The Dao of Outsourcing

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.

In 2002, Gartner predicted software services revenues for 2006 with 0.6 probability

• Indian software services revenues - $27.5 billion
• Chinese software services revenues - $27.1 billion
• Indian software services revenues delivered from China - $10.8 billion

However, the actual 2006 software services revenues as reported by CIO.com were

• Indian IT services revenues - $30 billion
• Chinese IT services revenues - $12 billion
• Indian software services revenues delivered from China - NA (I suspect the revenues are significantly lower than $10.8 billion)

It is widely known China’s software services industry has not lived up to expectations.  However, another interesting section of the Gartner report contained a SWOT analysis of the Indian outsourcing industry, the industry weaknesses included

• Positioning and brand management
• Cultural differences
• Sales and marketing
• Leverage experience for higher-value addition
• Business process experience
• Legal system
• Globalization skills

Most would agree Indian outsourcing companies have overcome these weaknesses in the past 6 years to become global players.  In 2008, a SWOT analysis of the Indian software services industry would include the 2002 weakness as today’s strengths.  In addition, today these seven attributes are often listed as China’s software services industry weaknesses.  It is commonly reported the Chinese outsourcing industry is 10+ years behind India, however if India was able to overcome these weaknesses in 6 years, will China overcome the same challenges within the next 6 years?

Overall, there has been significant improvements in each of the areas listed above over the past 2 years in China.  However, a significant gap between Indian and Chinese software services companies still exists, particularly in maturity of business development.  Chinese companies realize this difficulty and are allocating more revenue towards business development by developing sales and marketing teams internally or through acquisition of foreign companies.   Cultural differences are also becoming less of an issue, as China’s “opening up” has increased exposure to international business standards but there is still substantial room for improvement.  Expect to see noticeable improvement in these areas in the coming year as the Chinese software services industry continues to mature.

More recently IDC predicts Chinese cities will overtake Indian cities by 2011.  Looking at poll results from Dao of Outsourcing readers, one third predict China will surpass India as a preferred services offshoring location within 10 years.  Only time will tell how the China-India software services rivalry will play out, please weigh in your vote in the polls section on the right hand side of this page.

Related posts:

1. Is the global economic downturn affecting Chinese outsourcing companies?
2. Overcoming the Software Developer Experience Gap in China
3. Indian outsourcing companies change China market entry strategy