The Future of China´s Outsourcing Industry - A Choice of Region to Source from

Abstract

Currently outsourcing is one of the strongest growth areas in the IT industry. Forrester estimated that the number of US IT jobs going offshore would rise from 27,000 in 2000 to a cumulative total of 72,000 by 2015. Previously, India has been the main focus point for offshore software development efforts. This is now slowly starting to change with challengers such the Philippines, Russia and China entering the stage. This study focuses on the future of China's outsourcing industry and how different future developments may affect the attractiveness of different Chinese regions from the perspective of locating an offshore development center. The report starts by analyzing the Chinese business environment and the software industry. Trends are identified that will contribute to the shape of China's future software industry. Based on this analysis, scenario technique is then used to outline the positive and negative features of different regions' development prospects from a software sourcing perspective.

At the moment Beijing and Shanghai are able to offer the deepest human resources pools, the most famous universities, the best infrastructure and the highest level of development, but at a high cost. Nanjing and the surrounding region can provide almost the same quality of education and research but much cheaper. The alternatives that most likely will remain cost competitive in the long run are Xi'an and Chengdu in the western regions of China. The main risks for the developed coastal area are wage inflation and over-development. The future threats to the inland regions are brain drain and a significantly slower pace of development than in the coastal regions. The major threat to all of these regions is stagnating development and economic downturn caused by unsuccessful reforms, rampant corruption and political turbulence.