China allure grows as India wages rise

By agencies   |   Tuesday, 07 June 2005, 19:30 IST
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NEW YORK: Interest in China as an outsourcing destination has increased over the last year as wages in India kept climbing, according to a survey released on Tuesday. About 40 percent of the companies surveyed plan to shift some technology work to China in the next three to five years, compared with merely 8 percent last year, according to Chicago-based management consulting firm DiamondCluster International's 2005 Global IT Outsourcing Study. China's largest draw is its labor cost, which can range from 20 percent to 50 percent below India's, said Tom Weakland, who leads the outsourcing advisory services practice at DiamondCluster. "China is starting to look like India did 10 years ago," Weakland said. "The early adopters in China have shown some success. The risks are not overwhelmingly more than in some other countries." Despite lingering intellectual property problems, China has become a strong exporter of software development services. Major services providers such as Accenture Ltd., BearingPoint and India's Infosys are using China to provide a hedge against India. Countries that appear to have fallen out of favor include Israel and Russia, due to concerns over their stability, according to the study. The study also found that the number of buyers terminating an outsourcing deal before it expires has doubled to 51 percent, due to either poor vendor performance or a client's strategy change following a merger or the decision to bring work back in-house. Satisfaction with offshore providers dropped below that of domestic ones for the first time, as the number of buyers happy with their offshore providers fell to 62 percent from 79 percent. DiamondCluster's third annual study was the first in which any buyers reported that they are planning to reduce their outsourcing spending. Companies remain concerned about an employee backlash, but worries about anti-outsourcing legislation and political pressure have waned. "Buyers are not overly worried about the impact of competitor criticism or union pressures on their outsourcing endeavors," Weakland said.

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