offshoreOutsourcing2China

Why does EDS scale up its ITO operation in China?

China has been promoting its outsourcing sector in recent years to tap the booming market. The nation’s software outsourcing companies raked in $1.4 billion in revenue in 2006, up more than 40 percent compared with a year earlier. ITO providers in China are projected to earn $18 billion by 2010 & $56 billion by 2015.

According to a White Paper “Building a World-Class IT Services Outsourcing Industry in China” released by EDS, China has some distinctive advantages such as an abundant supply of raw talent, world-class infrastructure and low costs.

EDS, which has about 20,000 staff members in India now, has been trying to scale up its operation in China. In 2007, the US-based company decided to establish a global delivery center in Wuhan, capital of Central China’s Hubei Province. The company is looking to increase the center’s headcount to 5,000 in a few years.

There is more that attracts EDS to expand their operations in China: China’s large and fast-growing domestic IT services market is a great strength for its outsourcing industry.

Unlike their Indian counterparts, outsourcing companies in China work closely with local clients from industries such as banking, securities and manufacturing. These experiences allow them to develop their own domain expertise and enhance their innovative capacity.

For example, Shenyang-based Neusoft, now China’s largest outsourcing company, started to develop software programs for Japanese car audio manufacturer Alpine Electronics in 1991. The two companies set up a joint research center in 2001. Nuesoft is now one of the leading providers of auto electronic software in China.

This is impossible for Indian outsourcing companies due to their small local market. They have to buy expertise and knowledge due to the small domestic market.

Chinese government also strongly supports such deal. According to the cooperation agreement with Ministry of Commerce, EDS and the ministry will work together on policy and regulatory issues, as well as cultivate market growth opportunities. The two parties will jointly hold high-profile summits and conferences to promote China’s image abroad.