Indian Tiger Full Spring Ahead Of Chinese Dragon

A study confirms all of China’s attempts to become an alternate off shoring hub for MNCs battling soaring wages and high attrition rate in India continues to remain a distant dream, with all reports affirming the Chinese market develops slower than expected. In the report released by technology research consultancy firm -Forrester, it is clear that China’s off-shore market has not taken off as expected, despite, massive government support and huge visibility on the global arena. It still has a long way to go, before being counted on as a potential alternative to India.

The report, further, confirms multi-national firms considering China as a ‘quick-fix’ solution to rising costs and high attrition in other off-shore locations, such as India, would be sorely disappointed by the country’s slowing off-shore momentum. John McCarthy, Vice-President – Forrester says: “When we first looked at China’s off-shore and IT services global delivery model (GDM) nearly two years ago, the country was widely viewed as the key challenger to India for off-shore supremacy. However, the market has not taken off as expected,“.

He said while Japanese firms were more aware about China’s potential, those from the US and Europe have been slow to respond.” In fact, Accenture, a top services firm has dropped its China China GDM percentage, while India and the Philippines have seen far greater investment. Responsible for the 2002 prediction that over three million US BPO jobs would go off-shore, McCarthy recommended firms with large bases in India, should consider other geographies when addressing the risk mitigation issue. He believes, even countries like the Philippines, Mexico and Brazil could prove to be better alternatives than China for diversifying off-shore exposure, in terms of skills, language and convenience. Further, the Forrester report states, China like India, faces similar problems of attrition, increasing wages and lack of experienced managers and technical leads.

In addition, the appreciation of the yuan against the dollar is hurting profit margins of firms that outsource their work to China. “The consensus among interviewees was that China still has not overcome clients’ concern about limited English skills, attrition and weak intellectual property protection. One executive went so far as to say that China had to be 20% cheaper than India to be viable,” the study says. With China’s percentage of overall off-shore resources dropping, as other countries grow at a faster pace, Forrester says the country needs to re-focus its off-shore efforts.

China should not try to compete in areas, such as, application development and management, areas where India dominates, but it should encourage local firms to focus on other areas like testing, data management and product development services. For other countries vying for the lucrative off-shoring pie, Forrester suggests economic development agencies in Thailand, Malaysia, Egypt and Morocco, to do more than just re-label the pool of engineering graduates, as being ready to export their services. “Their education programmes ought to focus on advanced skills like project management and advanced architecture skills, while at the same time, respective governments should invest significant funds to market the country as an alternative to the off-shore incumbent - India,” McCarthy says.

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