Which Chinese Service Providers are out there?

In this post I wrote on the rise of the Chinese IT service providers which could be the new kids on the block and give established Indian service providers a run for their money. Here I want to provide some insights on the Chinese supplier market of IT services. Feel free to add any comments if you feel that I missed out some vital information.

One way established service providers deal with the Chinese ‘treat’ is partnering with them, like Yucheng Technologies and Convergys. Yucheng is a China-based IT solution provider and Convergys a U.S. based provider of customer and employee relationship management solutions. As per the agreement, Yucheng Technologies will sell Convergys' Intervoice Edify Voice Interaction Platform (EVIP) and Convergys Dynamic Decisioning Solutions in the Chinese market.

I wonder however whether this is a smart move in the long term. Like with the car industry did Chinese companies learn how to make cars by partnering with Western car manufacturers. Especially American car manufacturers outsourced part of their manufacturing to countries like China to leverage on its lower cost levels. This however allowed local players to learn the art of car building, resulting in American car manufacturers now having to compete with Chinese car manufacturers they used to partner with. This is no problem if it was a deliberate strategy, but I doubt very much whether those American senior managers looked beyond the short term cost saving. That outsourcing of production activities to low cost countries may harm is confirmed by Gary Pisano en Willy Shih from Harvard Business School (more here).

I do not try to state here that Western and Indian service providers should not partner with Chinese competitors, but that one should look beyond the short term benefits. A partnership should be beneficial for all parties involved, both in short and long term

Infosys, a tier 1 Indian service provider, sees China both as a delivery and client location. Where Infosys focussed for the last six years on delivering services from China to oversees clients, does the company see China now also as a potential client market. It generates now some one third of its Chinese revenue from local clients, but is seeking to expand that. Beside Infosys did companies like IBM and Hewlett-Packard also built a strong presence in China. That China is becoming a serious destination for IT outsourcing show the following figures:

• Value of IT outsourcing market in 2003 was just US$0.4 billion
• Value of IT outsourcing market in 2008 was around US$2.5 billion (based on Gartner Research annual growth figures of 44%)

To support local and oversees vendors, Chinese government has been providing stanch support for the industry by accelerating infrastructure programs and promoting the country to global business community. Some more figures indicating that China is not to be underestimated as a (future) destination for offshoring ITO and BPO services:

• In China some 600,000 engineers graduate annually
• In India some 400,000 engineers graduate annually
• In the US some 70,000 engineers graduate annually
• In Europe some 100,000 engineers graduate annually

The sheer numbers of university graduates provides a furtile ground for local and oversees service providers. An overview with Chinese ITO and BPO service providers can be found here. It demonstrates that there are not just one or two Chinese ITO and BPO service providers out there, but a whole list with potential competitors for European, American and Indian suppliers.

Tata Consultancy Services (TCS) is like Infosys also seeing China as more than a delivery destination. Its global accounts are still growing faster than regional and domestic business, but the gap is closing slowly. Indian service providers see China however still as a location for low-end coding and service work and let more sophisticated work be executed by Indian workers. I hope however that Western and Indian service providers are aware that Chinese are fast learners and will give Indian workers a run for their money pretty soon.