The overall climate was low in 2004, but expectations for the future were very good. For 2005 the outsource software services sector market was expected to be worth €1.2 billion. The country has a large supply of low cost workers and a huge internal market. China has a lack of domestic experience in designing complex software systems. This directly results into a lack of experience in undertaking large international software related services projects that are outsourced from international companies. China’s related services industry’s main international success has been in obtaining software related services outsourcing contracts from Japan.

Beside this, China is also a software consuming country with more than 15,000 small and medium-sized domestic firms that are adapting to the world market, particularly since China became a member of WTO.

Government support

The government support for the IT sector is low when compared to other upcoming outsourcing markets. However, the Chinese government has identified software as essential to economic progress and national security. More than 15 software parks have been opened so far and in November 2003 the China Offshore Software Engineering Project (COSEP) was launched. COSEP targets to provide outsourcing services from China to oversea corporate customers. The COSEP program will select number of Chinese software companies from regional software parks. Another important issue that the government is yet to address is the problem of widespread piracy of software.

Labour

China has a resource of 200,000 IT professionals, with more than 50,000 new entrants each year. At the same time, the country has a limited reserve of project managers who are experienced in large software project management and even fewer professionals that are able to combine technologies with industry experience.

Infrastructure

Infrastructure in major IT centers such as Beijing and Shanghai are very good. Second tier cities are in the process of building up of significant infrastructure.

Education

Universities graduate very competent technical graduates.

Cost advantage

Labour cost is very low. Typical IT salaries range from almost € 5,000 to € 8,000 per year per programmer with 2-3 years of experience.

Quality

Chinese companies have not established formal procedures, processes and quality control systems like Indian firms. Nevertheless, close to 58,000 ISO 9000 certifications have been handed out. China has just one company that has reached CMM Level 5 but there are several companies certified to CMM Level 3 (2004).

Cultural compatibility

China has week strong affinity with the western culture.

Time / distance advantage

Chinese IT companies operate on a single time zone. The time difference with Europe is 6-7 hours.

English proficiency

One of the biggest problems that Chinese software companies face is the English language. Olympic Games 2008 is expected to probably boost a solution to this problem. The Chinese government has invested more than € 5.0 billion in English education in Universities.