Source of Competitive advantage

 

Strong government support helps outsourcing industry ride the high-tech growth wave in China

Jibin Arjunan paces the rows of cubicles in the spacious software outsourcing center in Shanghai as his team of employees gets ready to address the daily concerns and problems of several customers spread across Europe and the US.

Few of the employees at the center are Indians or Westerners, though. Most of them are young Chinese IT professionals, or in some cases fresh college graduates, who are harnessing their software development capabilities for global solutions at the Shanghai center of Indian IT company Wipro Technologies.

Arjunan, head of Wipro Technologies in China, says that the Shanghai center is now a key link in the company's global operations and a key contributor to the overall revenues. "It is an integral part of the complex global supply chain for global economic development," he says.

Wipro is not the only Indian IT company to have set up outsourcing centers in China. Other big names like TCS, Infosys and HCL have development centers. Also present are big consulting firms like Accenture and conglomerates like General Electric, apart from a host of other Western manufacturing companies.

There is no doubt that outsourcing is booming in China. But what really makes China different from the rest of the outsourcing pack is its capability to attract high-end outsourcing work.

Outsourcing as an industry has often got more brickbats than bouquets in the past decade. But over the years it has evolved into an over $13 trillion (10.7 trillion euros) global practice and an indispensable element in the success of big global firms like Apple Inc and Cisco Systems Inc.

In China, the relatively young industry has notched up impressive numbers. Industry revenues are expected to top $50.5 billion by 2014 from $13.8 billion in 2009, says a recent report published by KPMG. Added to this is the additional advantage of creating millions of new jobs across a wide spectrum of sectors, experts say.

Though the $13 trillion industry is facing increasing global headwinds due to financial maelstroms and a clamor to move jobs back home, it looks assured of a robust future in China. Much of that comes from the initial days when it was largely focused on the domestic market and on companies from countries like Japan and South Korea.

There are several other factors that set China apart from the competition - like its willingness to branch out into newer markets, and the ability to cash in on the strong infrastructure, talent pool and diverse language skills. But the key differentiator in the long run will be China's ability to provide outsourcing services for intellectual processes.

"The outsourcing market in China began to take shape in 2000, and moved on to a fast growth phase five years ago," says Ning Wright, the partner in charge of shared services and outsourcing advisory at global consultancy KPMG.

Samantha Zhu, vice-president of the business process outsourcing department at global consultancy Accenture's China operations, is also bullish on outsourcing in China.

"China is like a fast-growing teenager, while India is more like an adult. Although the teenager is not as mature as the adult, they have better development potential and growth prospects," Zhu says.

Positive numbers

According to the China Service Outsourcing Development Report 2012 released by the China Outsourcing Institute under the Ministry of Commerce in May, global offshore outsourcing revenues were about $110 billion last year, with India still in the lead. By 2015, global outsourcing revenues are slated to reach $210 billion.

The same report indicates that China's outsourcing revenue in 2011 was about $32.4 billion, a year-on-year growth of 63.6 percent, with $23.8 billion coming from offshore business.