In Offshore Outsourcing, China's A Different Ball Game

China is like no other country on the offshore outsourcing landscape.

It has a rapidly growing base of low-cost IT pros, but other dynamics dominate the picture. With economic growth of more than 11% a year, China's poised to become the world's third-largest economy, and many CIOs think they need a presence in the country. Call it the "just gotta be in China" syndrome. Yet the last decade of offshoring has taught them the risks--like not getting the right talent for projects--of jumping into a hot market.

British telecom provider BT Wholesale has established a small IT center in China and a relationship with an IT services provider there. "Our philosophy is not to study it to death, but to get in there with a relatively modest approach and see what results we can deliver," says CIO Clive Selley. "It's a massively important, vast population with a fast-growing economy, and we need to be able to understand the marketplace."

Tata Consultancy Services plans to hire slowly in China so it can focus on keeping those it recruits. "We would like to go from the 1,000 people we have in China now to 20,000 or 30,000, but in a way that the attrition rate is low," says N. Chandrasekaran, chief operating officer at TCS.

Companies specializing in China-based IT outsourcing include ChinaSoft, DarwinSuzsoft, NewSoft, Symbio, and WorkSoft. In August, private equity firm Francisco Partners invested $48 million in DarwinSuzsoft, a U.S. company that employs 800 Chinese engineers, and Sierra Atlantic, a U.S. company with 1,100 developers in Hyderabad, India, acquired ArrAy, which has 200 technologists in Guangzhou and Shanghai. Challenges include a much lower rate of English competency than India has and looming risks of inflation from an overheated economy.

Five years ago, would-be customers focused on the security of their data and intellectual property in China, says Dean Stevens, general manager at Symbio, which has offices in China and Maryland. He rarely hears that concern today; now the focus is on how China will avoid India's dilemma. "The No. 1 concern I hear is, 'Can you get the engineers and resources I need to get my job done, and what's your retention like?'" Stevens says. "They'll often say, 'The problem I ran into in India was availability of resources and attrition, and don't give me that same problem.'"