While both outsourcing and development in China is expected to continue its growth in the coming years, a new report from Pearl Research warns that outsourcing may not be as cost-effective as it may seem.

According to GamesIndustry.biz, the new report warns companies of various pitfalls in Chinese outsourcing, as the region's videogame market is set to exceed US$ 1.3 billion in 2008.

Pearl Research highlights travel, training and project management costs eroding savings made in areas such as low labor costs. Concerns over product quality, protection of intellectual property and competition for skilled employees are also some of the challenges that outsourcing presents.

As the market matures, however, Pearl Research says that the long-term quality of output will mature right along with it. The report also notes that online casual gaming will make up 30% of the Chinese games market in 2008, while the most popular Chinese MMORPGs can generate US$ 80 million annually.