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Updated: 2007-06-22 16:02

The outsourcing market in China is seen to surge over the next four years as more companies seek to outsource their services and non-core businesses to Asian firms.

But compared with neighbor India, China's outsourcing industry is pretty much in the start-up stage, experts said.

But the future looks bright. In 2006, China's offshore outsource market was worth US$1.38 billion, a surge of 48.4 percent year on year. In 2011, the market will be valued at around US$7 billion, International Data Corp, a US-based IT consulting firm, said.

About 56 percent of outsourcing orders in China came from Japanese and South Korean vendors while 36 percent from US and European firms - a growth of 8.4 percentage points from the previous year, according to IDC.

"Chinese outsource players have to establish their international competitiveness now as the domestic market will reach saturation point within three to five years," Han Guohua, IDC's analyst, said in a recent note.

To meet the requirement of the Western firms, Chinese companies have to understand the meaning of outsource, according to a recent survey conducted by Unisys, a US-based IT outsource firm.

The survey covered 243 chief information officers in the companies, 27 percent of which have an annual revenue of more than US$1 billion.

"The core reason why companies should consider outsourcing is that they have to change," said Joseph Hogan, vice president of strategic outsource programs at Unisys Corp.

Everybody thinks having to cut costs is the reason many companies turn to outsourcing. Well, it is a good and valid reason but there are other factors companies outsource and these relate to efficiency, value and adapting to change, observers said.

For example, outsourcing for a mobile phone carrier doesn't mean just providing seats at a call center only. The latest outsourcing feature allows mobile phone subscribers to buy and cancel services directly through their handsets, without calling the normally busy hotline and having to be put on hold waiting for an operator to come to the line.

The service improvement, that is being able to cancel or buy services by oneself, boosts the satisfaction rate and that's the "value" outsource creates, according to Hogan.

According to the Unisys survey, 94 percent of respondents mentioned that the quality of service is more important to them than cost savings which was alluded to by 83 percent of managers who made decision to oursource in China.

To keep up with the global trend, Chinese firms are seeking overseas partners to compete in the international market.

Langchao Group, HiSoft Corp and Insigma Technology have merged with overseas firms in Japan or the United States. Meanwhile, Ufida, Kindee and Neusoft have lured overseas investment or form joint ventures with foreign firms.

"Through the overseas partnership and better understanding of outsourcing, Chinese firms can compete with Indian firms in the global market five years later," said Mou Shuhui, a CCID analyst.

Raghvendra Tripathi, China chief of India-based computer firm Satyam, said that "language skill is also one of the major challenges" facing Chinese firms in the outsourcing market.

Satyam has a Shanghai-based office and recruits people for its Shanghai and Nanjing centers.