"If the outsourcing provider is located close to prominent universities, it's more likely they can recruit a higher quality of talent to support your business," he said.

He noted Beijing, Shanghai and Shenzhen are where most of the top universities are located. Also head of IT for a multinational bank, State Street Bank, Au Yeung said the company has an operation in Hangzhou mainly because of its proximity to Zhejiang University, which is ranked among the top three universities in the country.

Apart from access to cheap talent, local CIOs have additional incentive to outsource in China: location. Many software parks, hosting the outsourcing providers, are only a couple hours travel across the border.

"The software park's location and its distances from the business operations are essential," said Au Yeung. He noted that the MTRC chose to outsource its back-end IT development in Zhuhai partly due to its location. "In case of emergency, it'll take them only a few hours to get to the outsourcing site."

Buying talent not experience