Wednesday, 27 May 2009

China's Strategy for Attacking the Outsourcing Market

I see that a new KPMG study has been released on this subject.

Titled, A New Dawn: China's Emerging Role in Global Outsourcing, the report examines the current state and future prospects for China's increasing involvement in global outsourcing.

"China's central and local authorities have shown great determination to promote IT and other business services industries," says Ning Wright, Partner in charge of Sourcing Advisory, KPMG China. "We have seen the Chinese government's eleventh five-year plan (2006-2010) shifting more focus towards IT services. The broader strategy from now until 2020 calls for the development of an IT economy, driven by science and home-grown innovation. The long term development of a robust domestic outsourcing business is a major goal."

It you get the impression that the Chinese are intending to develop primarily DOMESTIC outsourcing, that is only half the truth.

"We have found that many companies globally and in Asia are increasingly turning to China for their outsourcing needs," says Egidio Zarrella, Global Partner in charge of IT Advisory, KPMG China. "This, combined with the untapped potential of China's large domestic market, means that China's outsourcing companies are well-placed to weather the current economic turmoil. Many global outsourcing companies are now setting up operations in China to target regional markets, including Japan".

Though the share of IT and IT-based services in China's export revenues is only 3% at present (compared to 26% in India), China's outsourcing market is developing quickly.

The Ministry of Commerce has crafted a number of initiatives for developing the sector. One of these, dubbed the "1000-100-10 project", aims to DOUBLE China's service exports by establishing 10 Chinese cities as outsourcing bases, attracting 100 international companies to offshore in these cities, and assisting in developing 1,000 outsourcing vendors that can meet the demands of multinational customers. Since these details were announced, the government has actually identified 20 cities as service outsourcing hubs. In addition, a number of other cities already have strong outsourcing capabilities.

Despite the perception in many overseas markets that China remains a risky place to do business, with IPR the key issue, there is no doubt that India needs to wake up if it wants to keep its lead.

For all practical purposes, India has only two major IT cities (Bangalore and Hyderabad). Though other cities are not negligible, the infrastructure even in Bangalore badly needs to be thoroughly upgraded, and Hyderabad too needs to consider several things it needs to do if it wants to remain competitive - let alone improve its competitiveness.

All the other Indian cities need a major shot in the arm in order to make them globally IT competitive.

The new Indian government needs to turn its mind to this key issue.

When China attacks a sector it does so with military thoroughness - not surprising, given its political structure.

KPMG report is at:

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