ISoftware Outsourcing: "Green Engine" for Industry Development

So far a new round of global industrial restructure is undergone with obvious features of outsourcing services, trading services and high-end manufacturing together with technical researches. Outsourcing services which mostly relies on intelligence resources development become the "Green Engine" for the development of the society. In 2006, software and IT services outsourcing accounted for more than 60% with the total 350 billion USD services outsourcing market of the world became the new growing point for the software industry. Developing software and IT services outsourcing become a definite choice for the countries who desire to promote their modern services industry and software industry as well as international competitiveness.

Developing outsourcing businesses requires the rationalism and steadiness.

On Sep. 1st, the Third China International Software Products Expo themed of "Outsourcing Services and Software Internationalization" was unveiled in Nanjing. The president of International Outsourcing Association, president of Europe Outsourcing Union, Microsoft, Oracle, Motorola, NEC and other CEOs from MNCs attended the expo. 23 important international outsourcing entrepreneurs from Japan, Europe and the U.S. were also on the site. Microsoft, Oracle and other 98 enterprises from home and abroad signed a total of 69 project contracts with an investment of 8.65 billion Yuan.

In fact, since the beginning of this year, the warm-up campaigns in software outsourcing industry have been in a continuous manner. In the Eleventh China International Software Expo hosted in Beijing and China International Software and IT Services Trade Fair hosted in Dalian, many topics had been discussed about concerning software and IT services outsourcing.

Xiaohua from the Ministry of Information Industry said, "Outsourcing services of China took off later than other countries, but we own great advantages in terms of fairly-educated IT talents and IT industry infrastructures with which we maintain a quick development and potential to rise." In recent years, Chinese software and IT services outsourcing services providers have continuous enhanced their ability to provide qualified services. In 2006, the number of those companies with CMM/CMM2-5 certificates is over 468 and software experts, outsourcing experts and workers are about 100 thousand. At present, outsourcing services are mainly provided to Japan, but the European and the US market are well on the way. Meanwhile, outsourcing structure presents multiplied trend, which means that enterprises will establish customer service centre, data processing, offshore business BPO and KPO to meet all kinds of demands.

In 2006, Chinese software outsourcing sales volume increased by 55.4% compared to the last year. It is expected that the number will reach 7.03 billion USD by the end of 2010, taking up 8.4% of global outsourcing business. This increase shows the quick development of our software outsourcing industry as well as the fact that the small scale of the industry.

Li Jin, the vice president of Beijing Core Digital Technology Co., Ltd said to the reporter from China Electronic News that there were two ways to develop Chinese software outsourcing enterprises. One was to make the outsourcing products locally; the other was to send the outsource people to the partner’s company to provide outsourcing services.

The outsourcing providers using the second method will develop quickly in their primary stage, but it has some defects from the view point of continuous development. Sending talents to provide outsourcing services can lead to a high rate of brain drain caused by sense of not belonging, on the other hand companies will be blocked in their way of enlarging business scale and accumulating assets. The most important is companies outsourcing talents will find it hard to form their own high add-value products with intellectual property rights.

Experts pointed out that with the rapid rise of software outsourcing business of Vietnam, Philippines, Fiji and other countries, Chinese low-cost advantage would be weakened. Although Vietnam began its software outsourcing later than us, they have already set up a software company with 6000 employees, which our software companies can not be compared to. The Philippines focuses on European and the US markets while some eastern European countries are taking their geographic advantage to occupy the local market. All the above situations bring great challenges the development of China's software outsourcing industry.

Government guide is crucial.

Experts also pointed out that the period from 2007 to 2010 would be an important phase for the expanding of global software and IT services outsourcing market. According to the Gartner’s prediction, the total volume of outsourcing income will reach 800 billion to 1000 billion USD by 2010.

Now only Neusoft reaches a total income of 100 million USD out of the top ten software outsourcing companies at home. But India companies’ annual income usually reaches up to 1 billion USD, and some even make 3 billion to 4 billion USD per year. Statistics from Gartner showed that in the software outsourcing market, the No. 1 customer was German, from which IBM and SBS earned 9.4 billion USD in 2006. The second one was England with a contribution of 3.7 billion USD which were earned by CSC. Looking back at our situation, even we assume that the industry would develop at a growth rate of 55.4%, our income would only reach to 5 billion USD by 2010. China still has a long and tedious way to go in software outsourcing industry development, and it is difficult for an enterprise to cope with its international counterparts by themselves.

Chinese government has already been aware of this problem.

As the new software market which has the most development potential in Asian-Pacific region, China pays attention to develop the domestic market-oriented software applications, and also actively develops the overseas market represented by software outsourcing. In Nanjing Software Expo, Lou Jianqin pointed out, "Developing software and information service outsourcing is not only favorable for improving the comprehensive competitiveness of Chinese software industry and service industry, absorbing and digesting advanced technologies, enhancing the independent innovation ability and sustainable development capacity, training high-end talents and expanding multi-level employments, but also it is favorable for promoting economic restructuring, resource-saving, and building an environment-friendly society, then, forming a new advantage of participating in international economic cooperation and competition in the situation of economic globalization."

In recent years, the Ministry of Information Industry, Ministry of Commerce and other ministries have been publishing a series of measures of promoting software export outsourcing, including the establishment of related parks and export bases, and concentrating resources to create the Chinese outsourcing brand. In September 2006, the Ministry of Information Industry and Ministry of Commerce jointly issued The Notice About Launching Identifying Chinese Outsourcing Services Base Cities, it established 11 Chinese Outsourcing Services Base Cities and turned them into the important force of promoting software and information service outsourcing development, enterprises focusing on outsourcing business, such as Neusoft, SinoCom, Dalian Hi-Think, Dalian HiSoft, ChinaSoft Internatioanl, Insigma, etc., have been formed, the level of outsourcing continuously upgrades. While many software products which have proprietary intellectual property rights have been formed, this makes the profit margin be much higher.

Hong Gang, the director of Gartner in China pointed out the 25 critical success factors of Chinese software outsourcing enterprises in the international market, including defining the core competencies, giving prominence to the key points, deciding the position in the value chain, selling unique value proposition, etc., and among these factors, such as the maturity of rapid development flow, investment on talents, attracting capital, creating brand and using international market practices, etc., the enterprises need to get help from the guide of government and software park.

On July 1, 2007, the first software industry local law in China --- Software Industry Promoting Ordinance in Jiangsu Province, was officially introduced. The coming out of the ordinance marks the software industry in Jiangsu ensured to be developed with the first priority by law. In the ordinance, it defines clearly that enterprises which undertake software outsourcing businesses can enjoy national and local policies of promoting outsourcing services development.

Beijing also achieved outstanding results by adopting the measures, such as attracting the entrance of multinational IT enterprises, creating a favorable development environment, strengthening software industry infrastructure construction, encouraging enterprises to explore to overseas markets and strengthening the international talents training, etc. Chen Ligong, the committee of Beijing Science and Technology Committee said, "In 2006, the software exports in Beijing reached 356 million US dollars, it was 1/3 of the national exports."

Software Outsourcing has to be Agminate

The scale of Chinese software outsourcing enterprises is not competitive. Compared with India, there are about 8000 software service providers in China, 3/4 of which have less than 50 employees, while there are no more than 3000 software services providers in India, and at least 15 of them have more than 2000 employees. Li Jin said, "Software belongs to scale industry, it is impossible to shoulder a big project without large scale, the scale effect is the determining factor of software outsourcing enterprises to get orders. Many domestic enterprises are forced to abandon the projects because they don’t have enough employees to get those big projects."

Therefore, Xiao Hua pointed out clearly on the key work to be done of developing software outsourcing, we should build the public software and information outsourcing service support platform, construct industry public service system; fully unleash the promoting effect of industry union, promote enterprises cooperation and industry unite; take the agminate way and unleash the region aggregation effect.

In order to build industry public service system, unleash region aggregation effect, and take the agminate way, on September 1, 2007, the important tender project --- The Public Software and Information Outsourcing Service Support Platform, was launched in Nanjing Software Expo by using the 2007 Electronic Information Industry Development Fund, the platform covered general technical support, intellectual property services, talents training services, building national public brands and marketing, etc. The aim to build this platform is for gathering outsourcing service base cities’ public technical service resources to form the network service capability of sharing the resources and have complementary advantages, then, to build the public technical service support system covering the main gathering areas of national software and information outsourcing services.

Chen Shuning, the Director-General of China Software and Information Outsourcing Services Industry Union and the President of Worksoft, stated, "The union will take the principles of equality and mutual benefit, having complementary advantages, resource sharing, and win-win cooperation, it will integrate the industry development resources, optimize the industrial development environment, and promote outsourcing enterprises to attack the global market with overall strength."

Chen Ligong commented, in the future, Beijing would contribute further to the combination of two resources, one is outsourcing service enterprises, the other is world-class research centers, to interact other software enterprises in Beijing through these two resources and enhance roundly the regional scientific and technological innovation capability.