Software Outsourcing Favors China

There are indications that China’s Software outsourcing companies in India are accelerating the pace of catch-up.

“Global outsourcing trend and history of the transfer process will not be changed,” the Ministry of Industry and Information Technology Software and Integrated Circuit Promotion Center (CSIP), said the prestige of the king, “despite the recent global software and information service outsourcing market by the financial crisis and trade protection Marxist influence, an increase blocked. But in the long run, the financial crisis will lead enterprises to further cut costs, and outsourcing to lower cost advantages will promote its rapid development in the financial crisis. ”

According to McKinsey predicts global Offshore outsourcing scale to 2012 more than 160 billion U.S. dollars, if China is to become the undisputed world’s second largest outsourcing destination, you will need to obtain 20% market share, that is $ 30,000,000,000 above. This means that China needs in the next four years to make the industry more than 5 times the scale of growth for China’s software outsourcing industry is undoubtedly a great opportunity.

Software Outsourcing “ferocious”

“Software and information services outsourcing, the development of China’s information industry has become a new growth point, but also an internal driving force for economic development.” Ministry of Industry and Information Technology Vice Minister Lou said.

According to the latest IDC data shows that China’s software outsourcing industry for nearly 10 years of rapid development, as of the end of 2008, various types of outsourcing enterprises has reached 3300, execution of the contract amount of $ 4,690,000,000. The next four years, China will usher in a new round of development of the peak, to 2013, China will add 15,000 IT companies.

With the January 15, 2009, the State Council approved Beijing, Nanjing, Hangzhou, Jinan and other 20 cities identified as China’s service outsourcing demonstration cities, local governments have on the software outsourcing business out of the preferential terms, to become China’s software outsourcing center. This scene has become since becoming China’s software outsourcing heat in miniature.

December 23, 2009, China Sourcing 2009 Software and Information Service Outsourcing Industry Conference held in Guangzhou, at the release of “Outsourcing Industry Development Report 2009,” pointed out that the first three quarters of China’s software and information services outsourcing industry revenue reached 146.36 billion yuan , an increase of about 24.5%, is expected to be close to 200 billion annual revenue.

90 times since the 20th century, the economic impact of turbulence on the outsourcing industry shows, and each time after a short break after the outsourcing industry will continue to speed development. Despite the financial crisis of 2008 caused great shock to outsourcing industry, trade protectionism and gave the industry an adverse impact. 2009 global software and information service outsourcing industry is relatively low, making the development process of outsourcing by the financial crisis, but the transfer of industry trends remain the same.

Recently, Microsoft’s senior vice president, said Zhang Yaqin, although China is still facing low-end software outsourcing, the plight of low profit margins, but the balance of the world’s software outsourcing industry is slowly favor of China. Ya-Qin Zhang said, in the context of the global financial crisis, fiscal year 2009, Microsoft is outsourcing projects in China totaled 1.42 billion U.S. dollars.

Software Globalization Standards Association (LISA) director Michael • Arnold Bilbao (Michael Anobile) pointed out that “In recent years, the Government’s initiative, the Chinese economy has been growing to more high-level design and technical skills. China’s Haier, Lenovo Huawei and other companies, they, as top-level design and innovative company has already gained widespread popularity around the world. thanks to their win on the operational requirements of foreign markets, cultural and technical skills of focus. ”

The lack of core competence

After nearly a decade of development, China’s software outsourcing industry has formed a certain scale. However, under the influence of the global financial crisis, the profits of the software outsourcing industry has shrunk dramatically, China is also facing unprecedented challenges.

In early 2004, the Chinese government in Beijing, Shanghai, Dalian, Shenzhen, Xi’an and Tianjin, is set to focus on fostering national software export bases, has been a concentration of industry advantages.

However, power and software outsourcing in India, the Chinese Software outsourcing companies are generally smaller, more than a thousand small companies, there are small, scattered, weak phenomenon, the lack of core technology, low management level, low profit margins, causing the overall competitiveness of industry is not strong.

“However, should the crisis is opportunity.” Software outsourcing industry veteran, Microsoft China R & D Group Shenyuan Qing, general manager of strategic cooperation to correspondents said the crisis change the developed countries to further promote the concept of switching costs. Now, more and more multinational companies began to identify with China, have established R & D center in China.

Affairs for the Great China region with the LISA Board of Directors to Xu, a Chinese company to undertake the international software outsourcing projects, for example, analysis of China’s current situation. Xu with the introduction, not long ago, a Chinese company to undertake a value of $ 25,000,000 in the international software outsourcing projects, however, the costs paid to foreign experts and royalties as high as $ 20,000,000, after deducting the costs of various R & D expenditure , The Chinese company’s actual profits of the hand just less than 50 million U.S. dollars. “In this project, Chinese companies are actually the low end of the value chain. This shows that, in the present, Chinese companies urgently need to improve the skills of globalization.” Xu said the same.

In this regard, industry experts believe that, based on the current situation of China’s software outsourcing industry, China needs to develop the software and information service outsourcing of public support platform, building industry, public service system, give full play to promote the role of industry alliance to promote industrial cooperation and joint enterprise, and take cluster development path, to play a regional aggregation effect.

The largest Software outsourcing companies – HiSoft Technology Group Executive Vice President Sun Yongji that China market has become a major component of the global market, Chinese companies are increasingly global. However, Chinese companies still have the concept of globalization and the senior management team, with global operations management system, clear differences between Eastern and Western cultures and have the ability to benefit from.

Advantage of software outsourcing in China

India’s largest Business process outsourcing company Genpact CEO Palamon • Racine (Pramod Bhasin) In an interview with Britain’s “Financial Times” interview that the Indian IT outsourcing industry in China made the greatest challenge. “China’s (the Indian IT Industry Group) is a huge threat. The long term, this is our (Indian) the only real threat facing.”

Liu Jiren, chairman of Neusoft Group, said China’s software outsourcing in some areas more than India. He said that the brand value of India’s software outsourcing more of India’s media and research institutions announced to the world at large scale in this respect is the world’s strongest. “And we are now in the market value of the performance of some already may have been better than India.”

For China and India in the field of software outsourcing will face competition, IBM China Ltd., general manager of China Development Center, Shanghai Laboratory Feng Cui said that China is leading the research and development trends in Asia, in today’s increasingly volatile international economic environment, international companies gaze over the ocean, to invest in China. Meanwhile, the Chinese government is accelerating the outsourcing industry, including software development, including many industries, China’s current investment environment, compared to India more attractive to foreign investors.

“Control the global market, China is the only chance to do onshore, nearshore and Offshore outsourcing market.” In the Microsoft China R & D Group General Manager Shen Yuanqing view of strategic cooperation, development outsourcing, China has its own unique advantages .

Industry experts said that with India to undertake external service outsourcing development model of export-oriented industries, the Chinese native has four distinct advantages: First, U.S. and European companies in China’s domestic business; Second, China’s factories and manufacturing exports as the world’s big country extending out of the service outsourcing opportunities, such as logistics and procurement; Third, China has a complete industrial system and a huge industrial base, the service outsourcing model will be the release of the internal service processes a large number of professional and market-orientation of the huge potential, such as embedded software outsourcing needs SMEs information transformation produced ITO outsourcing demand; Fourth, China to expand production services into a new stage of opening, the service outsourcing industry, a large number of internally generated demand. Powerful multinational corporations and Chinese state-owned enterprises led to local demand for high-end outsourcing services, which led to a huge number of small and medium enterprises and professional outsourcing ITO outsourcing market, thus China’s domestic market demand for outsourcing is to bring the development of China’s service outsourcing industry main force.

2009 global software and information service outsourcing industry is relatively in the doldrums, but the transfer of industry trends remain the same.

China’s software distribution model for the software industry in Nanjing city.

Global software outsourcing and the “millennium bug”

International software outsourcing software development process there is one important thing must be mentioned that the “millennium bug” (Y2K) problem. U.S. and European companies hundreds of millions of “legacy” (legacy) software is encoded with a two-digit year. As the new millennium, the year must be replaced with four-digit code, otherwise the results of running the program will be disastrous. For example, a life insurance company policy is set to “20″ years of maturity, can be interpreted as 1920 instead of 2020. This problem in the 20th century 60′s and 70′s when no one expected to write programs, but now have to face the 21st century.

Continue to adjust the computer system is a large and cumbersome, monotonous and boring work, can not let Western companies have a stronger competitive advantage, the United States universities for such “outdated” technology is no longer about, so born in the United States a large number of engineers into the IT field both the inability of this technology, do not want to intervene. But the “millennium bug” problem caused the program requires a large number of familiar English forwards, received higher education, a computer programmer skills to resolve.

Which country has the software to complete the project engineer it? The answer is India. Before the Y2K crisis in the United States and India began to frequent cooperation, personal computers, networks and fiber-optic cable provides a new combination of the level of cooperation and new ways of value creation. In early 2000, Y2K problem resolved. Followed the emergence of new business opportunities – e-commerce. At that time the Internet bubble has not burst, demand is very strong, and technical personnel and relatively lacking. So they turned to India.

International Software Development Outsourcing is another very important factor in the Internet bubble burst. The one hand, the bursting of the Internet economy makes the U.S. stock market decline, the shortage of investment funds, the surviving U.S. IT companies and venture capital funds in the hands of the few remaining companies, IT budgets significantly reduced, which makes the United States software companies must seek to lower the external cost, high-quality software talent. And experienced the “millennium bug” problem of experience in project management software, India, on talents with some experience, coupled with the dotcom bubble burst in the United States on short-term work visa of Indian engineers have lost their jobs, they had returned to India, making India and the United States in the next software outsourcing have gained international cooperation opportunities. On the other hand, the prosperity of the Internet economy in India and the laying of fiber optic cable linked to the world, and the bursting of the Internet economy in India makes a direct benefit from the over-investment in the network economy during the fiber-optic cables, they and their American customers is almost free All of these fibers, which greatly reduces the transaction costs between them, increasing the use of these cables will be willing to outsource to India the number of U.S. companies.