Rise of strong domestic players
Updated: 2013-07-05 07:05
By Wang Xin in Hangzhou, Zhejiang (China Daily)
Participants at the ongoing ChinaSourcing Summit 2013 still in discussions following a forum.
Participant puts the discussions in focus. Photos by Gao Erqiang / China Daily
North America remained the largest overseas client for Chinese IT service providers last year, accounting for half of their total businesses, according to a survey released Wednesday.
Japan took second place with 30 percent, followed by Europe at 11 percent.
The report by the China Council for International Investment Promotion covers 10 leading players and 100 growth companies in the sector.
But the report released in Hangzhou, Zhejiang province noted those regions remained the top three sources of overseas service orders, yet their influence was weakening.
The research showed overseas orders secured by the top 10 domestic IT service providers increased less than 4 percent to nearly $1.78 billion in 2012 from a year earlier due to the lingering sluggish global economy.
The leading players generated nearly $1.3 billion in combined revenues from onshore clients last year.
Chinese IT service outsourcing continued to surge, but not at the skyrocketing rate of 2011.
The industry leaders had more than $3.07 billion in combined total revenues in 2012, up 14.3 percent, but a drop of nearly 30 percentage points from the 43.66 percent rate the year previous.
Onshore revenues grew 32.53 percent over 2011 and contributed 82.86 percent of the growth for industry leaders.
Onshore clients accounted for 42.19 percent of the total for leading companies last year, a rise of 6 percent over 2011.
With domestic demand for service outsourcing expected to continue, the proportion of Chinese clients will continue to rise, the report said.
A growing number of IT companies are eyeing the domestic market, which will result in more fierce competition, said the report. It calls on domestic service providers to deploy resources and make a move as soon as possible to promote their reputation.
The top companies offer a diverse range of specialties, with information services taking the lion's share, followed by healthcare, manufacturing and finance, as well as government and education.
"Rising costs are driving domestic companies to integrate resources, formulate new strategies and change their structure in a bid to move up the industrial chain," said Zhou Ming, executive vice-president of the council.
"The key is to improve innovation capacity and upgrade their business portfolio," Zhou said.
Customized software development and IT R&D have become mainstays of the services they provide, while low-end business such as software testing is phasing out.
The move up has been driven by heavy investment in proprietary innovation.
From 2008 to 2012, the top service providers were awarded 870 copyrights and more than 1,000 patents, "a reflection of efforts and progress in intellectual property protection" in the sector.
They now present a stronger force on the industrial landscape. Each of the industry leaders generated at least $100 million in yearly revenue.
Among the $100-million club, four members surpassed $300 million in revenue.
Their expanded scale, though dwarfed by top global providers, still reflects a growing strength, according to the report.
The 10 companies took 4.2 percent of contracts outsourced to all Chinese IT service providers in 2012, a significant rise over the 1 percent in 2010.
The trend in business concentration shows the sector has moved into a new level of maturity, the report said.
The 10 companies have 92,900 employees, more than combined staff of 77,500 at the 100 growth companies listed in the report. The largest has more than 20,000 employees.
Yet that pales compared to Tata Consultancy Services, the titan of Indian IT companies, which has 198,600 employees, the research found.
Since 2008, Zhou's council has cooperated with consultancy and data companies to compile the report that shows the overall development of Chinese IT service sector.
Along with two other reports on cities and markets, the company survey is expected to give a multi-dimensional image of China sourcing, said organizers.
(China Daily USA 07/05/2013 page14)