With continued economic expansion and the rise of domestic and global MNCs targeting growth from the domestic China market, demand for outsourced IT services and business process outsourcing services has had an acceleration in growth. At the same time, with its substantial pool of skilled labor, rapidly growing economy and strong government support, China has emerged as a major participant in the global technology services industry. According to market research firm Gartner, “By 2012, of the BRIC countries, China will be the leading India-alternative offshore location for highly scalable resources, followed by Brazil, while Russia, being viewed as offering only niche capabilities, will fall behind.” Furthermore, China’s domestic market for outsourced technology services and solutions is a rapidly growing yet early stage market with strong future potential. We believe the following factors are contributing to this growth:

• China is Among the Most Important Domestic Economies for Growth.
  China continues to grow rapidly, in spite of the gloomy economic environment. With the recent economic downturn domestic and global MNC clients have refocused their business strategies to target the world’s faster growing economies as key future growth markets. At the same time, with the need to rationalize cost structures to cope with increasing profit pressure, clients are increasingly-focused on engaging outsourced technology services providers to leverage economies of scale and best-in-class industry solutions, while simultaneously leveraging China as a new geography from which to source technology services and solutions. With these two trends occurring in parallel, clients’ domestic China market business interests are helping to define their China-based outsourcing strategies.
• Importance of Risk Mitigation.
  Multinational clients of outsourced technology services are increasingly implementing risk management initiatives to ensure continuity of IT platforms in the event of geo-political events which may threaten IT operations centralized in a single geography, such as India. Diversifying the geographic presence of IT platforms reduces the risk of major disruptions to business in the event of isolated geographic events that affect technology platforms. To date, India has been the primary provider of offshore outsourced technology services, and we believe corporations are increasingly seeking a more diverse solution that allows them to be insulated from risks associated with concentrating IT operations in a single outsourcing location.
• Availability of Skilled Resources. 
  China’s large and skilled labor force produces more than [20] million university graduates per year, according to IDC.  It produces between 400,000 and 800,000 technical and engineering each year, with many of those graduates residing in secondary cities such as Dalian, Wuxi, Tianjin and Guangzhou.  Moreover, a majority of the graduates from China’s premier universities are educated with English as a second language, forming a key component of the requisite skills necessary to serve global MNC clients with technology services and solutions.
• Flexibility of Resourcing Strategy.
  Since January 2008, when China’s national government implemented a new labor law, MNCs have become subject to increasingly rigid labor regulations, whereby employers faced increased labor costs including salary, benefits, and allowances. In addition, lack of flexibility under these new regulations has caused many MNCs to turn to outsourced technology services providers in order to be able to keep a significant portion of their cost structure on a variable basis.
• Significant Cost Benefits. 
  China offers significantly lower labor and other operating costs relative to the United States, Europe, Japan and increasingly India.  While average wages in China are likely to increase as the domestic economy continues to develop, wage inflation has been modest in recent years. Furthermore, the abundance of skilled resources in secondary cities other than Beijing and Shanghai means that labor markets in those areas can be expected to be less competitive and therefore subject to less rampant wage inflation over time.
• Infrastructure Development and Government Initiatives. 
  China has rapidly developed its infrastructure relative to other major outsourcing destination countries and its major cities have extensive office space, available room for expansion, transportation and other public infrastructure supplemented by robust and secure telecommunications and internet connectivity. China’s government has targeted service outsourcing as a growth industry for China’s future economy under its recent 12th 5-Year Plan, which will call for increased spending on national infrastructure, through IT-intensive industry verticals such as energy, transportation and utilities.

According to IDC, China’s domestic IT services market is expected to grow from $10.7 billion in 2009 to $18.2 billion in 2013, representing a CAGR of approximately 14.2%. Similarly, according to IDC, China’s offshore outsourced technology services industry is expected to grow from $2.7 billion in 2009 to $6.9 billion in 2013, representing a CAGR of approximately 26.4%.