An IBM or a Wipro sets up shop in China not just to provide additional low cost IT services to its existing customer base. They want to cement deals with Chinese companies. "They're eager to not miss out on the early phases in China as most did in India," Master says. "They're taking advantage of the attractive infrastructure and facilities and incentives China has established in its quest to develop the services market."
Whereas customers who offshored IT to India in the early days did so independently of any enterprise plans for Indian expansion, customers offshoring IT to China are doing so in conjunction with other business functions sourcing materials, establishing manufacturing operations there, or launching joint marketing ventures there "The dabbling they're doing in China is not just limited to the IT outsourcing deal," says Karamouzis. "It's often concurrent to other business activity in three or four different channels." (See "Outsourcing Is Cheaper in China".)
IT Customers Taking the Slow Boat to China
Still, we're not seeing U.S. or European CIOs signing billion0dollar outsourcing deals with Chinese providers--or even the Chinese divisions of multinational providers. And the Chinese IT services market has yet to produce any major names of its own. "The market continues to be fragmented with no really dominant firms," Master says.
IT outsourcing customers are today still experimenting in China. "The routes they're taking to learn about China are multifaceted," says Karamouzis. "They're not just signing up with one company in China." Some may send smaller projects to one or two Chinese vendors to supplement their larger deals with an Indian or U.S.-based provider. Others are mitigating some risk by signing up with a smaller Western IT services companies dedicated to China-based outsourcing. Still others set up captive shared services operations in the country.
Customers are exercising extreme caution around master data security, adequacy and enforceability of contract rights, operational transparency, and supplier due diligence, says Master. Vashistha of Neo Advisory suggests that clients to use China to only to support their Asian operations and, even then, to use U.S. educated Chinese managers to lead operations or handle relationship management.
It's difficult for industry watchers to say when--or if--China will catch up to India as an offshore outsourcing provider. If it is a horse race, it's one in which the finish line is always moving.