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NASSCOM has been following the development of the IT software and services industry in China since 2001. Our first report on this topic, released in 2002, analyzed the Chinese IT market with a special emphasis on its software sector. This second report on the subject provides an update on the current state of the IT software and services sector in China and reviews the policy approach adopted by China to develop its Information Communication Technologies (ICT) sector. This paper also reexamines the popular notion of competition (in IT software and services) between China and India, from the perspectives of firms (indigenous Chinese companies as well as multinationals) operating there, the talent pool dynamics, and the associated economics of running IT Services operations there.

 

China has the potential to develop a large IT-BPO industry. Underlying this is substantial domestic market potential, a sizeable educated workforce and strong government emphasis on developing the IT -BPO sector.

 

However, currently the IT -BPO industry in China is still in its early phases of evolution. Frequent comparisons with India and commentary positioning China as a substitute destination is quite misplaced.

 

The current industry landscape in China bears some resemblance to earlier years of Indian IT-BPO. However, systemic weaknesses and comparatively evolved demand and competitive environments today pose some additional challenges.

 

The Chinese government is keen on promoting this sector. Rapid progress on the ‘tangible’ aspects of infrastructure and capacity creation is evident, softer aspects remain a challenge.

 

China is unlikely to bear on India’s lead in global services sourcing in any significant manner over the next 3-5 years. However, it must not be ignored. In fact, there is a strong case for increased partnership between the two countries as global corporations strive to strike a balance in their Sino-India co-sourcing models.