“It’s hard to escape the hype that China attracts. Nevertheless, the underlying factors are in place for the country to become a force in outsourcing.”, says Paul Morrison.
A rising China may be the business story of the decade, but in global outsourcing terms the Middle Kingdom is something of a non-entity. The fact is, in IT and back-office processing, Eastern Europe and, above all, India, command the lion’s share of offshoring for UK and European clients. But it is time to think again. The Chinese are coming.
I was recently in China to attend the launch of Capgemini’s brand-new business process outsourcing (BPO) delivery centre in Nanhai, on the edge of South China’s staggering megacity, Guangzhou – population: 16 million.
I was there to see whether this outsourcing location had anything to offer businesses in the West, or if it was more of a regional play for Chinese firms and Western firms operating in China.
Chinese education and comms
The theoretical attractions of outsourcing to China are obvious: a large population of capable graduates, excellent communications and transport infrastructure, and a supportive government keen to promote foreign investment. But are those factors enough in the increasingly congested offshoring marketplace?
To date, global firms have tapped into Chinese outsourcing by focusing on regional demand. For example, Capgemini’s foundation client for its Guangzhou operations a decade ago was Dairy Farm, the Hong Kong-based, pan-Asian retailer that operates through brands such as Ikea and 7-Eleven.
To this type of operation were added global firms with extensive activities in Asia, such as Unilever and Syngenta, plus a number of large Chinese firms – but the picture has remained fundamentally regional.
The pattern applies equally to other global outsourcers such as Accenture, Genpact, or Infosys, as well as China-centric organisations such as Bleum, and M&Y Global Services. In all cases the strategy has been one of targeting Chinese or global organisations looking for
a Chinese or Asia Pacific hub. It is no coincidence that the largest outsourcing cluster in China is Dalian, conveniently located in the northeast of the country for Japanese and Korean businesses.
But in Capgemini’s new centre, there was also something new on display: Chinese resources processing for US and European operations. There was no fanfare for this development. Like other outsourcers, Capgemini’s focus is on giving clients access to a global network of centres, in which the location of delivery becomes almost irrelevant.
Nevertheless, it is happening. BPO and IT outsourcing are being carried out in China for global operations, and that means China is finally becoming an option in the global services marketplace.
Price comparison with India
Just how important a role it will play will depend on several factors, not least price. If outsourcers can offer their China services at or near the price of offshoring to the subcontinent, China will emerge as the de facto global outsourcing alternative to India.
But if outsourcing to China is more expensive than the competition, it will need to find a niche specialism to attract global business – such as a focus on specific technologies or business processes. If this is the case, it is not yet clear in IT or BPO terms what these specialisms would be.
Equally, the depth of China’s language skills is unproven. Official figures may claim 300 million English speakers in China but the reality is that the number of fluent speakers makes up a small fraction of that figure. The impressive line-up of English speakers fielded by new delivery centres, such as Nanhai, could represent the crème de la crème, rather than a ready reservoir of foreign language talent.
Because of this relatively unproven linguistic dimension, it seems global sourcing to China in the short term will focus on non-voice work, such as development and transactional tasks that do not require a high level of spoken foreign language skills.
Issues of security, politics and ethics
Finally, there are lingering questions about security, politics and ethics, but these do not appear likely to derail China’s emergence as a global sourcing location. Concerns about intellectual property haven’t stopped the world’s largest technology firms, such as Microsoft and SAP, investing in major R&D centres in China. IP security appears to be a risk organisations can effectively manage.
Recent controversies, such as those regarding Google and the Nobel Peace Prize, remind Western businesses and politicians that China is different. But such controversies have not stopped and will not stop the flow of traffic to the East.
China is, of course, a magnet for hyperbole. It is easy to be seduced by the scale of its resources and ambition. But the underlying fundamentals are in place.
With its world-class infrastructure, work ethic and maturing talent pool, it now seems a question of when – rather than if – China will emerge as a key global back-office location. The evidence is mounting. China is coming to an outsourcing deal near you soon.
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