Now, a year after the Infosys Technologies (Shanghai) Company was set up, the venture centre has 200 employees and four multinational customers.

Infosys, the Bangalore-based software services company, and other top Indian outsourcing rivals, including Tata Consultancy Services and Wipro Technologies, are doing application development and maintenance work in China as they grow rapidly to keep up with booming demand from the West for their services.

And they are quickly concluding that only China has a worker base equal to India's in terms of cost, quality and scale. Expansion there also offers the ability to cater to -- and possibly garner more of -- the local and regional markets, including Japan.

Vigorous global demand -- revenue from India's information technology exports was US$12.5 billion in the year ended in March, up 30 per cent from the previous year -- has resulted in a 10 per cent to 15 per cent annual rise in wages in India's software and back-office services industry.

According to a KPMG study for the National Association of Software and Services Companies, or Nasscom, an industry trade group in India, the country will face an acute shortage of technical employees by 2009, falling short by about 250,000 workers.

"We need a deep reservoir of talent as well as an alternative low-cost centre like India as we continue to grow," said Nandan Nilekani, chief executive of Infosys, who has talked of his company's scaling up to become the Wal-Mart of outsourcing.

"And only China can match up."

In the quarter ended in September, Infosys alone added more than 5,000 employees, for a total of nearly 33,000. And Wipro added 5,500 employees, reaching more than 36,000.

As Indian companies have looked for skilled workers outside the country for software development and customer support centres, some have ventured into Mexico and Eastern Europe.

But many say that China holds the most promise, in part because of its potential as a competitor.

Though its software export revenues were just US$700 million in 2003, "China will soon be competing with India as an outsourcing destination," said Girija Pande, director for Asia Pacific of Tata Consultancy, India's top software services exporter.

It set up operations in China in 2002.

And a presence now, these companies say, positions them to grab such future business. Entry into the country is made easier by the ability to piggyback onto the existing base of customers with interests in China.

"With China's economy swelling so quickly, multinationals are looking for global software firms who already understand their standards and systems," Pande said.

Tata Consultancy, for instance, is working in China with its longtime customer, General Electric.

China has some 200,000 information technology workers -- compared with India's 850,000 -- in 6,000 local companies, according to some estimates.

More than 50,000 Chinese software programmers are being added to this pool annually.

Some important ingredients that have made India a formidable global software services exporter are in place in China as well, like the high value put on education and a focus on engineering in higher education.

The Chinese Government is sweetening the deal for the Indian concerns, as well as for global competitors like Accenture and IBM Global Services, by offering high-quality infrastructure at low costs and offering alliances with local universities to recruit Chinese talent.

China also offers Indian outsourcing concerns a low employee turnover rate.

For instance, Tata Consultancy's staff turnover in China is less than 6 per cent a year, compared with 15 per cent in its Indian operations.

The company says it may double the number of employees in China in the next 18 months from its current 180.

For now, however, even with wages rising in India, China's information technology workers are more expensive "because a combination of English-language and technical skills is at a premium," Nilekani said.

According to Pande of Tata, the wage differential is about 12 to 15 per cent.

So while an entry-level programmer in India might earn US$125 a month, a Chinese equivalent might earn US$142 to US$147. The managerial talent differential is even bigger.

And scalability -- the ability to grow quickly when circumstances warrant -- is posing a challenge because of the scarcity of good English speakers and experienced managers in China.

While even second-tier Indian software companies have 12,000 to 15,000 employees, only a handful of Chinese software companies have more than 3,000.