China's IT services outsourcing industry could generate $56 billion in revenue and create 4 million jobs by 2015, becoming a new engine for the nation's economic growth, a report said.

IT Outsourcing service providers in China could earn as much as $18 billion by 2010 and $56 billion by 2015, according to a White Paper released by Electronic Data Systems (EDS) yesterday. The world's second-largest IT service provider also reached a strategic cooperation agreement to develop the IT outsourcing industry in China yesterday.

"China is now facing a historic opportunity to become a leading player in outsourcing, if it can successfully overcome the challenges and capitalize on the opportunities in the coming years," said Derek Sharp, vice-president of sales and business development of EDS Asia.

China has been promoting its outsourcing sector in recent years to tap the booming market. The nation's software outsourcing companies raked in $1.4 billion in revenue in 2006, up more than 40 percent compared with a year earlier.

"Globally, outsourcing demand greatly outstrips the existing supply," said Richard Zhang, director of Mckinsey & Company in Shanghai, a leading international consultancy that helped EDS prepare the report.

The potential outsourcing market is estimated to be as much as $465 billion in 2006 and $600 billion in 2010. However, only 9 percent of the total demand has been met, according to Zhang.

The White Paper, titled "Building a World-Class IT Services Outsourcing Industry in China", said China has distinctive advantages such as an abundant supply of raw talent, world-class infrastructure and low costs.

"China's large and fast-growing domestic IT services market is a great strength for its outsourcing industry," said David Wirt, corporate vice-president and managing director of EDS China and South Korea.

Participants at China International Software & Information Service Fair 2007, which opened yesterday in Dalian, Northeast China's Liaoning Province. [newsphoto]

Unlike their Indian counterparts, outsourcing companies in China work closely with local clients from industries such as banking, securities and manufacturing. These experiences allow them to develop their own domain expertise and enhance their innovative capacity.

Shenyang-based Neusoft, now China's largest outsourcing company, started to develop software programs for Japanese car audio manufacturer Alpine Electronics in 1991. The two companies set up a joint research center in 2001. Nuesoft is now one of the leading providers of auto electronic software in China.

"This is impossible for Indian outsourcing companies due to their small local market," Wirt said. "They have to buy expertise and knowledge due to the small domestic market."

EDS, which has about 20,000 staff members in India now, has been trying to scale up its operation in China. This April, the US-based company decided to establish a global delivery center in Wuhan, capital of Central China's Hubei Province. The company is looking to increase the center's headcount to 5,000 in a few years.

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"We hope our cooperation with the Ministry of Commerce will help the outsourcing market here to develop as a whole," said Sharp.

According to the cooperation agreement, EDS and the ministry will work together on policy and regulatory issues, as well as cultivate market growth opportunities. The two parties will jointly hold high-profile summits and conferences to promote China's image abroad.