Chinese companies need to upgrade to stay competitive.

China‘s software outsourcing industry is expected to grow further despite climbing labor costs and increasingly intense competition from overseas.

"The software industry will play a more important role as the Internet-based services continue to expand globally," said Li Yuanming, president of Dalian Software Industry Association. "Globalization in the software-making industry could provide more clients for Chinese software companies."

In 2011, the output value of China‘s software and information services hit a record high of more than 383 billion yuan ($60 billion), up by nearly 40 percent year-on-year, according to an annual report issued by the electronic technology information research institute under the Ministry of Industry and Information Technology.

Meanwhile, the outsourcing sector took 20.8 percent of the entire software industry in terms of output value, shaking off years of decline since 2007.

Although Chinese-made software holds advantages in terms of price compared with overseas competitors such as Europe and India, local outsourcing providers are in urgent need of upgrading their services to protect the domestic market from incursion by overseas companies.

"We should move fast to keep the business in the country because global players, such as India, are ready to compete against their Chinese counterparts in the Chinese market," said Guo Xin, former president of IDC Greater China.

India‘s IT outsourcing service quickly expanded as the number of the country‘s talented software writers boomed.

As many as 12 Indian companies were on the list of the top 100 outsourcing companies in the world this year and three Indian firms have found a place in the top 10, data from the International Association of Outsourcing Professionals shows.

China‘s top-ranked company, Neusoft Corp, barely made it into the top 30.

Indian companies dominated contracts from the United States. Europe is the biggest market for Republic of Ireland companies.