Gateway for outsourcing

Experts predict China to catch a large share of the global outsourcing market
By Yin Ping
12th September 2006, China Daily

Shanghai can be the gateway city for the rest of China to promote the country's role in the global outsourcing business.
Eric Rongley, chief executive officer of the city-based Bleum Software Outsourcing, make the comment to China Daily Shanghai & Delta yesterday after being elected chairman of the Shanghai Chapter for the International Association of Outsourcing Professionals (IAOP).
"Shanghai can face the market directly and focus on design and other high-value work of the outsourcing chain, while leaving the low-value work to second-tier cities," he said.
In shanghai, competition for talent is fierce not only in the software industry, but among an array of multinationals.
"China's outsourcing suppliers are bound to shift their bases to cities less expensive than Shanghai," Rongley said.
His opinion was echoed by Ju Dehua, director of the China Software Industry Association.
"Shanghai has the largest number of financial, legal and other service companies in China. The outsourcing suppliers can provide high-end services to them," Ju said.
The hierarchical operation of the outsourcing business is inevitable in China, Rongley said, as the country is going to capture a larger share of the global outsourcing market.
"China will be the second - most - sought - after outsourcing market after India, as the whole outsourcing industry is expanding," said Michael Corbett, executive director of the IAOP.
"India has trouble to keep up with the surging demand worldwide as its supply is almost intact," Corbett said, "but China is showing a big potential."
The country hauled in US$3.6 billion from outsourcing last year, taking up 2.3 per cent of the global market, according to David Barrett, partner of Simmons & Simmons, a law firm based in the United Kingdom.
India stood way out ahead at US$23.6 billion in outsourcing in 2005, more than six times that of China.
Barrett predicated that China's outsourcing industry will grow to US$12.5 billion to account for 8.4 per cent of the global share by 2010.
To Rongley, China has both price advantages and good infrastructure as an outsourcing market.
"China has a large pool of highly-skilled professionals, which means a relatively low price for personnel," Rongley said.
China's airports, roads, railways, telecom facilities and other infrastructure as far superior than India's, he added.
And government support is stronger.
Ju said China used to fund only State-owned software companies, but now government funding goes to all companies in the outsourcing industry.
Bleum, a leading offshore outsourcing company, enjoys tax benefits from the Chinese Government and subsidies.
"The Chinese Government is mobilizing resources to train computer science graduates to ensure there is an adequate supply of talent," Rongley said.
These kind of trainees have surged 400 per cent from 40,000 in 2001 to reach 200,000 last year.
"The government has done its part," said Barrett. "Now it is up to the industry to take up the challenge."
As of last year, the country has 8,000 software suppliers. Three out of four had less than 50 employees and only five had more than 2,000workers, according to Simmons & Simmons.
These small and relatively new companies find it difficult to secure large orders from multinationals. Many are simply tier-two or tier-three subcontractors.
"China needs a platform like India¡¯s National Association of Software and Services Companies to help its software companies access the global market," Barrett said.
He said the India organization has been very effective in engaging with the government and talking to foreign business leaders.
As for security and confidentiality, crucial to outsourcing, Barrett said China is implementing a comprehensive law to protect the intellectual property rights (IPR) of multinationals.
The United States has provided a law to pronounce the export of personal information as illegal.
"India has not built a similar law. I hope China will do this,"said Barrett.
He said the Chinese Government is moving actively to protect IPR and building a legal framework closer to that of the United States and the UK.