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China: Soon to be the #1 among Countries for Outsourcing

By Edited Nov 13, 2013 0 0

China opened up to the world twenty years ago, when many had anticipated that one day with its 1.3 billion consumers, it would come out as the biggest manufacturer and retailer of the world and a strong competitor for the countries for outsourcing. It is by now the largest economy in the world ranking above Japan, which is the second. China’s large population proved to be a competitive barrier against the most dominant players in the outsourcing industry while India is leading the list of the countries for outsourcing. China is by no way behind, with its outsourcing market growing at a rate of 30% annually, India might at anytime have to surrender to it, as many countries have relocated their headquarters to China for their advancement in business.

Companies Outsourcing in China

Beijing, C

outsourcing in China
hengdu, Shanghai, Shenzhen and Guangzhou are the five major cities that provide the sourcing services of the countries for outsourcing. Mainly specializing in providing product development, research, testing, business analytics, software, application development, and engineering services. Dailan, often compared to the Bangalore in India is the software outsourcing park with 400 businesses developing in abundance, which will at once increase sales to 20 billion Yuan annually. China’s main expertise include manufacturing, services, health care, education, finance, and government. They are mainly involved in KPO, BPO, and ITO sectors with companies like IBM, HP, AT&T, Convergys, and Accenture to name some and establishing their niches in different locations. There are also local companies which have emerged as global businesses in their industry, such as Neusoft, Dextrys, Bleum, and Argumentum.

Other companies outsourcing in China include the following:

  • Microsoft, Dell, Nokia, General Electric, Alcatel-Lucent, Unilever, and SAP
  • Accounting and consulting firms like Accenture, BearingPoint, and Infosys Technologies gets earning for China’s well-educated but cheap labor force.
  • Wal-Mart Stores and other major retailers take advantage of low cost manufacturing in China.
  • Newell Rubbermaid and other related manufacturers have outsourced much of their production to China; Newell Rubbermaid outsourced 75% of its manufacturing to China in 2007.

These are just some of the few companies who are profiting by outsourcing to China.

More Companies Outsourcing and Planning to Outsource in China

China’s service industries got a boost after the recession. This also includes its sourcing market. Significant policy changes were made by the Chinese government to extend the advantages. These include offering financial support to businesses, subsidies, tax exemptions, and rights to intellectual property as well as protection in 20 major cities which include Beijing, Shanghai, Hangzhou, Suzhou, and Xian, and to name a few.

In the recent Chinese software outsourcing production, foreign companies cover only 10% of total revenue in contrast with about 70% for India, according to Giuseppe De Filipo, an associate principal at global consultancy McKinsey & Co.’s. Asia is being targeted for various growths of multinational companies. For example, outsourcers are frequently translating the web pages to Asian languages and also rewrite business applications for local currencies, allowing input in Asian double-byte characters. 

Asian markets by now are quiet fascinated towards outside investments. Infosys Technologies Ltd., based in Bangalore, India-based, an important worldwide IT outsourcing provider, has committed to spending $65 million over the next five years to build several software development centers in the cities of Shanghai and Hangzhou. This will then employ around 6,000 engineers from China. The company Infosys will also begin to look at second-tier cities such as Dalian, Chongqing, Wuhan, Nanjing and Chengdu, where the Chinese government offers tax exemptions for businesses unlike many other countries for outsourcing.

Its Indian counterpart, Satyam intends to employ 5,000 workers in China within the next three years. Another Indian player, Wipro, currently operates development centers in both Shanghai and Beijing. For the meantime, Indian market leader Tata Consultancy Services, decided to participate as a major share holder in an undertaking with Microsoft, Uniware from China, and two local state companies, on top of its current development center involving 250 engineers in Hangzhou.

HP on the other hand, has more than 5,000 employees in China now, says William Poon, who heads HP’s managed services for China and Hong Kong. Analysis International, a Beijing-based market research firm, estimates that HP’s share of the Chinese market is 4.4%, second only to IBM’s 5.2%. HP has put its faith largely in the domestic market, Poon says, supplementing that with clients from Japan and Korea. 

The Close Call at Outsourcing in China

With an outsourcing index of 6.4 and rank 3, China is moving rapidly towards gaining its position above India among the countries for outsourcing.

Gordon Brooks, CEO of E5 Systems Inc., an application management company and is also an outsourcer recently informed attendees at the Computer Digital Expo's Enterprise IT Week conference that the need for IT workers in India will start to diminish in terms of manpower supply, driving up outsourcing costs there and opening up opportunities for other countries for outsourcing like China.

With the burgeoning demand of employees in India, China will overcome its low workforce as Indian workers will leave jobs for a higher payment in every six months, which is good for the country as compared to other countries for outsourcing.

China currently has 400,000 IT specialists, which is 200,000 lesser than that of India. And, as many as 50,000 fresh employees are likely to be included in China's workforce yearly. Because of that, a result, cost-per-worker numbers will remain low in China for the near future.

"In this massive onslaught of offshore outsourcing," Brooks reportedly said, "I don't think any nations other than China and India will become large outsourcing centers." Labor is relatively more affordable in China, India and other countries for outsourcing like Russia. Many other than Brooks think the same.

International Business Machines Corp. Chief Executive Officer Samuel Palmisano recently said he predicts that nearly a total of 13 million jobs will be developing all over the world, while the main centers will remain in China and India as compared to other countries for outsourcing.

Sudip Banerjee, president of Enterprise Solutions Wipro Technologies thinks over the advantages and disadvantages of outsourcing in China as compared to other countries for outsourcing. He mentions that there are two main advantages. There is a large labor source in China like it is in India. This is a plus point as many other countries for outsourcing don’t have this facility. He also mentioned that the other benefit is that transacting business with neighboring Asian companies becomes smoother since there is a language and cultural similarity. In particular, Shanghai boasts of bilingual engineers who can speak both Japanese and Chinese.

As for the part where they lack, Banerjee mentions an issue with protection of intellectual property. Second will be on their deficiency in terms of English language competence and third is that they fall behind when it comes to project management proficiency. After these issues are addressed, one can easily say that India’s dominance over the chart will at once come to an end and China will rise to the new beginning and may one day lead among the countries for outsourcing.

Related article:

Top Ten Countries for Outsourcing: Little Giants in a Global Economy

Other top countries for outsourcing featured:

India

Philippines

Hungary


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