China currently accounts for less than 10 percent of the global market for the offshoring and outsourcing of services. Yet McKinsey research—including interviews with officials at many Chinese government agencies, executives at Chinese leading services providers, and managers at Chinese services-outsourcing parks—suggests that by implementing an aggressive strategy to develop the sector and cultivate talent, the country could capture opportunities worth $56 billion a year by 2015.

China faces formidable challenges but can also draw on unique strengths. The country’s two million Japanese and Korean speakers, for example, should help it increase its lead in the North Asian market for the “near-shoring” of IT application and business-process-outsourcing (BPO) services. But a dearth of workers who can manage international projects and have strong English-language skills will make it harder for the country to become a leading provider of services to companies in Europe or the United States.

In the fairly new market for the offshoring of engineering services, China could become an R&D hub, given the country’s proximity to potential customers in the Asian semiconductor and consumer electronics industries. However, its relatively poor protection of intellectual property rights poses a significant barrier.