outsourcing for cutting costs and optimizing resources

Outsourcing has become one of the most preferred means of achieving operational excellence across industries and the preferred destinations for outsourcing have been China and India. While China has been conventionally considered the hub for manufacturing, India has traditionally attracted most of the services outsourcing projects. The information technology (IT) industry has been one of the foremost industries to adopt outsourcing as a means of cutting costs and optimizing resources.

China, India, and the united states also been the main destinations of global foreign direct investment (FDI) in Information and Communication Technologies (ICT), accounting for more than 50 percent of the overall investment. However, the profile of these investments varies across these countries. While India is preferred for research and development (R&D) and IT-enabled services, IT services projects are concentrated in the United States and China is considered the hub for ICT manufacturing.

Whereas India and the United States are yet to succeed in attracting ICT manufacturing investments, China has been successfully garnering investments in the IT services projects as well as for R&D. This is mainly due to the well-educated and cheap labor force in China. The high influx of foreign investors into China has ensured the high demand for ICT products and services in the country.

Global IT outsourcing was estimated to be around $39.6 billion in 2004 India’s share amounting to nearly $17.2 billion while China garnered nearly $1.9 billion of the outsourcing revenues.

Chart 1 indicates the share of IT outsourcing revenues by region in the year 2004.

The Chinese Government and the IT service providers are working at various levels to compete with the dominant Indian participants in the global IT outsourcing market. India with its 44.0 percent share of IT outsourcing projects is considerably ahead of China in the global outsourcing market but this gap in revenues is estimated to reduce soon as China leverages on its advantages.