Offshoring to China

Silicon India tackles the topic of Indian firms outsourcing to Chinese firms in “IT Outsourcing: The New Global Delivery Model.”

According to the article, “Of the top Indian firms, TCS, Infosys, Satyam, Wipro, Cognizant, iGate, Mphasis and Zensar are already in China, with i-flex recently announcing its decision to set up operations there. Among the majors, only HCL is missing, and an announcement from them is expected. Apart from Wipro and Cognizant, which are both at very early stages of entry, all currently have development centers in the country. While their headcounts are currently all under 300, some have plans in place to grow that number to around 5,000 within the next three years.”

Authors Sridhar Vedala and Nick Rossiter point out that taking projects to China poses its own challenges, among them, “talent shortcomings and cost pressures, to internal cultural dissonance.” The solution comes from developing a “locally-customized strategy,” though details aren't provided.

Here's an interesting list, which I haven't seen elsewhere, that ranks China software regions…

China’s government-designated software bases—all of which boast software parks, nearby universities, and a host of tax breaks and incentives to promote an export-focused outsourcing industry—each may roughly be categorized as a tier 1, 2 or 3 city. Tier 1 cities include Shanghai, Beijing and Guangzhou, and have attracted the head offices of players such as Infosys, Wipro, Satyam, Bearingpoint and Cap Gemini. Tier 2 cities include Dalian, Hangzhou, Nanjing and Xian. While Dalian has become a major centre of offshoring to Japan, and attracted firms including Accenture, IBM, GE, HP (call center), and Dell (call center), Hangzhou benefits from its proximity to Shanghai, China’s largest and most prosperous city. Tier 3 cities include Chengdu, Jinan and Changsha, and are expected to become more important as costs continue to rise in the more developed cities.

While operating costs in tier 1 cities typically exceed those in Indiadia, costs in tier 2 and 3 cities are much lower and present a more commercially-viable option for outsourcing firms…

Worth reading if you want to understand better the challenges you'd face in offshoring to China.