Outsource to India Or China? Let the Great Debate Begins

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Let the debate begins. Outsource to India or China? I am not going to bore you with the typical cliche that India is better at IT and China is better at manufacturing. I will only focus my arguments on 2 areas. I predict India is going to win the cost saving competition in the next decade. However, China is going to blow India away in one particular software outsourcing. That is mobile application development.

So, why am I arguing India wins the cheap labor game? Didn’t cities like Mumbai, Bangalore and Hyderabad experience sky rocking wage increases in the last few years? True, however India’s GDP per capital still stays at the bottom of the world ($1,016 USD). Besides major urban areas, the country lacks modern infrastructure through out most of its states. In comparison, China’s GDP per capital is already at $3,315 USD by 2008. It is quickly going into second wave of urban development inland. China also started a series of land reform making its farming structure more capitalism. These will have major impacts on overall national income level in the near future.

Perhaps the bigger story is Chinese currency. Recent global recession is quietly reshuffling the country’s reserves. With rumors like US is going to be downgraded due to enormous fiscal deficits, it certainly makes Chinese RMB look quite promising as an alternative. RMB has already hit all time high several times against dollars since subprime crisis began in late 2008. Therefore, this is actually good news for India. Chinese labors will soon become relatively more expensive for Westerners. For pure labor arbitrage, I predict outsourcing in India wins.

So how can China compete better in service oriented outsourcing? Well, not BPO, not ITO, maybe CRO, but most definitely mobile application outsourcing.

China has been the ‘world’s factory” over 20 plus years. It sure became a dominate force in high tech manufacturing powerhouse. The official statistics of 2008 from Chinese government indicated high-tech products has an export volume of USD 347.8 billion. Such astonishing number makes China second place worldwide for high tech manufacture scale, and first in global market share. Also, by April 2009, there are total of 678.8 million mobile phone subscribers in China. It makes me believe China has better overall ecosystem for mobile application development with Smartphone manufacturing know how, talents, user base and also infrastructure.

China is laying out massive infrastructure to meet its growing network demands. Starting in 2009, 3 largest mobile operators in China will invest combined of $30 billion dollars on 3G network over the next few years. It will certainly stimulate the entire industry value chain. Downstream software vendors can ride on the trend and strengthen their mobile technology capabilities. They can not only profit from domestic opportunities but also build up domain knowledge and talent base over Indian providers. More over, technical talents who live and work in China get to enjoy much broader 3G access as end users. It helps them to further innovate when it comes to providing mobile application development services to oversea clients.

In short, my prediction is that India will win the cost effective programming competition over China in the next decade. But, China will emerge as leading country for mobile application outsourcing. Should you outsource to India or China? Let the great debate begins!

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