Chinese flag

A number of countries are trying to take-on India as the IT outsourcing market leader, such as Vietnam and Egypt. But no country is more aggressive in pursuing outsourcing business than China. And it looks like China’s insistence is starting to pay off.

Audit, tax and advisory firm KPMG says that China has replaced India as Asian-Pacific companies’ top choice for outsourcing and shared services, In fact, KPMG predicts that by 2014, China’s total outsourcing market will be worth £28.65 billion.

KPMG China’s global head Edge Zarrella told the Times of India that while China’s outsourcing capabilities aren’t as mature as India’s, the growth of China’s outsourcing market is significant. “For CIOs within Asia Pacific the message is clear -- China is now leading the way," Zarrella is quoted as saying.

The KPMG study found that 42 per cent of the respondents (280 senior company executives across Asia were queried) said their companies have set up one of their shared services centres in China, and 41 per cent said they have a third-party outsourcing provider in China.

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Even more intriguing is that, according to market figures from KPMG and China’s Ministry of Commerce, China’s onshore and offshore outsourcing market was worth only $7.5 billion in 2007 but by 2009 had nearly tripled to £13 billion. And KPMG, the article states, estimates China’s total outsourcing market will be worth £28 billion by 2014.

No surprise—low labour costs are driving that growth. KMPG found in its survey that 51 per cent of the respondents chose low labour costs as the top reason for contracting outsourcing providers in China. But language capabilities were also a big factor, the survey found (53 per cent chose shared services from a Chinese provider because of language, the survey found).

Of course, Indian outsourcing providers are still pushing ahead, and based on some recent earnings reports, they are doing well. India’s largest outsourcing company Tata Consultancy Services (TCS) said that in the quarter ended June 30 its revenue had grown by 21 per cent to £1.17 billion, while profits were up 29 per cent to £263 million from last year. The company’s CEO, N. Chandrasekaran, said in a prepared statement that the company signed 10 large deals in the quarter and is currently pursuing 15 more large deals.