The next outsourcing realm is closer than you think
Although India controls 83 percent of the outsourcing market, it isn't the only player - and may not be best-positioned to serve large companies in the future. By 2007, China will be neck-and-neck with India in application outsourcing revenue - a market estimated at $27 billion, according to research firm Gartner Inc.
Just do the math. With a population of 1.3 billion and an 82 percent literacy rate, no country can match China's number of highly educated workers. Consider competing sourcing countries: Canada with 23 million, Russia with 144 million, the Philippines with 81 million and Ireland with 3.9 million.
To get an accurate idea of which outsourcing situation is best for your needs, look beyond the bottom line to other variables that can contribute to success:
* The "me too" factor: Many companies outsource to the top Indian firms. India has a lot to offer, especially its proven process maturity model and low-cost resources. But if you are not a Fortune 500 company, you could be treated as a second-class citizen. As demand increases and Indian companies grow, the importance of your work and your sourcing partner relationship becomes a critical consideration.
* Sustainable cost savings: In today's economy, cost savings and the bottom line are most important - and often make people's decisions for them. What many don't know is China provides a long-term cost savings model that is 40 percent lower than India and other locations. For example, the average cost of a software developer per project in China is $4,000, compared with $7,000 in India. And, China's exchange rate is tightly tied to the United States.
* Business application expertise: Outsourcing should not be taken lightly; those doing your work need experience. India provides talented domain experts, but doesn't have a strong domestic market. China, on the other hand, has more than 6,000 software companies with information technology resources having deep domain experience.
Although the level of savings and technology expertise is important, it should not be all you look at. There are variables such as culture or education that shouldn't be overlooked:
* Infrastructure: With the Chinese government heavily focused on creating an IT powerhouse, China has built a world-class network infrastructure and is poised to become an offshore contender.
* Educational system: This year alone, China will graduate more than 50,000 English proficient IT professionals. This number is expected to grow to 200,000 per year within the next two years.
* Culture: It is important that those dealing with your critical operations are as engaged with your company as you The people of China are very entrepreneurial and share a business culture that is more similar to the United States' than most other major sourcing countries.
* Government support: China is a capitalistic economy with 70 percent of the GDP produced by private enterprises. The Chinese government has initiated a focused effort to be the world's leading software sourcing country. China's entrance into the World Trade Organization and tough new intellectual property laws, are setting a good foundation.
* New revenue market: China has a thriving domestic market and the world's fastest-growing economy. With foreign investment in China at $50 billion last year vs. $5 billion in India, companies are taking advantage of additional revenue streams in China's booming domestic market, according to Business Line.
Outsourcing decisions should be strategic and long-term, not tactical and project-based. Consider where you want your company to be in five years and weigh your decisions heavily on the answer. Wherever you decide to outsource, it is important to make sure you have a true partner and a situation closely matching your company's needs. Gordon Brooks is president and CEO of Waltham, Mass.-based E5 Systems, an IT services company. You can reach him at gbrooks@e5systems.com. To send a letter to the editor, e-mail jmaragoni@svbizink.com.
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