Infosys looks to China outsourcing market for growth

But Indian outsourcers so far have made little headway into China's burgeoning market for IT services

When India's second-largest outsourcer, Infosys Technologies, opened a China office six years ago, it followed the offshoring industry into a country seen as a rising alternative to India. Since then, China has mainly served as an added base from which Infosys can serve global customers, but now the company is now looking to China's domestic market for continued growth.

India remains the clear global leader in outsourcing, but more companies are choosing to outsource to China even as Chinese companies themselves demand more IT services.

Infosys China gets the majority of its revenue from offshore services, while a little over one-third comes from services performed for Chinese businesses and for local operations of multinational companies, said Rangarajan Vellamore, chief operating officer for Infosys China, in an interview.

"Our goal is to increase our local numbers as well," he said.

Indian outsourcers so far have made little headway into China's burgeoning market for IT services, said Tina Tang, a senior analyst at Gartner. Companies like IBM and Hewlett-Packard have built a stronger presence, she said.

Indian players want more of the domestic market as well but have generally not taken major steps to gain Chinese customers, said Tang. Recognition of brands like Infosys is lower in China than overseas, she said.

Infosys is trying to change that. Banking is one area where the company hopes to win more Chinese customers. Several multinational banks operating in China use an Infosys banking product called Finacle, and the company is now talking to local banks about introducing the product as well, said Vellamore.

Infosys also hopes to gain more business from Chinese state-owned enterprises, which are often huge companies -- including banks -- that dominate their sectors of the economy. But one obstacle to winning those deals could be government constraints on the actions of state-owned businesses, said Vellamore. Chinese government policies sometimes favor domestic companies over foreign competition.

"I do hear that in certain areas it's not always a level playing field, with respect to some of the state-owned enterprises," Vellamore said.

Infosys is in the initial stages of offering IT infrastructure management from China, a service now provided mainly from India, he said.

Tang said many outsourcers now operate in both India and China, and it is increasingly common for customers to offshore to multiple countries at once, sending different services to different locations. Indian outsourcers have been drawn to China partly by the country's low-cost labor and reliable infrastructure, coupled with rising costs and labor shortages in India.

Both outsourcers and customers can reduce their exposure to risk by moving part of their operations to China, she said.

But when asked why a customer would choose to outsource to China rather than India, Vellamore said the first concern for global customers is choosing an outsourcer that can provide services in multiple locations and time zones. The outsourcer itself can then decide where to perform the service, he said.

"For multinational customers it doesn't matter where it is getting done," he said.

China is largely a satellite for Infosys and its operations in India. Infosys has about 1,250 staff in China, compared with 100,000 worldwide.

The talent pool in China is similar to India at the entry level, and Infosys China has about 90 percent local staff, said Vellamore. Chinese universities are known for producing well-trained engineers who speak English. But the outsourcing industry is young in China, and client demand for more experienced staff usually exceeds supply in the country, he said. That can make it more difficult for outsourcers to suddenly expand for new client projects, though Infosys China usually has a few hundred surplus employees waiting for assignments, he said.

"This talent pool is limited at that level," Vellamore said.

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