China's IT outsourcing industry is growing rapidly thanks to government support and an increase in domestic demand. However, it still lags far behind that of India in terms of scale, talent and experience. China's expanding domestic market and competitive labor costs are positive factors, however, India is still way ahead due to its first-mover advantage and English language level. Experts are divided on if and when China is going to be able to overcome its disadvantages and build an IT outsourcing industry that can challenge India's.

Photo: CFP

Every weekday morning, thousands of workers stream out of the metro stop at Zhangjiang High-Tech Park in Shanghai's Pudong New Area on their way to work.

Many of them are at the vanguard of China's push to become a major player in the global IT outsourcing industry, offering technical support and development services to companies from around the world.

Zhangjiang High-Tech Park specializes in software, semiconductors, information technology and life sciences, and can be seen as a microcosm of China's booming IT industry.

Many of the enterprises in the park are focusing on IT outsourcing, attracted by the rapidly growing market that was valued at $288 billion in 2013, according to research firm Gartner.

However, China may have got to the party too late.

India has traditionally been the most competitive country in the sector, and has long been viewed as the reserve base for the world's IT industry thanks to low hiring costs and its large supply of English-speaking high-level graduates.

Talent pool

India produces more than 50,000 software technology talents every year, and this is growing by a phenomenal 50 percent every year, according to a report from news portal sohu.com.

As early as 2012, the software and related services sector created a total output value up to $100 billion for India and employed about 2.5 million people, making the industry an important component in the Indian economy, news portal hexun.com reported in May, citing Li Tingxuan, a research fellow at the Liaowang Institute, a think tank affiliated with the official Xinhua News Agency.

While India accounts for about 50 percent of the global market, China accounts for less than 10 percent.

However, China is ramping up development in the sector. The country's software and related services sector rose 20.2 percent year-on-year to 3.7 trillion yuan ($580 billion) in 2014, according to a report released by the Ministry of Industry and Information Technology in March.

Rapid growth

Though accounting for less than 10 percent of global market share, China's IT outsourcing industry has been growing fast in recent years.

This rapid pace of development makes China the biggest challenger to India for the lead spot in the global IT outsourcing industry. However, India has a substantial head start that means China has a long way to go if it is to catch up.

 "There is no doubt that China has rising competitiveness, but China is still lagging in many aspects," Li Chong, office deputy director at Shanghai Pudong International Talent Development Center, which offers recruiting services to the IT industry, told the Global Times on Thursday.

Rising to the challenge

China's IT outsourcing industry started out much later than India's. It stepped into its rapid development phase after 2000, when the Chinese government launched a policy to encourage the industry's growth, and many national-level software parks were established.

Experts say India's "first-mover advantage" means the country's services providers have mature quality management and client relations, penetrating deep into the key European and American markets.

"Besides, China's talents in this sector are at a disadvantage in terms of English, the main working language," Li said.

English is one of the official languages of India, and Indian graduates use it throughout their entire education, which means they can communicate more easily with their foreign clients, according to Li.

English language education in China pales in comparison - while most students start learning English from junior middle school, many don't advance beyond a basic level.

"Another factor counting against China is that its IT outsourcing enterprises lack the scale advantage of India's," Chen Du, deputy director at the Shanghai Computer Trade Association, told the Global Times Monday.

Employees at Indian outsourcing firms can number in the tens of thousands, while the largest in China have just a few thousand, Chen said. This scale advantage means Indian firms can be more flexible, offer a wider range of services and therefore attract more top clients.

However, despite these disadvantages, China does have some plus points.

 "China's rapidly growing domestic demand for IT outsourcing means that the country's suppliers are less exposed to global downturns, such as the 2008 financial crisis," Chen noted.

"In contrast, India's market suffered greatly, with 90 percent of it reliant on overseas orders. This helped China's giants in the industry such as Chinasoft International and Neusoft Corporation weather the storm relatively easily."

The human factor

High inflation in India has also meant the price of labor there is increasing, making alternatives such as China, Mexico, Brazil and the Philippines more competitive.

"Human resources is one of the most important factors for the IT outsourcing industry," Li said.

In his view, the Chinese government should give more favorable policies to attract both domestic and international talent.

"China's level of talent in this industry has risen rapidly in recent years, but it still lacks in top-tier talent due to an unattractive research environment, resettlement policy and other factors," he said. "India has done better than China in attracting international talent."

As such, Li believes that for the foreseeable future, India will remain ahead of China in this promising industry.

But Chen takes a more optimistic view of China's potential.

 "It remains to be seen whether India will still be far ahead of China in this area," Chen said. "China has already surpassed India in some industry segments."