Software outsourcing sees domestic growth

By Chen Xiaomin

China’s software and information service outsourcing industry registered a total output value of 157.78 billion yuan ($23.08 billion) in 2008, up 41.2 percent year-on-year, yet demand from major overseas outsourcers declined due to the ongoing global financial crisis, according to a report released yesterday by the Ministry of Industry and Information Technology (MITT)

The industry pocketed 133.38 billion ($19.51 billion) from the domestic market last year and only $3.42 billion from overseas firms. The ratio between overseas and domestic business dropped 0.1 percentage point to 14.9:85.1 from 15:85 in 2007.

The report revealed that domestic firms outsourcing software and information services came mainly from northeastern, southern and northern China, accounting for 77.1 percent of total domestic business.

Three major overseas outsourcers – Japan, Europe and the US – were badly hit by the global financial crisis, according to the report.

Japan saw many companies record steep declines, with Hitachi, Panasonic and NEC reducing or canceling orders. The fall in business had a direct impact on outsourcing of embedded software orders, the report found.

Almost 70 percent of US enterprises have begun to bargain for lower contract fees and nearly 60 percent have cut their outsourcing expenses.

Forrester, an international technology and market research company, was quoted by MITT as saying that 43 percent of Western enterprises have cut information technology (IT) expenses.

The appreciation of the renminbi, increasing costs of labor and price inflation also squeezed profit margins of Chinese software and information service providers, according to the report.
Many outsourcing service providers, especially export-oriented ones, cut jobs last year.

Wang Hongwei, who once worked for Ethos Technologies, told the Global Times that the company fired 11 staff members last year who joined the firm the same year.

An employee of Shanghai-based software and information company Augmentum said that many of his colleagues have had their wages suspended or have been forced to leave without pay with their positions held for three months.

Despite the industry’s woes, insiders argue that future prospects are bright.

“Software and information outsourcing is an important means for many multinational enterprises to cut costs, pull out of the slump and sharpen their competitive edge. The financial crisis provides a chance for China’s outsourcing service provicers as more enterprises realize its value,” Yang Jiping, manager of PR Department Brand & Culture Center with Neusoft Group, told the Global Times.
 

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