China's rapid growth as an economic power has brought new
businesses and created an
outsourcing industry to support them. This industry also has
the capacity to support firms outside China by offering IT
services.
China is one of a group of emerging economies which also
includes Brazil, Russia and India. These countries, known as the
BRIC countries, have been touted as
potential new regions to offshore services.
India dominates the group. China has the capacity to become
India's nearest rival, but it has major cultural and legal hurdles
to overcome, which will take time.
The Chinese government is supporting the development of its
offshore Business Process Outsourcing (BPO) industry through
legislative changes and incentives.
These include a tax policy that favours offshore services,
training funds and interest-free loans.
Matthew Cule, managing director at offshore service provider
M&Y which
works out of China, says the Chinese offshore service providers
often support other service providers with low-cost business
processing. But he says it is now ready to take a more prominent
front line role. The company has 2,100 staff in China.
Chinese providers have grown up in a short space of time and are
now in a position to deal with Western companies direct. This, he
says, is a result of the growth in China's economy
"Three and a half years ago we did not know there was a market
in China but now it represents 70% of what we do." M&Y already
has 15 customers in the UK and 58 customers of offshore services in
total. In about half of these M&Y deals directly with the
customer. It has about the same number of customers in China but
"these are much bigger companies," says Cule.
"I think Western companies are ready for China. For years they
have been talking about it but they have stuck with India. We have
now reached a stage where there is capacity in the market to look
at other areas."
If Chinese company's want to follow the example set by their
Indian peers they will have to ensure they are ready before they
commit to providing extensive services, according to Andy
Gallagher, consultant at Compass managing Consultants. "One piece
of bad press will set them back years," he says.
He says if the
Satyam fraud scandal, where the Indian IT service provider's
former chairman admitted to cooking the books, had happened a few
years ago, India would have struggled to get where it is today.
To become a frontline service provider, Chinese companies must
develop their brand and be more than just an offshore service for a
more established offshore service provider.
Gallagher says China has the potential to be the next India but
it will take a long time.
"There is no doubt China has the capacity, however it does not
have the brand. If you look at what happened in India it took the
service providers a long time to reach the point where the brand
was valuable and they were more than just low-cost services."
"China will also have a harder task getting into the UK and US
because of the fact that, unlike in India, English is not the
business language in China."
Cule at M&Y says the company has operations in all the
countries it is targeting customers, which will overcome language
barriers. It is currently expanding its international sales
force.
Gallagher at Compass Consulting says this approach can help
overcome cultural obstacle. "They have to establish a credible
national presence in these countries, which are run by locals."
Peter Brudenall, outsourcing Lawyer at Hunton & Williams,
said China does not have the language skills and major project
management skills that India has. But he says there are also major
legal issues to overcome before China will be seen as a trusted
destination for offshore IT services. "Over the last three to four
years interest in China as a destination for services has increased
but from a legal point of view there are still questions to be
answered about how secure intellectual property and data is."
He says China could become the next India but it will take a
long time.
Robert Morgan, director at Hamilton Bailey, says China is a long
way off being able to provide frontline services. "China is not
anywhere near ready because of the physical environment and the
cultural differences."
He says that there are isolated pockets where companies provide
specific outsourcing services, which have often been set up by the
customers. But he says China will struggle to match India because
there are no Chinese entrepreneurs investing in this industry, only
the government.
He adds that the communications infrastructure and language
barrier pose major problems for China's development as an offshore
services destination.
Brudenall at Hunton & Williams, says China needs an industry
body to support outsourced service providers in the mould of
Nasscom in India if it is to
overcome this problem.