors that tapped China to eliminate geo-political risks for their clients, and multinational companies that aimed to serve China’s gigantic domestic market. Also, local IT providers have been working assiduously to improve their capabilities and expand their service offerings. Moreover, the Chinese government has been providing stanch support for the industry by accelerating infrastructure programs and promoting the country to global business community.

 

China’s presence in the IT arena is good news for many organizations since much of the impetus to outsourcing is cost management. China’s labor cost advantage – as much as 70% savings over US salaries is simply overwhelming. China even appear much cheaper than India now, and this competitive advantage will be more highlighted as wage inflation drives costs up in India.

But of course, there is more to China than simply low labor cost. Another pull factor is the vast and expanding pool of available skilled workers in China. Its more than 2,000 universities graduate an annual average rate of roughly five million. Of these, 600,000 are technical engineers. Needless to say, this is a huge pool of talent that companies can tap into. In comparison, India graduates some 400,000 engineers, United States turns out 70,000 engineers, and all of Europe only produces 100,000 engineers every year.

 

Chinese officials aim to give this burgeoning industry a push by putting in multi-billion dollar investments to fast track avant-garde infrastructure projects; and build highly-sophisticated Science and Technology Industrial parks that provide ultra-modern locations for companies complemented with auxiliary capital, research, manpower, infrastructure and managerial support. Also, these high-tech corridors guarantee uninterrupted power supply; and provide a single point of contact, which largely cuts down on red tape.

China’s telecommunication infrastructure has also undergone dramatic improvements. China now has 175 million phone lines compared to India’s 34.5 million. Bandwidth in China is now 7.5 gigabits per second. This is 120 times faster than what it was four years ago. In comparison, India has connectivity of 1 gigabit per second.

All these efforts have made China much more attractive not only to East Asian companies but to U.S. and European companies as well. Yet, there are still some barriers to fully realize what China could potentially become. Thus, Chinese officials and local service providers are working together to clear the path towards China becoming the world’s most enthralling IT and BPO services locale.