China is unlikely to displace India as a leader in software outsourcing soon, but a large domestic market and a wide base of skilled programmers means the mainland is quickly gaining industry clout. Meanwhile, many Indian companies are setting up in China, using their presence to reach Japanese and South Korean conglomerates that are increasingly turning to outsourcing. 'Once, if you had suggested that China could soon be a powerful player in offshore outsourcing services, you would have been laughed at,' Gartner analyst Dion Wiggins said in a recent report. 'China's software industry is maturing and growing at an astounding pace. The Chinese government has set its sights on becoming more than just the world's 'factory floor'.' Gartner estimated India's software exports at US$18 billion this year, compared with $1 billion for China. The mainland, however, had a large domestic market for software outsourcing, which should serve as a base for its global ambitions. Mithras management consultant Sridhar Vedala said: 'They don't have to start from scratch, like India.' Vineet Toshniwal, Greater China head of sales and marketing for India's Infosys, said the mainland lagged India by about seven years, with Chinese outsourcing companies mostly taking on small projects. The average mainland software house employed about 40 people. 'They are not able to manage large projects for global clients using global delivery, unlike the Indian companies,' Mr Toshniwal said. In addition, the range of experience rarely went beyond the domestic market. 'They lack a deep global client relationship and their domain knowledge - for example in the financial service sector - is only local.' Mr Toshniwal gave his mainland counterparts high marks for their technical skills, describing them as 'top class'. But he warned that lower labour costs did not necessarily benefit clients. '[Cheaper programmers] might not capture the requirements correctly, or they might not deliver on time,' he said. 'In terms of total cost of ownership, the biggest Indian firms are the lowest.' China is becoming an opportunity for India, especially with rising programming costs as home. Several Indian firms are expanding into China, in search of cheap labour but also hoping to tap the vast mainland market. Tata Consultancy Services has a development centre in Hangzhou with 200 staff, while iGate has 40 people in Wuxi. Infosys set up shop in Shanghai in April, investing US$5 million. The company has 35 staff and wants to expand to 200 by year-end. A China India Software Association was established in November with the support of the mainland's Ministry of Science and Technology and India's Ministry of IT Industry. The goal is to promote co-operation between the countries, and the group has attracted 60 members so far. The association's chairman, Jonathan Choi, recognised the limitations facing mainland companies, adding the best strategy was to work with foreign partners. 'The China market, not to mention the international market, is too huge for just Chinese companies,' Mr Choi said. 'Competition will always be there, within the country and with other countries. Co-operation is the trend and the key to success.' Mr Toshniwal saw China as a perfect beachhead to reach the Japanese and South Korean markets. At present, 70 per cent of Infosys exports are to the US, with just 5 per cent to 6 per cent to Japan. 'The similarity in culture and proximity in location also make it easy for [China and Japan] to work together,' he said. One of the mainland's largest IT companies, Neusoft, started 13 years ago as an outsourcing partner to Japanese car stereo manufacturer Alpine. The company's outsourcing clients now include Japanese firms such as NTT and NEC. The lack of a huge gap in time zones - which often bogs down decision making in US-Indian projects - also helps in Japanese outsourcing to China. 'The major problem of the outsourcing process has always been loss of control,' Wu Qiang, vice-president at Kingdee International Software Group said. In addition, many multinationals have mainland headquarters, which means decisions do not have to go back to the home office. 'They can control their outsourcing project right here.'