China no threat to India in IT/BPO: Report

China will remain only a distant competitor to India in the outsourcing landscape, according to a white paper prepared by Tholons Inc, a services globalisation advisory and investment firm.

Lack of maturity in service delivery, cultural incompatibility, poor English and communication skills and lack of confidence from buyers in the US and Europe will confine it to basic IT and BPO functions for some time.

India will lead in the IT/BPO space, but it faces challenges such as overheating of the offshore outsourcing market due to attrition, escalating wages, talent scarcity and rising real estate prices, which are leading entrepreneurs to explore other options including China, the Philippines, Russia and other tier II cities of India.

"Many people seem to think that China is the next IT/BPO outsourcing destination. But we are yet to see a significant movement outside of the manufacturing industry," said Mr Avinash Vashistha, CEO & Chairman of Tholons.

"To overtake India, China has to establish itself as a viable and large-scale offshore destination."

Shortage of skilled resources, primarily at the middle management level, is another factor that could inhibit China gaining traction in the European and US markets. However, China could gain from being the most preferred location for outsourcing for the Japanese market, with the Japanese living in Dalian and Wuhan giving an edge.

Service providers like IBM, EDS, Accenture, TCS, Infosys, Wipro and Cognizant have either set up centres or partnered with local players in China to leverage those skills and expand their market base.

'Over the past two years, we have seen selective offshore outsourcing of small IT projects and product development going to China. In the BPO space, we are seeing China emerge only in the area of non voice-based services,' said Mr Vashistha.