Wuhan rising

India's IT outsourcing revenue, estimated at $18 billion in 2007, is about six times larger than China's.

The gap is estimated to be even bigger for business-process outsourcing, such as medical billing and back-office work but many Chinese cities are poised to catch up. Wuhan, the capital of Central China's Hubei province, is one of them.

With 530 firms and about 30,000 employees specializing in software and service outsourcing, Wuhan's revenue generated from the software and service outsourcing sector stood at 12.5 billion yuan last year. The municipal government expects to see the figure grow to 45 billion yuan by 2010.

Beyond traditional industries such as auto-making and textiles, the city will attach increasing significance to service outsourcing, in particular information technology outsourcing (ITO), says Zhou Xianwang, director of Hubei commerce department.

"The hi-tech service industry is energy-saving and environmental friendly," he says. "And our time difference with the United States is a good resource for businesses now."

He explains companies receive e-mail material and software from their US outsourcers in the morning in China and night in the United States and send them back after processing when people in the US arrive at work in the morning.

In the financial sector, the municipal government expects local businesses to enlarge their presence in back office financial services in a bid to grasp the opportunity brought about by China's membership in the World Trade Organization.

In recent years, more Western back office financial operations have been transferred to Asia, including India, South Korea, Malaysia, Singapore and China. And within the country, financial institutions are also moving some back office businesses from larger cities such as Beijing and Shanghai to some second-tier cities such as Wuhan.

Wuhan has attracted China Merchants Bank, China Construction Bank, Bank of Communications, and China Minsheng Banking Corp to establish back office service centers in the city and is looking into more domestic and international financial institutions for potential development.

According to a research by consulting firm Alsbridge, 10 Chinese cities have shown up outstanding potential in developing their ITO. Wuhan is high on the list, which is based on criteria such as transportation, population, education, resources and economic stability. However, the world is not yet familiar with Wuhan's potential for service outsourcing.

Wuhan enjoys a number of advantages in developing its service outsourcing industry, the local government says.

First, its location as a junction of the Beijing-Guangzhou railway and the Yangtze River, makes Wuhan a major central China transportation hub. The city also has the largest interchange of fiber-optic communication in central China, which facilitates its information exchange with some 240 countries and regions.

Secondly, Wuhan was one of the first cities in the country to tap into the outsourcing market and some enterprises tapped the international market early.

Thirdly, the city was named by the Ministry of Commerce as one of the bases for outsourcing services, together with Beijing, Dalian, Suzhou, Xi'an, Shenzhen, Chengdu, Nanjing, Shanghai, Tianjin and Ji'nan.

Fourth, many well-known firms from home and abroad, such as Electronic Data Systems Corp (EDS), IBM, Microsoft, Beyondsoft and iSoftStone, have taken their business to Wuhan.

EDS, the world's second-largest technology service provider opened a global service center in Wuhan last year.

The center employs some 700 people and EDS plans to invest tens of millions of dollars to ramp up the facility as its business grows. EDS's major clients in China are multinationals such as General Motors Corp, its biggest client globally.

"China is a key strategic market for EDS going forward," says Kerry Purcell, vice president and managing director of EDS Asia. "Being a cost-effective outsourcing destination, the nation's outsourcing marketing is also growing rapidly."

EDS expects the Wuhan center, its fourth globally, to provide applications, business process outsourcing and information technology infrastructure services to its clients in 64 countries.

Wuhan also boasts abundant human resources and research and development resources service outsourcing.

With about 60 universities in the city, there are over 1 million graduates in Wuhan each year, including 40,000 majoring in computer and software and 30,000 in finance, business and foreign languages.

And as a research base for the development of optoelectronic information technology, biomedicine industry, energy-saving and environmental protection, there are over 100 research institutions in the city, including 14 state-level laboratories, over 20 State-level engineering or enterprise technology research centers and over 20 state-level high-tech industrial bases.

The provincial and municipal governments listed the sector as one of the major industries in the 11th five-year plan (2006-10) of both level.

The governments provide favorable policies for sourcing businesses in taxation, financing, software exports, certification and intellectual property right protection, and they expect to increase the proportion of the service outsourcing in its total GDP.

Wuhan's blueprint to develop service outsourcing echoes policies of the central government - to boost low-polluting and highly-efficient industries, including hi-tech and service industries.

Service outsourcing will play an increasingly crucial role in upgrading China's industrial structure, and is complementary to the development of the manufacturing industry in China, says Assistant Minister of Commerce Chong Quan.

Outsourcing service providers in China could earn as much as $18 billion by 2010 and $56 billion by 2015, according to an EDS White Paper released last year.

(China Daily 04/28/2008 page10)