Indian software services provider Tata Consultancy Services Ltd. is teaming up with Microsoft to launch an IT outsourcing company in China, the companies disclosed Thursday.

Under the terms of a memorandum of understanding, TCS will hold a majority stake in the firm, expected to launch in early 2006 in Beijing. Microsoft will take a minority interest. Three Chinese firms are also participating in the venture. Financial details weren't released. Officials from Microsoft and TCS weren't immediately available for comment.

In a statement, TCS officials said the joint venture will focus on providing software-development services to both Chinese companies and multinationals in the West. It will provide services and support for all major software technologies and won't limit itself to Microsoft's .Net environment, TCS said. The company also will offer specialty services for the financial-services, manufacturing, and telecom industries, as well as for several other major vertical markets.

Microsoft's investment marks the latest in a series of moves by the company to build up its presence in China, which some observers believe could eventually become the world's biggest software market. Microsoft entered the country in 1992 with the opening of a sales office. In 1998, it opened a research lab in Beijing. In 2003, the company signed a memorandum of understanding with Beijing municipal authorities to work with local software providers to develop E-government systems. The company is also working with a number of major Chinese business customers, including Petro China and China United Telecommunications Corp., to help them build business systems based on .Net.

Infosys Technologies Ltd., meanwhile, is one of several major Indian vendors looking to provide outsourcing services from China. They see the country as a hedge against rising costs in India and a lucrative market in its own right. Infosys, Satyam Computer Services, and Wipro Technologies all have operations in The People's Republic. Earlier this year, high-level Indian and Chinese government officials declared their intent to work more closely on cross-border IT initiatives. Major Western vendors that have already opened service centers in China include IBM, Affiliated Computer Services, and Accenture.

The Chinese government is following the Indian model to ensure that a steady supply of IT talent is available to foreign service providers setting up shop in the country. The government has established 35 national schools to provide software training, especially in technologies such as .Net, Linux, Java, and Web services. Its goal is to have 800,000 trained software pros by the end of the year, versus 600,000 in India.

The Chinese government also is promoting the use of widely recognized quality-control standards. To date, 11 outsourcing companies with operations in China have attained Capability Maturity Model Level 5, the highest ranking from Carnegie Mellon University's Software Engineering Institute. Among those, seven are indigenous Chinese companies.