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Financial outsourcing the 'green engine' for growth
By Wang Yanlin |
May 27, 2009, Wednesday
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HANGZHOU aims to become an international center for outsourcing financial services and though it's still cheaper than India, the goal is to provide high-quality, value-added work. Wang Yanlin reports.
The global outsourcing industry has been transformed during the economic downturn, and Hangzhou plans to make financial services outsourcing a "green engine" for its development.
"The global financial crisis has strengthened the awareness of cost-saving among companies, and the recession may temporarily curb the proceeds of that sector," says Lin Ge, vice director of the Hangzhou Foreign Trade and Economic Cooperation Bureau.
"But in the long run, the outsourcing industry will see faster pace of growth. Compared with the traditional manufacturing industry, outsourcing does not produce pollution and can create plenty of jobs."
That is why Hangzhou has chosen to develop the outsourcing industry as a key business. It has allocated a huge amount of resources to help achieve the goal of becoming a world-famous center for financial service outsourcing, information technology outsourcing and business process outsourcing.
Outsourcing, which has grown into a trillion-dollar business over the past few years, subcontracts a certain process of production, such as designing, packaging, or information management, to a third-party company. It can help to lower costs and raise efficiency in terms of either capital, labor, energy, land or time.
India is a leader in the global outsourcing industry. But China has been catching up quickly as it determines to diversify its economic structure that relies too much on manufacturing.
According to a recent report by KPMG, China now ranks the second in the global outsourcing market, only after India.
"China's central and local authorities have demonstrated a quiet determination to promote IT and other outsourcing services across the country. Their vision is a long-term one, reflected by initiatives to develop education, training and other supporting infrastructure," says Ning Wright, a partner in sourcing advisory at KPMG China. "What is remarkable, however, is how quickly the vision is becoming a reality."
Crafted by the Ministry of Commerce and with more than US$1 billion in funding, China's outsourcing blueprint establishes several cities as bases for outsourcing. The aim is to attract 100 global corporate customers to offshore in these cities by 2013 and develop at least 1,000 outsourcing vendors to meet the needs of these multinational companies.
Hangzhou is a frontrunner and seeks to differentiate itself among other cities by providing higher-end services. Other such centers are Dalian (Liaoning Province), Wuxi, Nanjing (Jiangsu Province), Wuhan (Hubei Province), Chengdu (Sichuan Province), and Jinan (Shandong Province).
"We have geared up to foster the growth of the sector. Apart from building up special zones and parks for vendors, we provide subsidies to train employees in the industry and assist vendors to participate global outsourcing fairs to promote their businesses," says Lin.
The Hangzhou government plans to spend 370 million yuan (US$54.2 million) to fund its outsourcing industry this year, almost double the amount last year.
Hangzhou's advantages are not limited to strong government capital support. They include a big talent pool that satisfies higher requirements of information technology outsourcing, a strategic location very close to Shanghai, thus ensuring more orders, and an excellent living and working environment.
Hangzhou has 38 educational institutions that can produce 100,000 graduates each year and many people are qualified to become software engineers and financial specialists.
"We don't want to compete with other cities by providing even cheaper services. We hope to establish the reputation of being able to provide quality and value-added services," says Lin.
Unlike many other cities that target companies in East Asia, Hangzhou mainly targets clients from the United States and Europe.
It makes India, where US and European Union buyers are in the majority, a real rival in competing for orders.
"The cost of outsourcing in Hangzhou is still lower than that in India. In the global economic recession, we have seen some companies switch from India to Hangzhou as a new destination for outsourcing," says Lin.
Despite the impact of the global financial crisis, Hangzhou's turnover from its outsourcing industry jumped almost 17 percent from a year earlier to 39.6 billion yuan in 2008. The revenue of offshore outsourcing reached US$203 million during the period, an increase of 80 percent and financial service outsourcing accounted for more than 40 percent of that total.
"This performance has made us confident that we can achieve the goal of expanding the industry's revenue to 56 billion yuan by 2010," says Lin.
To better market the city as a center for outsourcing, Hangzhou hosted the second International Outsourcing Business Development Summit, which ended yesterday. The three-day event was organized with the International Association of Outsourcing Professionals and the International Banking Federation.
The global outsourcing industry has been transformed during the economic downturn, and Hangzhou plans to make financial services outsourcing a "green engine" for its development.
"The global financial crisis has strengthened the awareness of cost-saving among companies, and the recession may temporarily curb the proceeds of that sector," says Lin Ge, vice director of the Hangzhou Foreign Trade and Economic Cooperation Bureau.
"But in the long run, the outsourcing industry will see faster pace of growth. Compared with the traditional manufacturing industry, outsourcing does not produce pollution and can create plenty of jobs."
That is why Hangzhou has chosen to develop the outsourcing industry as a key business. It has allocated a huge amount of resources to help achieve the goal of becoming a world-famous center for financial service outsourcing, information technology outsourcing and business process outsourcing.
Outsourcing, which has grown into a trillion-dollar business over the past few years, subcontracts a certain process of production, such as designing, packaging, or information management, to a third-party company. It can help to lower costs and raise efficiency in terms of either capital, labor, energy, land or time.
India is a leader in the global outsourcing industry. But China has been catching up quickly as it determines to diversify its economic structure that relies too much on manufacturing.
According to a recent report by KPMG, China now ranks the second in the global outsourcing market, only after India.
"China's central and local authorities have demonstrated a quiet determination to promote IT and other outsourcing services across the country. Their vision is a long-term one, reflected by initiatives to develop education, training and other supporting infrastructure," says Ning Wright, a partner in sourcing advisory at KPMG China. "What is remarkable, however, is how quickly the vision is becoming a reality."
Crafted by the Ministry of Commerce and with more than US$1 billion in funding, China's outsourcing blueprint establishes several cities as bases for outsourcing. The aim is to attract 100 global corporate customers to offshore in these cities by 2013 and develop at least 1,000 outsourcing vendors to meet the needs of these multinational companies.
Hangzhou is a frontrunner and seeks to differentiate itself among other cities by providing higher-end services. Other such centers are Dalian (Liaoning Province), Wuxi, Nanjing (Jiangsu Province), Wuhan (Hubei Province), Chengdu (Sichuan Province), and Jinan (Shandong Province).
"We have geared up to foster the growth of the sector. Apart from building up special zones and parks for vendors, we provide subsidies to train employees in the industry and assist vendors to participate global outsourcing fairs to promote their businesses," says Lin.
The Hangzhou government plans to spend 370 million yuan (US$54.2 million) to fund its outsourcing industry this year, almost double the amount last year.
Hangzhou's advantages are not limited to strong government capital support. They include a big talent pool that satisfies higher requirements of information technology outsourcing, a strategic location very close to Shanghai, thus ensuring more orders, and an excellent living and working environment.
Hangzhou has 38 educational institutions that can produce 100,000 graduates each year and many people are qualified to become software engineers and financial specialists.
"We don't want to compete with other cities by providing even cheaper services. We hope to establish the reputation of being able to provide quality and value-added services," says Lin.
Unlike many other cities that target companies in East Asia, Hangzhou mainly targets clients from the United States and Europe.
It makes India, where US and European Union buyers are in the majority, a real rival in competing for orders.
"The cost of outsourcing in Hangzhou is still lower than that in India. In the global economic recession, we have seen some companies switch from India to Hangzhou as a new destination for outsourcing," says Lin.
Despite the impact of the global financial crisis, Hangzhou's turnover from its outsourcing industry jumped almost 17 percent from a year earlier to 39.6 billion yuan in 2008. The revenue of offshore outsourcing reached US$203 million during the period, an increase of 80 percent and financial service outsourcing accounted for more than 40 percent of that total.
"This performance has made us confident that we can achieve the goal of expanding the industry's revenue to 56 billion yuan by 2010," says Lin.
To better market the city as a center for outsourcing, Hangzhou hosted the second International Outsourcing Business Development Summit, which ended yesterday. The three-day event was organized with the International Association of Outsourcing Professionals and the International Banking Federation.
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