BIZCHINA> News
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BIZCHINA> News
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Converting crisis into opportunity
By Diao Ying and Wang Xing (China Daily)
Updated: 2009-01-12 07:56 "We see more opportunities than challenges," said Chen Yuhong, of Chinasoft International. Chen sees vast opportunities in sectors like railway transportation, agriculture, social welfare causes, and food security. The crisis is also an opportunity for many of the outsourcing companies to rework their long-term strategies. Liu of Neusoft sees more chances of roping in senior talent from abroad to strengthen his team. Neusoft plans to make more use of the overseas talent to expand its international business. The company has four offices in its main market, Japan, with 100 employees and intends to double this by the year-end, said Liu. Survival of the fittest Experts also see this a time of consolidation for the industry. There were only 112 software outsourcing companies in China in 2001, and the number has since soared to over 2,400 by last year. But most of them are small. An outsourcing company with over 1,000 employees is considered big in China, compared with companies of tens of thousands of employees in India. "Some will have to die, and the rest will survive, grow up, and grow strong," said Chen of Chinasoft. "For the past two years, the industry has seen a rapid increase, they need the time to settle down," he said. Industry insiders feel that Chinese outsourcing companies are now in the same situation that India was in 2000. According to Fang of Neusoft, China still has some advantages compared with India, where outsourcing is one of the core industries. For instance, labor costs in China though increasing are still 25 to 30 percent lower than that of India. The country also has a large talent pool to choose from for its outsourcing sector. Statistically, China churns out some 600,000 undergraduate engineers annually compared to the 70,000 in the US and 350,000 in India. Better infrastructure like highways and telecommunication equipment along with support from the government could further benefit the outsourcing industry in China. In fact, some Chinese companies have already started getting clients from their Indian counterparts, or even much larger opponents. VanceInfo in 2007 got an offshore project of TIBCO, a US-based banking middleware company, from a major Indian outsourcer. The Indian outsourcing company could not meet TIBCO's offshore project staffing needs in a timely manner, while the staff is more stable in China, said Ken Schulz, marketing director, VanceInfo. The TIBCO operations now employ over 200 in China. Much of the credit for the success of the sector, however, lies with the government, which has pegged outsourcing as a major export sector after manufacturing. "The gross profit margin of service outsourcing is 40 percent, and that of manufacturing is 4 percent," said Hong Gang, managing director of Gartner in China. The development of outsourcing industry has gained importance for the government as a way to increase employment without endangering the environment, particularly at a time when the manufacturing gets vulnerable to weakening global demand. The government now sees service outsourcing as a major industry to garner more foreign investment. According to the 11th Five-Year Plan, the government plans to woo some 100 multinationals to transfer part of their service outsourcing industry to China by building 10 cities with international standards. The government also plans to help 1,000 Chinese outsourcing companies grow into medium to large size enterprises within the five-year period ending 2010. The government's goal is to double in five years the export value of the outsourcing industry by 2010, Jiang Zengwei, the vice commerce minister, said in an international service outsourcing expo in Chengdu in November 2008. Despite the opportunities, the outsourcing industry still needs to overcome problems to stay ahead. According to Hong, the name recognition or recall value of outsourcing companies in China is still low compared with India. And it is difficult for vendors to differentiate companies form a variety of cities in China, as most of the second tier cities claim that they are the best outsourcing bases. In addition, there is a massive pool of engineers and workers at the entry level, but not enough senior project managers. "We are in severe shortage in terms of workers, and you cannot get a good senior project manager simply by spending a lot of money. It takes time and experience," said Hong. (For more biz stories, please visit Industries)
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