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Wednesday, May 23, 2007

Chinese Share Of IT Global Delivery Diminishing!!

I have been highlighting the challenges in scaling up in china – when I wrote that resource scaleup disappoints.

Forrester finds that while Chinese services firms are supporting a vibrant local IT market, China has not achieved the offshore growth that people expected. Japan remains the dominant location for China's offshore clients. But given the lack of offshoring and IT services sophistication of most Japanese firms, it has not been a growth engine. The report shows that to date the market has not taken off as expected. While there continues to be demand from Japan and multinationals with operations in China, the offshore business from the US and Europe has been slow to materialize. In fact, China's percentage of GDM resources for the top services firms like Accenture has dropped, while India and the Philippines have seen far greater investment. The report rightly points to set of concerns impeding growth - attrition, captive centers bidding up wages, and a lack of experienced managers and technical leads. In addition, the appreciation of the yuan against the dollar hurts .Most of the local players work on project mode and their account reach is quite limited in numbers. In contrast the scaleup that we notice in Indian headquartered companies are beginning to see more momentum. In short, the market demand does not match government & service provider expectations and so it continues to be a story – testing, data management, and product development services may be a focal area for growth.

Estimates suggest that the top 10 local chinese service providers have together in all employ 12000 consultants for offshoring engagements. To understand the way the top 50 service players are executing lets looks at this - The top 50 IT services vendors employed 1.7 million employees at the end of their most recent reported financial years. This is almost an increase of 13% of the comparable total of 1.5 million from the previous year. Much of this growth has been driven by the major offshore sourcing suppliers, with the top five players adding 88,000 new staff last year taking their combined total headcount to 307,500. TCS, Wipro, Infosys, Satyam and Cognizant are poised to add a further 100,000 new recruits between them in fiscal 2007. Its just not the scale alone matters but again it is an important issue to be considered.
China may never become a big force on IT services. At best it can play a supplementary role but it remains to be seen how this evolves.

I find Forrester’s coverage streets ahead of its competitors particularly when it comes to global delivery and enterprise software – very timely, extremely well focused, matter-of-fact research all based on actual data. Others are mostly getting drowned by their own arrogance while AMR comes a close second. I liked Bruce Richardson’s and by extension AMR’s coverage of offshore market dynamics – this got further reinforced when I met AMR’s Bruce Richardson - I like his perspective on the potential advances that the Indian headquartered service providers could be making in the near and medium term.

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