The Dao of Outsourcing

This article discusses how the experience level of software developers in China has caused challenges for software outsourcing companies when competing with Indian competitors.  However, as the software industry in China matures over the next six years, the experience level of Chinese developers will edge closer to international standards.

My last post before the holidays, Chinese software services revenue predictions fall short, discusses how the Chinese offshore services industry has not met analyst predictions in previous years, but did not get into why. One reason China has not reached expectations, is software development experience within the country.

The graph on the left shows an impressive increase in software related University graduates over the past ten years, but when developing software, experience is more important than number of developers assigned to a project.  Analysts predict only 5%-10% of software developers in China have the skills and experience necessary to work on projects for Western companies.  The difficulty to consistently build effective teams from China’s current labor market is a key issue being faced by software outsourcing companies in China.

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With the year ending, thoughts turn to next year and analysts weigh in with 2009 predictions.  I was recently searching my electronic library for historical statistics on software services revenues for India and China and discovered a Gartner Symposium ITXPO report from 2002 entitled, “Going offshore to globally source IT services”.  The report included predictions for China and India’s software services industry growth and expert analysis from six years ago.

It was interesting reading because predictions around India were accurate while predictions regarding China fell short substantially.  The discovery of this report changed the focus of this post from future predictions to a historical look at the offshore software services industry progress in the past decade.

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Dean Stevens recent blog post Uncertain Global Economy Hits Providers highlights specific examples of changes occurring within Chinese software outsourcing companies.  Industry wide, smaller Chinese suppliers are running into cash flow problems, while larger Chinese software outsourcing companies are changing strategic plans and generally shifting focus away from servicing Western companies towards the local market.

However, China Daily and China Tech News both report continued growth in the industry and increased demand both at home and abroad.  Also, the majority of demand for services outsourcing from China does come from America or Europe, the areas impacted most by the economic down turn.  So, why are these Chinese outsourcing companies in trouble?

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