DALIAN - The effect of Japan's earthquake in March has been largely diminishing with staff returning to normal work and suspended projects being revived, said major Chinese software outsourcing companies.

The earthquake and tsunami that struck Japan were a sudden blow to the companies as the nuclear radiation leak and troubled facilities around quake-hit areas prevented many outsourcing projects from functioning normally.

"The impact is much smaller than we expected and although the outsourcing projects were delayed, we are now picking them up," said Liu Jun, president of Dalian Hi-Think Computer Technology Corp, China's third-largest software-outsourcing company by transaction volume in 2009, according to the research company CCID Consulting.

Liu said some 400 of the company's employees in Japan have gone back to work in the country after being temporarily laid off after the earthquake.

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Liu Jiren, chairman of China's biggest software outsourcing company, Neusoft Group Ltd, said the growth rate of the company would be higher had the earthquake not occurred but its effect was not too negative for Neusoft.

However, there will be uncertainties in the next two years because the Japanese government's investment for reconstruction may take outsourcing opportunities to some areas that are not part of the company's current focus, Hi-Think's Liu added.

About 80 percent of the company's business came from Japan last year, with a transaction volume of $120 million. Liu said Hi-Think is trying to further explore other markets to reduce risks. He wants domestic business, for example, to contribute 30 to 40 percent of the company's total revenues next year, up from the current 25 percent.

Japan is the largest software-outsourcing destination for China, according to Qiu Shanqin, director of the National Software and Integrated Circuit Public Service Platform under the Ministry of Industry and Information Technology. Although Japan's contribution to the total business has fallen from 70 percent at its peak to 40 percent at present, it remains a major market for the country's outsourcing companies.

"What concerns us most now is what opportunities there will be since clients are changing their strategies after the earthquake," said Cheng-Yaw Sun, executive chairman of Nasdaq-listed software-outsourcing company hiSoft Technology International Ltd.

Sun said that after the disaster many Japanese companies were considering outsourcing more of their non-core operations or moving them to other countries to reduce risk.

The earthquake caused the company additional operating expenses of $700,000 and a loss of revenue of $600,000 because of work interruptions in the first quarter, it said in a news release earlier. Sun said that moving forward, it's a question of whether Chinese outsourcing companies can grab opportunities.

According to market research company International Data Corporation (IDC), the growth rate of the offshore software development business from Japan is expected to reduce 4 to 5 percentage points this year because of the earthquake. Annual growth rate is expected to be about 8 percent.

"Companies that have long, stable relations with clients and whose services touch clients' core business will not be easily affected by the earthquake, while those providing low-end outsourcing services will suffer more," said Joan Mao, a senior analyst at IDC.

She added that demand resulting from the reconstruction will begin to appear in 2012, reaching its peak around 2013, and then experiencing a steady phase afterwards. Companies providing outsourcing services in the transportation and manufacturing industries, which were damaged in the disaster, will have more opportunities.