February 22, 2013, 6:08 AM — China has for years been developing an IT outsourcing industry aimed at bringing in business from the U.S. and Europe. It has succeeded, but then again it hasn't thrived and now may face more barriers.
China's IT and BPO outsourcing market today is in the range of $4 to $5 billion.
The total outsourcing revenue there is about half that generated by just one India's largest IT firms, Tata Consultancy Services firms, said Jimit Arora, a vice president at Everest Group, a consulting and research firm.
China's IT service and BPO market is expected to grow annually by around 20% to 25%, but that growth is off a small base, says Arora.
Ten years ago, there was wide expectation that China would emerge as India's top threat in the IT services outsourcing business. Those expectations have been thwarted largely due to language issues and ongoing security concerns, say analysts.
China's job building an IT and BPO outsourcing industry may have just gotten harder.
The blow-by-blow details of Chinese government espionage that arrived this week in a report by security firm Mandiant, lay bare, in ways never seen before, the extent of the security risks of working with China.
The Mandiant report draws a straight line to the Chinese military as a main instigator of cyberattacks on U.S. firms.
Meanwhile, the White House this week released a report with details on trade secret theft that makes numerous references to China, amplifying the extent of this problem.
Andy Sealock, a partner at consulting firm Pace Harmon, says the concerns about the security risks of outsourcing to China are already "priced into" and considered in the decision making process of U.S. firms. The latest revelations just add more evidence to "what many people already assumed was happening," he said.
A potential wildcard is the U.S. response, if any, to the latest developments, analysts say.
"This onslaught of espionage targeting U.S. technologies is constant and unwavering," said the White House in its report on mitigating the theft of U.S. trade secrets. Such attacks are increasing, concludes the White House.
Sealock said the U.S. may feel pressure to make "to make a public response to the threats and institute policies and sanctions that will make it more difficult to do business with China."
Companies opposed to offshoring to China may now be less likely to change their minds. "This will just strengthen their resolve to stay away" from China, said Arora.
And for those companies considering China for outsourcing work, the "task has just become a bit harder," said Arora.