We have speculated more than once about when China might become "the next India." (We aren't the only ones. IDC recently went on record with a prediction that China would become a more desirable offshore location than India by 2011.)
One company that appears convinced of this is EDS. The outsourcing giant is following its recent purchase of a majority stake in an Indian software firm and nudging of American workers into early retirement with moves to multiply its current Chinese work force six times over by 2010, reports the International Herald Tribune.
EDS employs 750 workers in China now, but expects that number to increase to 5,000 by 2010 and to 10,000 "eventually," according to the head of its operations in China, South Korea, Hong Kong and Taiwan. The EDS exec notes that China "will become or is becoming one of the two dominant players" in outsourcing.
An IDC analyst tells the International Herald Tribune that EDS won't be the only company shifting software outsourcing work from India as wages there continue to increase. "...Wages in smaller Chinese cities are still relatively low," the analyst says. Indian companies themselves are taking advantage of this trend, as evidenced by Tata Consultancy Services' recent expansion of operations in China.
According to the International Herald Tribune, about 2,500 of the 12,000 U.S. workers EDS had approached with offers of early retirement decided to take the offers. EDS laid off 5,000 employees, mostly in the U.S. and Europe, in both 2003 and 2004, reports Forbes. The company has 25,000 employees in India and a global work force of some 130,000.
The Chinese outsourcing opportunity is ripe for players like Tata and EDS because of the limited marketing prowess of domestic services providers and the lack of a single dominant provider. Dean Stevens, a general manager for Symbio, told IT Business Edge in a recent interview:
There are thousands of domestic outsourcing companies in China, ranging from the proverbial three guys in an apartment to 10,000 people. For a number of reasons, including a lack of understanding about how to do it, they just don't do a good job of public relations and marketing to the West.
Many domestic providers see little need for marketing because their business is already growing so fast, says Stevens. There is no industry association akin to India's Nasscom (National Association of Software and Services Companies).
EDS' new CEO Ronald Rittenmeyer has said that acquisitions would play a key role in his efforts to reverse the company's fading financial fortunes, reports Australian IT. He said EDS would spend up to $2 billion a year on purchases that would help it compete against IBM and Computer Sciences Corp. for high-value contracts.