Firms keen on software outsourcing
By Liu Baijia (China Daily)
Updated: 2004-05-12 09:03

The enthusiasm of Chinese companies on software outsourcing is increasingly heated and the United States has become a new target destination after Japan, business leaders and analysts said.

Wang Zhiqiang, chairman and chief executive officer of SinoCom Software Group Ltd, the second-largest software outsourcing vendor in Beijing, said his company would try to win more orders from US firms.

"In the next three years, we will remain focused on software outsourcing," said Wang in an interview in Beijing.

SinoCom, which obtained 93 per cent of its HK$115 million (US$14.74 million) in revenues from software outsourcing last year, just made its initial public offering on the Hong Kong Stock Exchange on April 30 and raised more than HK$100 million (US$12.8 million).

The company has grown by more than 30 per cent in the last three years.

Wang expects his company's outsourcing business will grow at an annual rate of 30 to 50 per cent in the next three years.

SinoCom will increase its workforce from 728 in 2003 to 1,000-1,200 this year and 1,200-1,500 in 2005.

Traci Gere, group vice-president of service industry research with the US-based market research house International Data Corp (IDC), also believes there will be strong momentum for software outsourcing in the world.

"We see a lot of opportunities for companies in China and elsewhere to respond to this trend," said Gere.

An IDC report on China's outsourcing market said outsourcing exports from China reached US$400 million last year.

The market is expected to grow at an annual average of 44 per cent in the next five years and reach US$2.5 billion in 2008.

Vivian Li, an analyst with IDC China, said that after years of learning outsourcing, a growing number of Chinese firms have begun to actively seek opportunities in the market since last year.

According to Li, about two-thirds of software outsourcing sales came from Japanese buyers and 17.8 per cent from the United States.

However, as software companies begin to learn and enter the US market, the share of the US market will increase.

Another IDC study also shows China has become the fourth-favourite software outsourcing location for US companies after India, Canada and Ireland.

Gere said low costs and rich talent resources are two advantages for Chinese companies.

The Chinese Government also selected 29 domestic software firms to encourage them to develop their software outsourcing business in US and European markets.

Beijing-based SinoCom will also try to pay more attention to the US market, as all its outsourcing revenues come from the Japanese market.

However, Wang said his company will focus on winning orders from US-invested companies in China rather than competing with its Indian counterparts like Infosys and Tata Consulting Systems face-to-face.

Gere also pointed out that Chinese software firms may have some problems in entering the US market, as most Chinese software firms are quite small compared with Indian companies and they are not as well-known.

She suggested Chinese businesses form a partnership with US companies, which will bring them into the market but also ease worries from the US that outsourcing may lead to more job cuts in the United States.

She added they can also start with software and engineering designs related to manufacturing, an area where China is strong.

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