Outsourcing activities in China are quiet due to the financial crisis, but will accelerate once the economy stabilises, says Walter Fang, chairman of the Beijing chapter of the International Association of Outsourcing Professional (IAOP).
“Many companies are still in shock or busy with immediate cost or expense-cutting actions, or are dealing with more serious survival issues. So outsourcing initiatives are put off for a while. But I believe the activities will pick up once the financial crisis stabilises. After all, outsourcing is one of the more effective ways to cut costs and mitigate risks during economic uncertainty, to better manage R&D [research and development] and skills shortage issues, and thus speed up the time to market,” says Fang.
Inaugurated in June 2008 as chairman of the IAOP Beijing chapter, Fang’s major role is to facilitate, promote, and advocate outsourcing as a profession in China. He is also senior consultant for the Chinese Software and Information Services Industry Alliance, and an advisory member of the Expert Commission of China Sourcing Working Committee of the China Council for International Investment Promotion.
Top five consumers
Today, the top five consumers of China’s IT services are the high-technology, telecommunications (mobile phone), finance, manufacturing, pharmaceutical, and life sciences sectors. And in contrast to India, China’s outsourcing industry is driven more by domestic needs. About 85 per cent of outsourcing demand is from domestic enterprises.
In 2008, the top five types of IT outsourcing (ITO) activities in China were software development and testing; product engineering and R&D; application maintenance and support; packaged software implementation, maintenance, and development; and remote maintenance and support, including database administration.
Despite the economic downturn, these ‘major five’ will largely remain the same throughout 2009, due to the ample supply of software engineers in China. Fang explains: “ITO activities in China require more technical rather than business skills or domain knowledge. Also, with China’s strong manufacturing industry background, strong electronic and OEM [original equipment manufacturer] capabilities, the country is emerging as a strong product and R&D outsourcing destination.”
1,000-100-10 project
With about 2,500 universities and colleges in China, the country produces about six million graduates each year, and about 25-30 per cent of them can’t find a job today. According to Fang, about a quarter of Chinese graduates major in IT, science and technology disciplines.
“How we make use of this large number of knowledge workers is a problem,” says Fang. In fact, the Chinese government is building a service industry to fill the void left by the manufacturing sector, which has been hit by a sharp fall in exports.
Three years ago, the Chinese government’s ministry of commerce launched the ‘thousand-hundred-ten project’ for service outsourcing. The first step, says Fang, is to designate 10 outsourcing base cities for service outsourcing with international standing, including Shanghai, Shenzhen, Dalian, and Chengdu. Built with good service parks and facilities, these base cities also enjoy preferential policies and tax breaks.
Next, the project will attract 100 multinationals to transfer their service outsourcing businesses to China. Finally, the project will cultivate 1,000 large and medium-sized service providers that can compete on the international stage.
To date, the project has developed 20 base cities. “The good news is that the [Chinese] government has moved beyond building good facilities. It is also quick to recognise the difference between building a manufacturing industry and a service industry, which requires the cultivation of talent and skills,” says Fang.
