China Offshore Software Outsourcing Industry Development Strategy Analysis

Companies increasingly outsource software developments to offshore third-party services providers to cut down labor costs and focus on core competences. Chinese software industry has been active in pursuing offshore software outsourcing opportunities. This report is to analyze current competitiveness of Chinese software industry and to propose national and corporate-level strategies for Chinese software industry to compete in the U.S. and European software outsourcing markets. Diamond model of Dr. Michael Porter has been used as analysis framework, which highlights factors that impact the development of clusters. Both Indian and Chinese software clusters have been analyzed. The analysis reveals that governments of both countries create favorable environments for software industry. The analysis also reveals that China has more developed infrastructures for industry developments, with better telecom infrastructures, more developed IT hardware industries and booming domestic electronic commerce. However, as latecomer, China software industry has very limited presence in the U.S. and European outsourcing markets. Based on the comparisons between software cluster elements in both India and China, recommendations have been made on areas that should be improved and those that should be leveraged in the competitions. Despite large domestic markets, domestic demands are more cost rather than quality conscious. To induce more software companies to invest in CMM certifications and improve quality, it is recommended to educate domestic demands to be more quality-demanding. Communication structures in companies are designed such that separate departments are established to consolidate less readily available English-capable resources, while software developers are shielded from unnecessary client communications and required of only written correspondence. The structures augment the availability of human resources and improve the quality of client communications. Chinese software companies should define a unique marketing position and avoid competing head-on in the same markets with the bigger Indian firms. Partnerships with other countries' outsourcing firms should be considered for the purposes of risk and experience sharing and better credibility. More efforts need to be spent on promoting Chinese software industry and its capabilities to foreign markets, enhancing the IPR protection systems and attracting more capitals invested into the software industry.