According to a new report from IDC, local vendors command a dominant market share in mainland China and now account for more than 55 percent of China's total IT services market, compared with less than 45 percent in 1999.
"Last year, eight of the top 10 players in the market were local players," said Dorothy Yang, associate director of IDC China. "Companies like Digital China and Legend have gained share in 2002, bolstered by several acquisitions to strengthen their capabilities in the vertical industries like banking, telecoms, government and manufacturing."
These companies enjoy relatively low operational costs and have strong market penetration, due to their established sales and support networks and their local market knowledge, she added.
While, Yang asserts that their success need not come at the expense of IT services leaders like IBM and HP.
"My suggestion to U.S.-based services companies is to have a vertical strategy for the China market and partner with local vertical solution-providers and system integrators. (The local companies) are currently still weak in technology and unfamiliar with global practices," she said.
Mirroring results of other market studies, IDC's report pointed to steady growth in mainland China's IT services market.
IDC said this segment, which includes hardware deployment and support, systems integration and customer application development services, grew 18.5 percent to $3.75 billion in 2002.
"The current China IT market is pretty much hardware driven. Services and software segment accounted only for less than 30 percent of the pie," Yang said.
However, the market is gradually maturing and there is more recognition and acceptance of the concept of IT services. In the coming years, spectacular growth in services such as outsourcing is expected, she predicted.
Gartner Dataquest expressed similar optimism last month in a report, which said the country?s IT services market is expected to reap revenue of $4.9 billion this year, an 18.1 percent increase from 2002.
The firm said China's IT services market will have a compound annual growth rate of 19.6 percent, second only to India which is expected to see a compound annual growth rate of 23.2 percent over the next three years.
CNETAsia's Winston Chai reported from Singapore.