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Summit shows outsourcing firms,customers way to higher profits
By Xu Wenwen |
July 9, 2013, Tuesday
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Print Edition
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CHINA'S outsourcing industry will find its future is services rather than products, and helping clients increase profits will trump cutting costs, according to experts attending the Fifth China Sourcing Summit held last week in Hangzhou.
More than 180 buyers, more than half from abroad, attended the summit, including big names such as Nokia, Johnson and Johnson and Philips. They met nearly 100 suppliers who attended and heard the latest industry trends.
"Saving money is always a consideration for buyers, but earning more profit for your buyers should be the first priority," said Qu Linnian, the president of Beijing Association of Sourcing Services.
Qu said an example of how outsourcing has gone beyond products is that GE used to simply sell airplane engines to airlines, but now leases the engines and provides maintenance services.
The top five logistics companies in China have each invested more than 200 million yuan (US$32.6 million) to develop their IT capabilities to find new profit streams, Qu said.
Gone are the days when suppliers could just wait for clients to call them, said Zhou Ming, executive vice president and secretary general of China Council for International Investment Promotion, organizer of the event.
"Now we find they invest so as to cultivate the market and get more orders, which is good news," she said.
Suppliers need to improve the quality of their products and services rather than just work to enlarge their company, experts said.
"I see some Chinese outsourcing enterprises grow bigger while earning smaller profits, and I don't think that's the right way to go," said Chen Xiaohai, operations head of the China delivery center of CI&T, a global outsourcing company with headquarters in Brazil.
"The right way is to offer high-end and ongoing service to customers, just like Rolex positions their watches as jewelry and luxury items," Chen said.
When outsourcing began to catch on, a typical service for an IT company was to design software for clients. Now, such companies need to offer total solutions to clients to get ahead.
Such companies are finding overall solutions in such fields as finance, telecom, transportation, energy, waste disposal and medical treatment.
Three seminars at the summit dealt with medical services as well as medical research and development.
"China has already become one of the biggest markets for the medical service outsourcing industry," according to Dr Ian Hau, director of China and Asia Pacific at Princeton Healthcare Alliance.
Experts said a growing market is for "healthy city" services, which involve not only providing medical treatment but also promoting a healthy lifestyle that includes the environment, diet, childhood development, and health evaluation and assessment.
Also, given that China is positioned as the third-largest medicine market in the world, medical R&D is a good growth area for Chinese outsourcing companies.
One need is for Chinese firms to distinguish themselves from others.
Lu Liming, director of the project department at the China Association of Health Promotion and Education, said that while China "has many brands of medicines, it does not have a 'brand' for its medical service."
"The year presents both a challenge and an opportunity to China's outsourcing economy," Qu said.
He said while outsourcing enterprises that serve mainly Japanese customers experienced difficulties because of the devaluation of Japanese currency, US-oriented outsourcing companies face tough competition from their Indian counterparts.
"A large difference between India's and China's outsourcing companies is the target of their products," Qu said, citing a recent survey he did showing that Indian companies' products target mainly high-end customers.
That shows that the challenge of switching from making products to offering services is crucial for the vitality of Chinese outsourcing companies, Qu said.
At the same time, businesses in all fields have been transformed by the importance of having a digital strategy. That has made the CIO, or chief information officer, a key leader.
"The strength of IT outsourcing has made CIOs responsible for a wide array of business functions surrounding services like finance," said Mike Lafford, executive partner of Gartner, a leading information technology research and consulting company.
This is the fourth year Hangzhou has hosted the summit. The city employs 260,000 in outsourcing, and the value of outsourcing contracts signed in the city has risen from US$1.13 billion in 2010 to over US$4.3 billion last year.
The summit featured a competition of college student outsourcing applications, with 159 teams from colleges and universities from around Zhejiang Province showing off their projects, which involved such services as online shopping, social networking and helping people get a taxi or calculate a route.
The event was co-sponsored by the country's ministries of Commerce, Education, Science and Technology, and Industry and Information Technology, as well as the Zhejiang government.
More than 180 buyers, more than half from abroad, attended the summit, including big names such as Nokia, Johnson and Johnson and Philips. They met nearly 100 suppliers who attended and heard the latest industry trends.
"Saving money is always a consideration for buyers, but earning more profit for your buyers should be the first priority," said Qu Linnian, the president of Beijing Association of Sourcing Services.
Qu said an example of how outsourcing has gone beyond products is that GE used to simply sell airplane engines to airlines, but now leases the engines and provides maintenance services.
The top five logistics companies in China have each invested more than 200 million yuan (US$32.6 million) to develop their IT capabilities to find new profit streams, Qu said.
Gone are the days when suppliers could just wait for clients to call them, said Zhou Ming, executive vice president and secretary general of China Council for International Investment Promotion, organizer of the event.
"Now we find they invest so as to cultivate the market and get more orders, which is good news," she said.
Suppliers need to improve the quality of their products and services rather than just work to enlarge their company, experts said.
"I see some Chinese outsourcing enterprises grow bigger while earning smaller profits, and I don't think that's the right way to go," said Chen Xiaohai, operations head of the China delivery center of CI&T, a global outsourcing company with headquarters in Brazil.
"The right way is to offer high-end and ongoing service to customers, just like Rolex positions their watches as jewelry and luxury items," Chen said.
When outsourcing began to catch on, a typical service for an IT company was to design software for clients. Now, such companies need to offer total solutions to clients to get ahead.
Such companies are finding overall solutions in such fields as finance, telecom, transportation, energy, waste disposal and medical treatment.
Three seminars at the summit dealt with medical services as well as medical research and development.
"China has already become one of the biggest markets for the medical service outsourcing industry," according to Dr Ian Hau, director of China and Asia Pacific at Princeton Healthcare Alliance.
Experts said a growing market is for "healthy city" services, which involve not only providing medical treatment but also promoting a healthy lifestyle that includes the environment, diet, childhood development, and health evaluation and assessment.
Also, given that China is positioned as the third-largest medicine market in the world, medical R&D is a good growth area for Chinese outsourcing companies.
One need is for Chinese firms to distinguish themselves from others.
Lu Liming, director of the project department at the China Association of Health Promotion and Education, said that while China "has many brands of medicines, it does not have a 'brand' for its medical service."
"The year presents both a challenge and an opportunity to China's outsourcing economy," Qu said.
He said while outsourcing enterprises that serve mainly Japanese customers experienced difficulties because of the devaluation of Japanese currency, US-oriented outsourcing companies face tough competition from their Indian counterparts.
"A large difference between India's and China's outsourcing companies is the target of their products," Qu said, citing a recent survey he did showing that Indian companies' products target mainly high-end customers.
That shows that the challenge of switching from making products to offering services is crucial for the vitality of Chinese outsourcing companies, Qu said.
At the same time, businesses in all fields have been transformed by the importance of having a digital strategy. That has made the CIO, or chief information officer, a key leader.
"The strength of IT outsourcing has made CIOs responsible for a wide array of business functions surrounding services like finance," said Mike Lafford, executive partner of Gartner, a leading information technology research and consulting company.
This is the fourth year Hangzhou has hosted the summit. The city employs 260,000 in outsourcing, and the value of outsourcing contracts signed in the city has risen from US$1.13 billion in 2010 to over US$4.3 billion last year.
The summit featured a competition of college student outsourcing applications, with 159 teams from colleges and universities from around Zhejiang Province showing off their projects, which involved such services as online shopping, social networking and helping people get a taxi or calculate a route.
The event was co-sponsored by the country's ministries of Commerce, Education, Science and Technology, and Industry and Information Technology, as well as the Zhejiang government.
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