Blog post

China vs. India

By Frances Karamouzis | May 31, 2010 | 27 Comments

 Is China Cheaper than India?  One of the most frequently asked questions about China is an attempt to verify the competitive cost structures variables for sourcing business consulting, IT consulting, applications development, maintenance and management or some type business process management services. And more specifically, many clients ask about labor costs as it is one of the single largest components of total cost of sourcing calculations. A comprehensive analysis of the total cost of sourcing for a business or IT process involves an analysis of two components: standard costs (such as labor, real estate, telecommunications and project management) and incremental globalization costs (such as remote management, communications, project trips and incremental legal costs). Also, enterprises should consider the costs of managing or mitigating potential risks (such as country risks, security risks or maturity risk) to arrive at a risk-adjusted total cost of sourcing.

Gartner’s analysis of a comparative cost structure assessment between India and the China reveals that a total cost of sourcing business case for a vendor or a captive center varies widely depending on enterprise specific business and IT requirements, scope, scale and appetite for risk. The variability is based on city locations (where coastal China cities might be as much as 30% more expensive that inland China locations), availability of specific skill sets, risk factors (country, security, competency, and maturity risk) as well as available vendor options.

Based on analyzing over 240 business case analyses over the last 2 years, Gartner research shows that there is not a simple or absolute ranking of global sourcing country locations by cost. Furthermore, given the current volume levels for China global sourcing, there is not enough critical mass of completed deals, or a critical mass of established vendors with extensive track records, and authenticated data. However, based on extensive analysis including breakdowns of major variables of costs, Gartner has concluded that the cost structures in China for the largest components of standard costs (namely, labor, real estate, telecommunications) are indeed within an extremely competitive range relative to many of the leading global delivery locations (including India). Therefore, the continued “cost is king” mentality of clients will inevitably continue to drive interest in the analysis of China as a global sourcing destination. Unfortunately, there is no clear yes or no answer as to whether China is cheaper than India, the answer is deal specific and primarily driven by scope, scale, skill set requirements, language requirements and risk thresholds.

A more detailed look at costs reveals that there a several factors that have a large variability across city locations in China, therefore, it is imperative that enterprises understand the factors with extensive hi-low ranges. These factors include: (1) the variability of wage rates and attrition across various cities in China (2) the short versus long term cost of real estate as rates vary dramatically over multi year periods given short term government or technology park subsidies (3) large standard deviations in the investment ranges required for human resources readiness (technical, language and soft skills training) as well as IT Services process business models (4) economic variations based regulatory requirements (5) government and legal requirements to manage risk (6) security issues (7) additional investment needed for low English speaking capability and/or cultural affinity.

Clients must explore and ensure deal-specific due diligence for the incremental globalization factors and analyze risk management costs. Clients need to ensure they assess a thorough total cost of sourcing analysis over a multi-year period in order to determine cost benefits and manage risks.

 What are the most common mistakes enterprise buyers make when evaluating India vs. China cost comparisons?    The five most common mistakes enterprise buyers with regard to cost comparisons are as follows:

(1) Enterprise buyers (especially those who have sourced work in India) often compare a rate card from a Tier 1 vendor with operations in India (i.e. IBM, Accenture, Tata, Infosys or Wipro) to a rate card of a tier 3 or tier 4 vendor in China. Simply comparing a rate card for a specific skill set is not a proper comparison because the elements built into a rate that is quoted by a vendor include elements of disaster recovery, and business continuity

(2) Comparison of pure wage rate charts. For example, if you look at some wage rate charts in China, you may see a quoted number such as 9K per year for specific for a programmer. However, the total cost to the employer is far more because China has a federal tax that is required (similar in nature to US social security taxes) which are currently 50%. Therefore, the cost to the employer is actually 13.5 K (9K plus 4.5K). Beyond that, if the programmer requires a certain level of English proficiency, a premium of of 10 to 15% must be factored into the wage rate above and beyond the market based rate.

(3) Assuming competency and skill sets in China and India are equivalent. A project manager or business analysts or even a programmer as designated on an human resource inventory in each of the respective region are not at all equivalent. Project management expertise is quite different. For example, at this particular juncture, a “experienced’ project manager in India can claim a track record of projects involving significant complexity and project size that simply has not yet materialized in China as of yet. Also, the label of of progammer or software engineer in China often refers to someone with experience with embedded (R&D) engineering expertise versus the more commonly used reference in India is related to Enterprise Apps skills.

(4) Assuming that there is one singular China cost structure. China is a vast country with over 20 designated hub cities. Cost structures across these various cities may vary by as much as 30%.

(5) incorrect Calculation of Total Cost of Sourcing or Risk Adjusted Total Cost of Sourcing. Quite often enterprises do not properly account for or comprehensively analyze the following:

  • multi-year sustainability of cost structures
  • do not include differentials in program and project management overhead costs
  • cross cultural communications impacts on costs
  • vendor competency and execution differentials
  • risk mitigation and/or risk management costs
  • potential currency rate fluctuations

Comments are closed


  • Ian Hau says:

    I read this article with great interest. This is a very thorough and informed analysis for the cost comparison between China and India and it is very amazing consistent with my experience sourcing and providing services from India and China.

    I agree with all the points in this article but I would like to add two points.

    – The government support could have a big impact on short and medium term cost. That is particularly true for a captive center model vs an outsourced model. Of course, captive center model has its own challenges and some vendors (Orchestrall is one of them) can help address the issues of setting and running a captive center.
    – Delivery model such as the ratio of onshore-offshore has huge impact on cost. If company can send a small management team to China, it can dramatically reduce the percentage of the onshore staff needed. Having some internal staff from the customer to manage the work on vendors’ sites also reduce the invisible cost and challenges mentioned in this blog. In many situations for the Indian delivery, even onshore staff is only 20% in number, it can be 50% of the total cost. Of course, companies can send staff to India also. From what I see, expats tend to like to go to China a little bit more than to India.

    This blog has done a great analysis that highlight all the parameters that drive the cost considerations from the location perspective. Of course, we all know that the biggest costs for managing IT are unnecessary wok through efforts like application portfolio rationalization, standardization, how work is organized for scale, and processes etc.

    A closing thought, I think China and India provide different value propositions. The main case for China is market access, good infrastructure, government support and a large pool of “raw” talents. India has much more seasoned IT professional and more mature companies. The way to leverage their different strengths are different. I understand companies like to jump to cost comparisons. It would be great to see more discussions about how to leverage the strengths and value of both locations for different needs of the companies.

    Fran, Thanks for sharing your thoughts.

  • Frances Karamouzis says:

    Thanks for your comment.
    You bring out a very important point – namely Value Proposition. The reality today is that China represents a very different choice (and value proposition) from India. The true head to head competition is yet to come.

  • Your article draws out the main factors that will likely remain primary for anyone considering China as a major outsourcing destination either for their own ODC (Offshore Development Center), Captive or simply to meet specific project needs. However, point #3 above is where the main issue remains.

    The current reality is that the larger, well established Chinese outsourcing companies still lack the skills, competency and process maturity of that found in India and even other geographies such as Eastern Europe and Russia. There is still a general lack of consistent methodology use, innovation in areas like agile or iterative development and even solid domain experience in certain industries.

    For the enterprise clients we serve in the US and EMEA that are generally in the Fortune/Global 250 category, the discussion has dramatically changed and while cost still is one of the top five criteria, it is now showing up as number 4 or 5 consistently, superseded by things like domain experience, methodology strength, process maturity, risk management and outcome/output based commercial models.

    I believe the question that headlines this blog post is valid but it really is a question of what the end state looks like in terms of cost vs. the entry point, where most companies initially look.

  • Indeed, the devil is in the details of each situation, and companies are well advised to consider each situation differently, as you suggested.
    I was surprised to learn about the vast differences in cost structures (30%) within China itself. This reminded me of a micro-climate analogy.
    Have you found a similar range variation in India, or is it fair to say that India has a more homogeneous cost structure across its North & South. Or perhaps, that these variations are well hidden and equalized by the large players who average them across the board, unless one is dealing with local/regional players.

  • Nick Oliva says:

    It seems undoubtedly that China is “cheaper” in every sense of the word – more from having a long way to go to catch up than any other reason. Any company choosing China today is taking a serious risk… or seizing a serious opportunity… depending on how you choose to view it.

    The more interesting question is whether China is doing the right things to leap ahead of India. Does anyone envision China “getting it right” and being the dominant offshoring destination in 2020? At the moment, it seems to me they are playing catch-up and not planting seeds to leap into the next technological arena. Censorship and other political issues are going to hold them back… so I say India will still be far ahead in 2020.

  • Craig says:

    China may be competitive on cost up front. But in my experience, India’s 20 year lead on China in IT outsourcing and application development make India a greater overall value.

    It’s easy to get blinded by an upfront “per hour” cost. But QA and communications (written and verbal) need to be factored into the equation.

  • Rajan Kohli says:

    In your SWOT analysis , you mention the following challenges to export of IT services from China – lack of large (English speaking) skill base and IP Protection. Are Captive Centers concerned with these issues as well. A captive unit may not worry as much about scale. Do you see a lot more captives being set-up in China as compared to export oriented services units by other global service providers? Is this part of the matuarity curve? How does that compare and contrast with what happened in India?

  • Frances Karamouzis says:

    Hi Alex
    Great feedback. We are definitely in agreement. Therefore, the critical juncture in the decision making cycle is where is the buyer willing to say … X level of process maturity is good enough. Attaching a quantitative value on the differential is the core of the issue. And given the value is often in the eye of the beholder and defined by enteprise specific requirements — therein lies the source of difference in demand.

  • Frances Karamouzis says:

    These core facts (i.e. 30% differentials) re: the realities “on the ground’ in China is precisely why there continous to be wide variations and preceptions about sourcing in China. The ability to get verified and authenticated data about China is one of the biggest voids in the market. Conversely, to answer your question about the homogenity of India can be answered by sharing that while there are indeed some differences in labor, real estate and telecom costs (the 3 largest variable of cost) in India — the biggest difference is that an enteprise buyer can more readily find verified and authenicated information regarding India. Therefore, prospective clients feel much more comfortable creating a business case.

  • Fran

    I am in sync with all the points mentioned by you

    It may be interesting to see clients tapping into the core engineering skills available in China (purely for product development as opposed to enterprise applications) and neutralizing the english language skills requirement by hiring experienced bilingual resources in a Captive?

    My two cents…

  • Ken Schulz says:

    Thanks Fran for a thorough, thoughtful, and clearly boots-on-the-ground consideration of often-overlooked areas that factor into an accurate comparison. Your message strikes a chord. As the only China-based pure-play outsourcing vendor publicly listed in the West (NYSE: VIT), it would seem that our company (VanceInfo) would offer a relatively greater measure of ‘comfort’ to prospective buyers when they look to assess track records and authenticate data. However, we’ve found that sometimes we’re not even on the radar. Much of that is certainly due to marketing deficiencies on the part of vendors here, including ourselves. But the fact remains that the vast majority of buyers coming to China are poorly equipped with 1) an understanding of the competitive landscape here in China, and 2) the factors to look at when performing due diligence, as outlined in your post. Regarding the competitive landscape here in China, since there are no household brands as exist in India, it is not uncommon for buyers to rely on Google searches to arrive at a vendor shortlist that they then attempt to narrow down through a woefully inadequate due diligence process to select an appropriate vendor for a long-term relationship. Buyers would be well-advised to consult information sources like Gartner that can help guide them through the process.

    Back to price comparisons, Frances raises an excellent point about comparing apples with apples with regard to engagement type. China’s excellence in R&D services (or OPD – Outsourced Product Development) can not be compared directly with India’s experience in enterprise IT services space. The skill sets are often quite different. That said, China is gaining momentum in the IT services space, with the dynamic domestic market is playing a vital role in driving that forward. Chinese banks and SOEs (state-owned enterprises) are investing in IT to meet the onslaught of global competition, as well as go global themselves. Chinese vendors are rising up the IT value chain to service these domestic clients, and interestingly, the foundation for providing strong IT services domestically can be the very software product expertise that been built up through working on OPD engagements for foreign clients. For example, VanceInfo not only operates a 200+ engineer ODC for TIBCO, but also actively engages clients domestically in China (including Chinese clients and MNC clients’ China operations) to implement IT applications around TIBCO middleware. There is synergy to be had, and these sorts of high-level IT engagements can and will be performed for clients in the West. That being said, there is certainly work to be done to continue the ongoing process of building vertical domain knowledge. And again, the amount of work is left to be done is best assessed through a rigorous due diligence process.

    All variables considered, I concur that it is challenging to provide a simplified ranking of outsourcing locations by cost. And as Fran diligently points out, it can also be misleading.

  • Samir says:


    You blog touches excellent points.

    Goldman Sachs estimates that India’s government stimulus will total $36 billion this fiscal year, or only 3% of GDP. By comparison, China’s two-year, $585 billion package is roughly twice as large, at about 6% of GDP per year.

    While China’s services sector relies a lot on Govt. subsidy. I wonder what are the comparative between India & China? And how long they are likely to stay?

  • Amrita Joshi says:

    Fran, great analysis. Covered all the major points companies should look at when comparing prices accross China and India. A couple of comments:

    1) Company Price Comparisons

    IT – Chinese IT companies can appear to be cheaper than Indian companies for a variety of reasons such as Government subsidies and incomprable skill sets as previously mentioned. However, there are a few other factors that significantly play into this lower pricing that have to do with overhead and investment.
    a) Because so many of the Chinese ompanies pitching for global work are much smaller than Tier 1 or Tier 2 Indian companies, management bench is very thin. This allows Chinese companies to price lower as they have less management overhead.

    b) Willingness to invest in processes, new solutions, centers of excellences, certifications, etc. is still not part of the culture of most Chinese IT Companies. Most of the companies will only invest in a new service offering, solution etc. when the client has come on board or most likely when the government subsidizes it. This may be because most of the companies have gotten used to government subsidies or simply because most of the companies are relying on private/individual funding and in effect are cash strapped. c) Chinese Companies still significantly underinvest in Sales in Marketing. This is also true for Indian companies but the Indian companies have made more progress on this front in the past few years.

    BPO – Although we dont hear much about China BPO, there are a few Chinese companies doing global BPO work. My experience shows that Chinese BPO rates are lower than Indian rates in general for the same service for the following additional reasons to the above:

    1) Most of the work being done out of China is still low level, very basic processing work, some written English is required but not so much spoken English
    2) Unlike India who used college educated talent for most BPO, China utilizes high school graduates who can be as young as 16 for simple data processing work therefore the labor costs are cheaper
    3) Government has launched 20 BPO City initiative which is helping to subsidize BPO companies, especially most recently Call Centers
    4) Many of the BPO companies have locations in Tier 2 or 3 cities/Tech Parks which have lower real estate and infrastructure costs

    2) China catching up to India

    In terms of Nick’s comments regarding whether “China is doing the right things to leap ahead of India?” I dont think that is the question we should be asking. I think the real question is whether China will actually carve a signficant place for themselvers in the Outsourcing Market. Thus far, neither the Chinese Government (regional and central) nor the Chinese vendors themselves have articulated or implemented a clear strategy for what role they would like to play in the global services arena. I gave a talk last month at a Call Center Conference in China on the need to differentiate not just from a geography basis but from a services, solution, skill set, engagement model, etc. basis. Currently the government works primarily on infrastructure, subsidizing certifications and English language. These are baseline requirements of global delivery. It is simply not enough to compete on a global basis.

  • Shyam Kerkar says:


    There have indeed been some great points made in both your analysis and the comments. There is one other aspect that could influence the China/India selection though.

    Not only do American/European Manufacturing companies now tend to have a large manufacturing base in the C-J-K region but Japan & Korea have spawned a lot of Industry leaders in Electronics, Pharma. Automobile sector.

    As vendors try to service the Japan/China/Korea market – they would need a delivery base which has familiarity (if not expertise) with these local languages. While the official language for IT and even business might be english, local language experience becomes necessary for services linked closed with the core business.

    China has such skill-sets available to some extent. So there is always an opportunity to do a right mix & match of service centers in China + India.

    This is a digression from the stated question of which country is cheaper, but in my view is a factor which justifies further exploration.


  • Frances Karamouzis says:

    The comparative stats that you mention (Goldman Sachs estimates that India’s government stimulus will total $36 billion this fiscal year, or only 3% of GDP. By comparison, China’s two-year, $585 billion package is roughly twice as large ..)

    In response to you about what I think are the comparisons between India and China here you go … These are

    Primary Supply Side
    China –> Driven by Govt Investment rather than commercial vendors or captives. Yet its still very difficult to Identify and Evaluate Vendor Landscape. (This is a big source of inquiries to Gartner).
    India –>Intially started and driven by Driven by Native Vendors ; Limited Govt Involvement. The Campus/ Tier 1 Vendors Emerged Quickly and most of all grew organically with limited acquisitions. later the government got involved.

    Primary Demand Driver
    China – Initially appears to be much larger domestic consumption versus export.
    India – Initially “export” ONLY now moving to domestic consumption

    Early Adoption
    China – Initially Product Development, R&D, Embedded Engineering, and Telcommunications. These are small niche markets with a cap on sizgin.
    India – Driven by Y2K and Enterprise Applications Initiatives – later expanded to R&D, Embedded. The initial market and demand was HUGE with lots of room for lots of players.

    Early Leaders
    China — Foreign Vendors will lead and native vendors will need to mature and quickly to adapt
    India – Native vendors lead the way ultimately forcing “traditional” MNC vendors to come to India

    Strategic Drivers
    China –> “Push” Strategy; Must Have a China Strategy, Must Evaluate China
    India –> “Pull” Strategy; Take a Look at the Tremendous Benefits and You Will be Compelled

  • Frances Karamouzis says:

    Amrita – great summary on the cost comparisons. I agree with all the items you mention. The problem in the market today is that most of these items are not common knowledge. Therefore, mispreceptions rule the day in terms of vendor evaluations. In the end, this results in much much longer sales cycles, lots of time, resources and money need to authenticate and verify and feel comfortable sign a contract.
    Bottomline – this is not good for China industry as a whole.

    Nick’s comment is very indicative of “typical sentiments” from a business perspective. Nick is looking at this from a Business point of view rather than a sourcing manager or IT manager point of view. This is the kind of battle that takes place internally within enteprises discussing China options.

  • Frances Karamouzis says:

    Great points. This is exact reason that a great deal of our research is focused on the interplay (ying /yang) between domestic markets in China, Japan and Korea and the export (outsourced) markets. The correlation between these supply and demand chains and technology spend of both the domestic and export cycles is something that was never tightly coupled in any other country. It did not play in the early adoption in Ireland, or India or the Phillipines. All three of these countries have had long histories of offshore outsourcing.

  • Frances Karamouzis says:

    Ken — in response to your post. I think all your comments are extremely important as they validate several points directly from a vendor operating China (namely your company — Vanceinfo). And your company is growing very quickly and navigating the dynamic landscape. Not all Chinese centric can make the same claim.

    Your other point regarding ….. “Chinese banks and SOEs (state-owned enterprises) are investing in IT to meet the onslaught of global competition, as well as go global themselves.”

    This supports my response to Shyam namely that no other country desitination has had such an important and tethered interconnection between the domestic market and the export market.

    The one item about your entry that I somewhat disagree with is the ability to shift from OPD work to enterprise clients. OPD work differs in some critical areas — the core buyer is different, the SLAs are different and even the required skills sets of the engineers delivering the work is different. The assumption that is implied in your entry is somewhat typical Chinese centric vendors — namely that a easy shift can be made from OPD buyers to Enterprse. My analysis shows that this is very difficult. Ultimately, I think the ability to understand this core point will be a huge litmus test of successful vendors within the China centric landscape.

  • Mani says:

    Fran, excellent analysis. Cost needs to be both risk adjusted and judged w.r.t. strategic intent. The Chinese government is definitely showing intent but many economists have raised concerns on the sustainability of certain policies like the massive credit growth.
    Would be interesting to know your take on the long term intent of Chinese IT services sector.

  • Frances Karamouzis says:

    Hi Mani
    In response to your question about the long term intent of Chinese IT services sector — I think you need to look at this question from the perspective of the various stakeholders.
    1) Chinese govt – the government’s long term intent based the enormous subsidies and investment made to date and promised in the future is clearly to become a significant player in the worldwide market. They are absolutely interested in a leadership position as an offshore destination. I think the single biggest blind spot that they have related to this goal is that IT Services and Outsourcing is a “people” business, more specifically a relationship driven business. Its not like mfg, or products where purely price, or the merits of functionality or design etc. can help win marketshare. Nevertheless, the Chinese govt is determined and they have an undeniable set of resources/assets in their court – namely, large pool of people, lots of money, a very large attractive domestic market that lots of companies around the world want to penetrate.
    They also have major challenges which I documented in my recently published SWOT analysis re: China available on China is projected to have significant energy issues, environmental issues and all sorts of other demands on security etc.
    b) the vendors – of the various vendor categories, the local vendors will be the most fluid. It is clear to me that not all the local pureplay vendors are committed to a long term strategy. Many of them want to grow a bit and sell their companies. This tends to cause a bit of instability in a market and sometimes a lack of confidence. Therefore, I think tits the foreign vendors who may well be the companies that bring a sense of stability and consistency to the market. To your question, I do believe that they have a long term strategic intent to take advantage of the vast China market and all its promise.

  • Anirban says:

    Excellent blog! You have pointed out the variable cost structure in China (coastal cities viz a viz inland cities), the same might increasingly apply to India as well. From a fully loaded cost perspective, some unexplored tier 2 and tier 3 cities in India can compete extremely well with China. Would request your thoughts on whether you see these unexplored cities as viable global delivery locations.
    Something which could work in China’s favour is lower wage inflation as compared to India.
    However, as you mention, what is most important is the risk-adjusted total cost of sourcing which includes maturity risk over a multi-year period. Also, competencies and skill sets in India and China are vastly different, which need to be considered. Fran, would also like to get your thoughts on whether information security will continue to be a bigger concern for China vs. the rest? The government’s role in China will play a crucial role. Overall, China is a paradox of opportunities and challenges and is an interesting market to watch out for in the coming future but there needs to be much more attention to the long-term scoping and development of the contractual structure. The industry will need to see more case studies of proven success for trust to develop.

  • Frances Karamouzis says:

    Greetings Anirban — responses to your questions below. Most of your questions are addressed in detail in a research note that I recently wrote about China. Its a sort of SWOT (strengths, weaknesses, opportunities, threats) report on China as an destination country for global sourcing. The title and the link are as follows: Title: China’s Quest and Its Challenges for the Leader’s Mantle as a Global Services Destination (
    The shorter quicker answer to your questions are as follows:

    Question 1) Would request your thoughts on whether you see these unexplored cities as viable global delivery locations. I think there is a continual quest to find second and third cities for even lower cost structures (primarily labor and real estate). And of course, less competition for labor. By the way, many of the local municipalities and government officials are constantly creating incentives for these cities to make them attractive locations. After all, it means more employment in the regions, more investment and a boost to the local economy.
    However, after running the numbers and checking with Nasscom as well as the China country association (CCIIP) — the consistent year over year result is that over 90% of the volume in India is delivered from 7 cities. This number has been consistent for the last 3 years. In China the critical mass is not quite there but early statistics indicate that 10 major cities have built out extensive technology parks but most have less than 30% occupancy rates. Its most Shanghai, Beijing, and Dalian have the highest concentration of work

    Question 2) would also like to get your thoughts on whether information security will continue to be a bigger concern for China vs. the rest?

    Overall, China continues to have real and perceived issues with regard to security and IP issues.
    More directly in the IT industry, at the time of the publication of my research — the Business Software Alliance (BSA) estimated that more than 80% of business software used in China is pirated. Moreover, BSA has gone on record indicating that it believes progress on software piracy has stalled, and it is calling into question whether the Chinese government is making good on its commitments.
    After my reserach was published — additional scathing press came out about very concerning issues with regard to security in China.
    The bottomline is that whether its real or perceived — China has a label regarding security that is associated with fear, suscipion etc. And this is a problem

  • Abhinav Bhan says:

    Hi Frances,

    Thanks for what i believe is a very insightful article on a very topical subject.

    It would be useful to know any observations that you have on the following BPO issues when it comes to the relative positioning of the two countries please:

    1. Currency risk – impact of any currency trends
    2. Ability to drive large transformational deals (IT+BPO)
    3. Innovation – there are several tools/ techniques, standards and certifications being adopted by players for better service delivery
    4. Government support – in light of the recent developments with regards to Google in China, what are the implications on outsourcing with regards to data security and IP protection etc.
    5. Commercial models – emergence of more aggressive models like outcome based models are increasingly required by customers, which is often reflective of the industry and supplier maturity
    6. Any trend analysis on domain specialization across verticals and also horizontal service segments


  • Samir says:

    Hi Fran:

    Thanx for your respone. I found some statistic that may be helpful to others.

    GDP: India has around $1.209 trillion and China around $7.8 trillion.
    GDP growth: China grew by 9.1% where as India by 6.7%.
    Per capita GDP: People say, more population means less per capita GDP, but China is even more populous than India! India has a Per capita GPD of $1016 where as China has $6,100.
    Inflation: India’s inflation is 7.8 % where as China’s in negative, -1.2 %
    Unemployment rate: India: 6.8 % and China: 4.3 %
    Services Export : India $ 98 BN & China $ – 20 BN

    China’s service outsourcing market is expected to grow at a compound annual rate of 26 percent to US$43.9 billion by 2014

  • Seshu says:

    Good one, something similar to what I was thinking… Looking at a captive center for software development, I see that the best thing is to use both Indian and Chinese strengths. China should be the place to make the software and India should be the place that has the consultants that go around the world and implement it. This way, the low cost to produce is taken advantage of… and the domain and delivery expertise that India has gained can be leveraged. My few thoughts… let me know what you think.

  • Karthik says:

    Dear Fran,

    Excellent points on the Wage comparison between China & India .

    Here is an interesting observation from an Outsourced Product Development (OPD) point of view that is mostly relevant for Global Manufacturing clients.
    • The average people cost in China is found to be on the higher side compared to India (20-30%) – in tier 1 locations in both the countries. This cost marginally changes (say by 5%) for soft skills (English speaking) and with other cities.
    • For western product makers, China still looks attractive primarily for three reasons.
    o Local market demand for products (automotive, aerospace, Telecom, consumer products, etc)
    o Government support – R&D investments, attractive policies
    o Established manufacturing eco-system and testing & validation infrastructure
    • At present India and China have complementing capabilities – India has strong design & engineering capabilities where as China has strong manufacturing and testing capabilities.
    • Indian companies bring their outsourcing process maturity, innovative business models and IP security, thus when they operate in China, they bring the best of the two countries to the customers. Strategy is yet to be worked out on how these companies should approach the high potential local Chinese clients, though.
    • However, the trends of expanding capabilities in design & engineering space shows that China is fast bridging this gap. On the other hand, while India is also building the manufacturing capabilities, it is 4-5 years behind China, in terms of scale of manufacturing operations.
    • As was mentioned in one of the posts, cost (alone) will be less & less of a determining factor. Access to emerging markets and domain expertise are going to increasingly determine whether one goes to India or China.

    Also interesting to note is that –
    China grew their market reach by exporting textiles (garments/leather/etc), Manufactured goods, toys, etc while India grew up exporting services like IT, BPO to the western world.
    The culture/exposure/skills required to sell/deliver IT/BPO/OPD services require a different mindset which evolved over 2-3 decades.

    China would continue to grow in IT services –
    primarily to address the domestic needs,
    then, leveraging that experience to address the adjacent markets like Japan/Korea/Taiwan/Singapore with a natural advantage of language/communication alignment with these markets. – would appreciate your comments on this.

  • Sridhar T says:

    The post is a practical take on the cost comparisons between China and India. When companies look at a destination for sourcing IT, consulting and BPO/KPO services, they typically consider factors such as the availability of employable talent, IT and telecom infrastructure, and cost advantages.

    While both China and India have the potential and scale to be large-scale global sourcing hubs with the required capability to grow and assume a footprint measured in tens of thousands of people, they also have their relative strengths. As mentioned in the post, while China scores well on the counts of infrastructure and, in varying degrees, cost, India enjoys an advantage in terms of its talent pool with strong process capabilities and English language skills.

    Notably, these factors also come intertwined. For example, the eastern part of China offers greater talent with English proficiency. However, the premium (10-15%, as mentioned here) that this talent commands narrows down the cost advantage and renders the cost structures in China and India nearly similar.

    That said, there are some other factors too that can impact the cost comparisons significantly and need to be closely monitored to see where the future is headed. These include:

    (1) Currency Rate Fluctuations: The value of RMB and Indian Rupee against the US Dollar is an important factor. Last year, when RMB soared against USD and Indian Rupee hit an all-time low, China became more expensive compared to India. This year, however, the trend appears to be reversing.

    (2) Cost of Hiring Senior Talent: Given the relative paucity of senior talent, especially with rich international experience, the cost of hiring senior resources is much higher in China compared to India. As a result, the overall cost of execution also goes up.

    (3) Wage Differences: The wage difference (about 30%, as mentioned here) between the cities of eastern and central China needs to be closely watched, as it may be difficult to sustain this difference in the longer run.

    (4) Government Subsidies: The governments in both countries are providing incentives to the outsourcing industry. In China, the subsidies provided by the government to such companies are very high. However, once these are pulled back, the cost of operations will move up significantly. As companies move to scale up their operations in the future, this would be an interesting and important parameter to consider.

    (5) Labor Laws: The new labor laws in China had a huge impact on the cost of operations when they were introduced. The interpretation and implementation of these laws in the country would continue to play an important role, more so now because they are also covering the IT industry alongside the manufacturing sector. Their impact would need to be closely monitored, especially if scale is a key parameter for a company’s China operations.