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Eying a bigger piece of the outsourcing pie
By Xu Wenwen |
October 16, 2012, Tuesday
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Print Edition
Print Edition
CHINA is playing catch-up to India in the service outsourcing industry.Xu Wenwen takes a look at the advantages China offers and the problems it needs to overcome to enhance its global position in the sector.
A decade ago when Gartner analysts visited India to investigate the outsourcing market, people asked them why India but not other developed countries. Now when they come to China, people ask them why China and not India.
India already has a strong reputation in the country's outsourcing industry, while China is playing catch-up.
Despite the economic downturn in the US and Europe, the contract value of China's service outsourcing industry grew 58.1 percent to hit US$32 billion in the first seven months of 2012, according to Ministry of Commerce.
"This year China's total trade volume in service industry decreased, but that of service outsourcing increased," Jiang Yimao, director of the service outsourcing department of the Ministry of Commerce, said at the press conference of Fourth China Sourcing Summit held in Hangzhou at the end of last month.
"The market is demanding as enterprises need to update their software from time to time and companies in the West have tried to reduce their business costs through offshore outsourcing," Jiang said.
The three-day summit attracted around 1,000 delegates including government officials, industry experts, buyers and suppliers from around the world.
Frances Karamousiz, vice president and analyst of Gartner, a leading technology research group, said: "We're so excited to see that the growth in the industry is huge.
"Who grasped the trend, who owns the future," she said, adding the trend in the industry is not purely hitched to costs and labor, but is a matter of real value, which means suppliers and buyers need to be clear about their advantages and value proposition.
Chinese businesses have won offshore service outsourcing contracts worth US$22.35 billion from January to July this year, up 48 percent from a year ago, according to Ministry of Commerce. The implemented contracts value in the period surged 46 percent to US$16.14 billion.
The central government's proactive support has boosted the country's service outsourcing industry in recent years.
In 2011, its contract value hit US$32.39 billion, up 63.6 percent from 2010, according to the Ministry of Commerce. The unprecedented growth has positioned China as the world's second-largest offshore outsourcing provider after India, accounting for 23.2 percent of the global market.
Hangzhou is doing well in this sector. Since 2007, the implemented contracts value of offshore outsourcing has averaged annual growth of 95 percent, according to Hangzhou Foreign Trade and Economic Cooperation Bureau.
Among all offshore service outsourcing contracts, more than 60 percent were from Europe and America in the first eight months of the year.
But disadvantages in the outsourcing industry in China are obvious too, especially the education of outsourcing personnel.
"In India, a fresh grad who has received systematic training of outsourcing is capable of doing the job right and fast, but in China, employees need more training and education before they can work," said Karamousiz.
"A good outsourcing employee is required to have good skills and good foreign language, but the number of these professionals is not big," said Alex Chen, vice president of Ambow Education Group, a domestic education company in outsourcing and other fields.
"Also, many Chinese graduates lack innovation and creativity," he added.
The high mobility of Chinese outsourcing employees is another problem.
"It's a common problem of many IT firms in China," said Wang Li, vice president and chief human resources officer of iSoftStone, a leading China-based IT services provider.
She said it is a vicious circle.
"Companies hire people too hastily, which contributes to a lower employee retention rate, which then leads to high costs," Wang said.
Chen agrees.
"Different projects demand different professionals. Sometimes a company takes a project but cannot find the right employees instantly."
To cope with these problems, sufficient support from government, a nice industry atmosphere and more employee training are required, experts said.
"The support from local government is highly linked with the development of the IT industry," said Yue Feng, vice president of Chinasoft International Company, a Chinese software and information services provider.
The good news is that a package of preferential policies by the central government that are set to expire this year or next will likely be extended in the future. New policies are also expected to be unveiled in due time, according to First Financial Daily.
A decade ago when Gartner analysts visited India to investigate the outsourcing market, people asked them why India but not other developed countries. Now when they come to China, people ask them why China and not India.
India already has a strong reputation in the country's outsourcing industry, while China is playing catch-up.
Despite the economic downturn in the US and Europe, the contract value of China's service outsourcing industry grew 58.1 percent to hit US$32 billion in the first seven months of 2012, according to Ministry of Commerce.
"This year China's total trade volume in service industry decreased, but that of service outsourcing increased," Jiang Yimao, director of the service outsourcing department of the Ministry of Commerce, said at the press conference of Fourth China Sourcing Summit held in Hangzhou at the end of last month.
"The market is demanding as enterprises need to update their software from time to time and companies in the West have tried to reduce their business costs through offshore outsourcing," Jiang said.
The three-day summit attracted around 1,000 delegates including government officials, industry experts, buyers and suppliers from around the world.
Frances Karamousiz, vice president and analyst of Gartner, a leading technology research group, said: "We're so excited to see that the growth in the industry is huge.
"Who grasped the trend, who owns the future," she said, adding the trend in the industry is not purely hitched to costs and labor, but is a matter of real value, which means suppliers and buyers need to be clear about their advantages and value proposition.
Chinese businesses have won offshore service outsourcing contracts worth US$22.35 billion from January to July this year, up 48 percent from a year ago, according to Ministry of Commerce. The implemented contracts value in the period surged 46 percent to US$16.14 billion.
The central government's proactive support has boosted the country's service outsourcing industry in recent years.
In 2011, its contract value hit US$32.39 billion, up 63.6 percent from 2010, according to the Ministry of Commerce. The unprecedented growth has positioned China as the world's second-largest offshore outsourcing provider after India, accounting for 23.2 percent of the global market.
Hangzhou is doing well in this sector. Since 2007, the implemented contracts value of offshore outsourcing has averaged annual growth of 95 percent, according to Hangzhou Foreign Trade and Economic Cooperation Bureau.
Among all offshore service outsourcing contracts, more than 60 percent were from Europe and America in the first eight months of the year.
But disadvantages in the outsourcing industry in China are obvious too, especially the education of outsourcing personnel.
"In India, a fresh grad who has received systematic training of outsourcing is capable of doing the job right and fast, but in China, employees need more training and education before they can work," said Karamousiz.
"A good outsourcing employee is required to have good skills and good foreign language, but the number of these professionals is not big," said Alex Chen, vice president of Ambow Education Group, a domestic education company in outsourcing and other fields.
"Also, many Chinese graduates lack innovation and creativity," he added.
The high mobility of Chinese outsourcing employees is another problem.
"It's a common problem of many IT firms in China," said Wang Li, vice president and chief human resources officer of iSoftStone, a leading China-based IT services provider.
She said it is a vicious circle.
"Companies hire people too hastily, which contributes to a lower employee retention rate, which then leads to high costs," Wang said.
Chen agrees.
"Different projects demand different professionals. Sometimes a company takes a project but cannot find the right employees instantly."
To cope with these problems, sufficient support from government, a nice industry atmosphere and more employee training are required, experts said.
"The support from local government is highly linked with the development of the IT industry," said Yue Feng, vice president of Chinasoft International Company, a Chinese software and information services provider.
The good news is that a package of preferential policies by the central government that are set to expire this year or next will likely be extended in the future. New policies are also expected to be unveiled in due time, according to First Financial Daily.
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