China's IT Outsourcing Sector Rolling Along

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China's IT (information technology) outsourcing market will experience rapid growth in the coming years, even though the market remains in its infancy, suggests a research house.
China's outsourcing market will grow at a CAGR (compound annual growth rate) of 36.5 per cent from 2003 to 2008, said Grace Han, research manager of software and services for IDC (International Data Corp) China. "China is the fastest-growing outsourcing market in the Asia-Pacific region." IDC suggests the size of China's IT outsourcing market will hit US$1.69 billion in 2008. It will account for 17.7 per cent of the total IT service market.
Last year, the market value stood at US$433.7 million, which accounted for 9.9 per cent of the total IT service market. The IT service market in cluding outsourcing, support and training, consulting and integration is forecast to almost triple to US$9.6 billion in 2008, compared with US$3.6 billion in 2003. That represents a 2003-2008 CAGR of 21.5 per cent.
Under IDC's definition, IT outsourcing refers to the contracting by an organization with a third party for the management and enhancement of ongoing operations for all or part of its IT infrastructure, IT functions, business processes or business solutions. The contrast is usually a long-term one, and may involve transfers of assets and employees. IDC's research found manufacturers and financial service providers spent the most in IT outsourcing in 2003, in terms of industry category.
And government agencies were also aggressive in spending on IT outsourcing. "Most of the outsourcing cases are desktop and network management services deals," Han said. "It will take time for clients to outsource their applications." Han said businesses in China spurred by increasing awareness and demand will increasingly accept the practice of outsourcing their IT systems in the coming years.
Outsourcing IT systems to third parties can help businesses cut costs and focus more on their core businesses. "Outsourcing is the most attractive sector in the Chinese IT service market," Han said. "Although the market's size currently is not big, its growth potential is huge." Until now, most of the clients in China's outsourcing market have been global accounts. But an increasing number of businesses,[link widoczny dla zalogowanych], especially those with sprawling branches, will try outsourcing portions of their IT systems, Han said. And the outsourcing market will see consolidation in the coming years, as outsourcing vendors are aiming to offer better services. "Mergers and acquisitions,[link widoczny dla zalogowanych], divestitures, joint ventures and partnerships will increase in the outsourcing market,[link widoczny dla zalogowanych]," Han said.
She suggested outsourcing vendors form alliances and partnerships with hardware vendors to expand their support capabilities, as with local regional service providers to reduce costs. "Support and integration services will be sunset markets in the future. Vendors should expand outsourcing businesses in China," she said. Vendors should also form strategic partnership with clients and share the risks with them, Han added.