China Aims to Outpace India in IT Outsourcing

By CIOinsight  |  Posted 10-05-2005 Print Email
Mainland China is ramping up its IT infrastructure and adding more than 400,000 potential IT workers every year, at rates cheaper than India. Is it the future of outsourcing?

Last year, F. Warren McFarlan completed a five-year stint in China as the senior associate dean and director of Harvard Business School's Asia-Pacific Initiative. His assessment of the current state of IT in China? "Absolutely extraordinary."

The dean of American IT academics, McFarlan's interest in China dates back to 1979, when he led the first Harvard Business School delegation there. In addition to his position as the Baker Foundation Professor and Albert Gordon Professor Emeritus of Business Administration at HBS, he has coauthored Seizing Strategic IT Advantage in China, in 2003, a book available only in Mandarin Chinese.

CIO Insight spoke with McFarlan from his office in Allston, Mass., about the risks and rewards of IT in China.

CIO INSIGHT: How does the state of IT in China compare with India?

McFARLAN: First, China has a much more robust internal IT structure, networks and so forth, than does India. They've had a massive telecommunications expansion, and they have more networking capacity than people think. All of that has been a direct result of national economic policy.

Second, China is graduating about 400,000 technical graduates each year. And their university structure is good at the high end. These people coming out have strong technical skills. So they're quite competitive with the people coming out of India.

The third thing is the issue of English. The British left the English language and the university system in India, so there's a lot more work scrambling for English in China.

Can the infrastructure keep pace with the growth?

A colleague who's seen a lot of both India and China says the basic problem with India is they can't build a highway from the airport to the center of the city because of all the public interest. When that kind of decision is made in China, bang, it's done. And at this stage, IT infrastructure is high on the [Chinese] government's agenda.

Why do people in the U.S. have the wrong impression of Chinese IT?

The language issue is a problem. And all the publicity they hear about is India, India, India. When you think about India, you think about companies such as Tata, Infosys, Satyam. The comparable ones in China are much smaller.

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What can you tell us about the differences between China and India when it comes to outsourcing?

India's advantage has always been the large pool of inexpensive, English-speaking talent. But now salaries in India are jumping at 25 percent or more annually. So India's cost advantage may not endure. We don't see that in China yet.

What are the risks of outsourcing to China?

The biggest risk I see is political. All of the growth in China has been heavily concentrated on the eastern seaboard. That has intensified the divide between rural and urban life. But as long as the government can deliver 7 percent or 8 percent growth annually, the poorer people will remain patient. The Chinese government's problem is trying to maintain a fast-enough growth rate that the citizens on balance will buy into it.

Worst case scenario, how does this play out?

The worst case scenario is that you have a revolution.



 

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