After taking the lion's share of the Japanese market in the country, Dalian's software outsourcing sector is now eyeing European and United States markets.

 

The attempt may prove to be difficult, as Dalian will compete against India for American business.

 

Although the city has not yet mapped out a specific strategy, it says it will encourage enterprises abroad in these Western areas and begin taking steps to conduct research on the market's latest outsourcing trends, said Dai Yulin, vice-mayor of the port city in Northeast China's Liaoning Province.

 

"We have advantages in the Japanese market, while the European and American market is challenging," Li said. "We don't have competitive edge like India in technology, language, price, service and scales."

 

The biggest challenge will be recruiting talent and increasing computer skills to compete, he said, noting, "We still need to improve our ability, as the United State's outsourcing is at a much higher level."

 

Dalian is the software outsourcing capital of China, and has been successful in providing software and IT services to various companies, most of which are Japanese. It supplies more software services to Japanese companies than any other Chinese city.

 

The city's software industry sales last year broke the previous record of 10 billion yuan (US$1.23 billion), maintaining a 60 percent increase in the past six years and expanding 50 times from eight years ago.

 

Of the sales, software outsourcing contributed 3.7 billion yuan (US$456.23 million). Japan-oriented business made up at least 80 percent, with the rest of business coming from European, America and Southeast Asia.

 

But attracting US clients may be complicated because they are "mature," said Li. "The two markets (US and Japan) have two different operation modes," he said.

 

Japanese companies took advantage of 60 percent of China's outsourcing business in the first half of 2005, CCID consulting statistics show.

 

However, the Japanese outsourcing business is still not as profitable as other nations and only accounts for 10 percent of the global market.

 

The American market snatches 60 percent, supplied mostly by India.

 

With tense competition and profit potential, this market is attracting China's IT players.

 

Li Jinsong, CEO with Hisoft, Technology (Dalian) Limited, said the US market should be further explored on the basis while also maintaining and expanding the market share in Japan.

 

Hisoft in November combined with two major IT companies to establish Hisoft Group. Industry insiders believe the move would help raise the deliverability of software outsourcing industry and expand the markets in Europe and the US in this regard.

 

In 2002, the firm was selected as a Global Development Centre (GDC) of General Electric, which was the first ever GDC in China.

 

From November 2003, the company began to set up subsidiaries in the US. Currently, their European and US business makes up 20 percent of their total outsourcing.

 

Liu Jun, the general manager of Dalian High-Think Computer Technology Co Ltd said compared with the business models in Japan and Europe, America has a higher standard when it comes to outsourcing.

 

"Our ability is still needed to be strengthened to meet it and still time needed," Liu said. "For them, the outsourcing business in Europe and America only takes up 2 to 3 percent. It's still a phase to reserve and accumulate now, at least three years for us to make progress in that market."

 

(China Daily January 24, 2006)