Source of Competitive advantage

Western edge

Western companies still have an upper hand when it comes to high-end outsourcing services despite the impressive strides made by Chinese companies, says Tang Tongmei, an analyst with US-based consulting company Gartner.

Zhong Mingbo, executive president and CEO of the outsourcing business group at Insigma, a Chinese IT services company, says the aggressive expansion of foreign players will lead to a healthy development of the market.

"Though we still lag foreign players in high-end outsourcing services, we are confident that the gap will narrow soon. More competition means more progress. China will lead the next round of development for the outsourcing industry with its innovation and skills, and also reshape the stereotypical image of the industry as a low value-added business," Zhong says.

Analysts say Chinese service providers are maturing in scale and fast reducing the gap with global players in terms of service offerings and performance.

"Large domestic service providers such as Neusoft are expanding from ITO, and low-end BPO to high-end BPO. Foreign companies are now facing stiff competition from the domestic players," Wright says.

ITO & BPO power

The term ITO refers to the outsourcing of computer or Internet-related work, such as programming, to other companies. But from an outsourcing perspective, it represents one of the fastest-growing sectors within the industry in China.

According to the China Service Outsourcing Development Report 2012, the combined value of the ITO market in China was about $19.78 billion in 2011, a year-on-year growth of 53 percent.

Wang from CCID Consulting feels that outsourcing services in China are now moving up the value chain, and creating an "innovation explosion".

"Outsourcing doesn't mean letting others do some low-end and repetitive work. China is rich in science and engineering talents, an integral asset for the ITO market. The expansion of China's outsourcing market is not just about cost, but more of innovation strengths," says Sam Zhong, group program manager of the strategic partnership group in the Microsoft Asia-Pacific Research and Development Group.

Business process outsourcing or BPO means the process by which an organization delegates part of or all of its support processes to an outside vendor, covering all centers, data entry of bills, prescriptions and traffic tickets at its lower spectrum to a higher end of managing human resources operations.

Common BPO services areas include finances and accounting, human resources and customer management.

According to the China Service Outsourcing Development Report 2012, the BPO market in China during 2011 was estimated at about $4.87 billion, up 22.1 percent year-on-year.

The BPO market is just less than one-third of China's outsourcing market, but it is growing at a fast pace and has the potential to outgrow ITO as businesses gain confidence in the operational excellence that China can deliver, says the KPMG report.