Shanghai is set to become the new Bangalore according to a recent report released by KPMG. The report entitled, ‘A new dawn: China’s emerging role in global outsourcing’ has China down for outsourcing greatness over the next few years.
The main reason for this? The fruition of the Chinese government’s 2006 plan to develop 10 cities within China specifically for the outsourcing market.
The Chinese government has given great support to the outsourcing industry. China’s International Institute of Multinational Corporations (CIIMC) is a government initiative with the scope of providing services to assist the building up of a bridge for exchange and contact between Chinese and foreign enterprises and the government.
The NOA has been supporting its members interested in the opportunities in China since 2005 when we presented at the first Chinese global outsourcing conference in Guanzhou and we have had a number of study tours there since.
Services include the provision of technology, legal consultation, professional training & advertising and general assistance to both Chinese and foreign investment enterprises. This will enable Chinese companies to compete in a global market place and also help western companies interested in setting up captive operations in China, which it seems more and more companies are inclined to do.
This huge government backing is undoubtedly the main catalyst behind China’s progression in the outsourcing industry. However, the report cites that a shift in corporate perception has also boosted interest in the Asian superpower.
Businesses are looking to a variety of destinations to achieve their outsourcing needs. China has a sufficient supply of qualified low-cost labour and offers favourable conditions for foreign investment. Organisations whose belts have been tightened over the past year, will also find distinct cost advantages by outsourcing to China.
Meanwhile, skilled workers are encouraged to undertake more training and education to meet the requirements of foreign investment in the hi-tech industries. China’s educational and social training system is increasing the qualified labour force in the service sector.
This increase in skilled labour, improvement in language capabilities and fruition of government investment points to a maturing outsourcing destination. Beijing and Shanghai are both featured in IDC’s top 10 outsourcing destinations and with the government investment not about dry up, we may see these cities rise to the top of the table.
Of course China is not without its problems. The country got a bloody nose from poor quality control within the manufacturing industry last year and some of the confidence damage would have seeped into other markets. Intellectual property (IP) is also a concern for the country. Very few intellectual property law suits have held water in China and companies looking to outsource processes that involve product/software development may find that China’s IP regulations a worry.
There are also still barriers in terms of language. English Language capacity is improving in China, especially as almost all fresh graduates study some form of English during their undergraduate years. However, China is still far behind nations such as the Philippines and India when comparing language capabilities.
China will of course need to address these issues, however, as the KPMG report highlights, they are certainly improving their presence in the outsourcing market.
We may find more big name businesses looking to China to provide larger scale operations than their Asian neighbours and everyone should be prepared to see the country with the largest population in the world becoming a dominant force.