China on Slow Journey to Win Western Outsourcing Business

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Lots of observers -- including us -- have speculated about China's ability to challenge India's outsourcing supremacy and concluded that China has a pretty good shot at doing so.

China is working hard to move up the outsourcing food chain, by forging relationships with tech heavyweights like Oracle, Microsoft and IBM.

Yet more than half of China's total $1.4 billion offshoring market still involves low-end tasks such as software testing, according to CCID Consulting, an analyst group sponsored by the Chinese government that focuses on the country's IT sector. Chinese outsourcing providers are performing more sophisticated chores for companies in Japan and Korea, which together account for 60 percent of China's offshoring business.

Western markets seem less interested in China. The country finished a surprising third -- behind India and Russia but ahead of Brazil -- in a recent silicon.com survey that gauged the interest of readers (largely Brits, we assume, based on the site's strong UK slant) in offshoring to those locales. India, cited by 38 percent of respondents, finished well ahead of China's 18 percent.

Protecting intellectual property is a key concern for Western firms doing business in China, as well it should be, notes SandHill.com blogger David Scott Lews. "The key problem is that Chinese people don't perceive that they're doing anything wrong when they use/borrow/steal someone else's IP," says Lewis, whose company offers offshore development in China. That's why software piracy is such a big problem there.

Despite these concerns, most Western corporations won't be able to resist the lure of marketing goods and services to China's huge consumer market. Most experts agree the country will see a big influx of business from companies that see the need to establish partnerships with Chinese firms, in order to cost-effectively manufacture and sell goods there.

A similar trend is already playing out in India's more mature market, where the number of electronics companies that manufacture goods in the country is expected to rise by 63 percent over the next two years.