India to benefit from Chinas rise in outsourcing

BANGALORE, INDIA: China’s importance as an outsourcing location is rising fast, but a fragmented local vendor landscape and a domestic market dominated by Wholly Foreign-Owned Enterprise (WFOE) customers do mean that it will be the major Western and Indian outsourcing vendors that will reap the rewards, according to a new report from analyst and consulting firm Ovum.

The Chinese government is anticipating the need to migrate its economy from manufacturing to a services base in the long term, and has put in place a strategy to ensure that China will eventually rise to challenge India in the outsourcing sector, said Ovum.

The Chinese government has designated 20 cities for outsourcing business and the investment in infrastructure, education, training and tax incentives at these locations are extremely impressive. Software parks are being built rapidly and on a large scale with transportation links to match and the university education system has ballooned to create 6.1 million graduates this year.

According to the analyst firm, low costs and access to a superpower economy is enticing outsourcing customers; China’s huge labour pool and expanded education system means that salaries for graduates are lower than in India.

China is the fastest growing major economy in the world and Western companies, many of which have fully embraced the concept of global sourcing, are setting up Chinese subsidiaries to target a relatively untapped market. These subsidiaries will be an entry point for vendors to use China for delivery, and will lead to multinationals to consider Chinese delivery for its businesses in other locations.

Chinese companies are mainly state owned, and are not as yet, major users of outsourcing services. Unless the government encourages this to change, the domestic market will be mainly made up of WFOE customers. These firms are more likely to choose to be served by the international vendors with which they have already built up relationships rather than sign with domestic vendors, observes Ovum.

There are no signs of a Chinese equivalent of a Tata Consultancy Services or an Infosys emerging, capable of challenging the Western major vendors for the foreseeable future, it pointed out.

The analyst firm said that possibly the biggest barrier to China achieving its full potential is its lack of marketing skills. This is amplified by the lack of an industry organization such as NASSCOM to promote China’s impressive abilities to the international market.

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