As demand for offshore IT outsourcing services grows in the coming years, companies will be faced with the problem of limited outsourcing resources in more established markets for IT services, such as India, Ireland and the Philippines, Gartner said. To fill this gap, companies are already starting to eye China's vast supply of skilled IT workers, even though China isn't expected to become a mature market for outsourcing until 2007.

China currently has 200,000 IT professionals involved in the software export industry, with an additional 50,000 entering the workforce each year, Gartner said.

Chinese IT professionals still fall short in areas such as language ability and cultural compatibility.

China has more than 100,000 large corporations and over 10 million small and medium-sized companies, Gartner said. With so much opportunity in their home market, smaller Chinese outsourcing companies are more likely to focus on providing services to domestic companies with only the largest players looking abroad for opportunities, it said.

Despite these obstacles, Gartner predicts that China will emerge as one of the top three countries for overseas IT outsourcing between 2007 and 2010. Companies should plan their offshore outsourcing strategies to take advantage of China's emerging strength as an outsourcing center, including looking for ways to take advantage of the country's current software strengths, Gartner said.

Indian cities have inherent challenges such as cost of staff and pressure on infrastructure, said Conrad Chang, a research manager at IDC's Asia Pacific operations, in a telephone interview on Thursday. While India has focused on the U.S. and European markets, China has large opportunities in the Japanese and Korean markets, Chang added.

Chinese cities will overtake Indian cities by 2011 because of massive investments made in infrastructure, English language, Internet connections, and technical skills, which are favorable towards offshoring, IDC said Tuesday.

Forrester Research, however, takes a less optimistic view about China as an offshore destination.

Nearly two years ago, the country was widely viewed as a key challenger to India as an offshore services delivery location, however Forrester's research shows that the market has not taken off as expected, the research firm said in a recent report.

China primarily attracts business from Korean and Japanese companies, but most of them have preferred to set up their own operations in China rather than outsource, because there are not many large service providers in China, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International (TPI) in Houston, on Thursday.

Source:1, 2

Prashanth Rai