Is China a threat to Indian IT companies?

Studies show that Chinese software outsourcing firms are unlikely to catch up with Indian and other global software services firms anytime in the near future, despite a major policy push towards outsourcing from China’s central government in recent years. Language barrier has also played a huge role in China’s inability to attract large outsourcing contracts at a time of increasing commoditization of IT services. According to a survey 79% of IT services firms in China have been in business for less than 10 years. On the other hand, top US and Indian IT firms have been around for the better part of the last three decades, in some cases, even longer.

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China has also faced the problem of attracting the best talent, with the country’s engineering graduates not looking at IT services as a primary option for employment, instead focusing more on manufacturing firms. China currently trains 1.1 million engineers annually, according to a recent report by Kotak Institutional Equities. Since 2006, the Chinese government has tried to build expertise in software outsourcing. It identified 20 cities where such firms could be developed.

 The average profitability of Chinese IT services firms went down from 10-15% to less than 5% over the past two years, while that at most large Indian firms was in the 15-25% range

Experts say China’s focus on the domestic market and Japan may have hindered its ability to gain market  share in other growing economies.

To be sure, China’s IT industry was never considered to be a serious threat to traditional multi-national and Indian outsourcing giants, such as IBM, Accenture, TCS, Infosys, Wipro Etc.

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