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China set to take outsourcing crown

David Ramli and Paul Smith (Australian Financial Review) | April 12, 2011
The next time you get an annoying telemarketing call in the middle of dinner, it could be coming all the way from China.

The People's Republic is gunning to take India's crown as the world's biggest outsourcer and experts claim it could happen in as little as five years.


Asia-Pacific president of outsourcing advisory firm TPI, Arno Franz, said that while China was still behind India as global leader in the market, its government was using its sweeping powers to make it No 1.


TPI has operations in both India and China.


"China's gross amount of outsourcing is a lot lower than India's but it is consistently growing at 20 per cent year on year," he said.


"Its government recently launched a five-year plan for 2012-17 and it's all about the elevation of people's wages and more disposable income.


"Developing as the premier destination for service outsourcing is a way to achieve that."

China operations

A number of western outsourcing firms have operations in China including Accenture, IBM, Cap Gemini, CSC and HP as well as Indian players including Infosys and Tata Consultancy Services.


But it is not just basic call-centre work finding its way to China with advanced outsourcing such as software development also on the rise.


German business processing specialist Software AG has a team of 40 in China and chief services officer Ivo Totev is in Beijing to see if the company can handle cases that the Bangalore, India, team cannot.


"We started the Indian operation eight years ago and our clients asked us if they were ready," he said.


"Now India is developed and China is eight years behind the curve and while they don't have the maturity level yet, they are absolutely getting there."


Lax IP attitude

But Mr Totev said foreign companies were still wary of China's lax attitude to intellectual property.


He highlighted Google as a key example of a foreign company with plenty to fear from source-code theft.


"Even if it takes five years and 500 people to crack the source code of Google's [algorithms] it's probably worth the investment," he said.


"However, Germany was also once big in copying," he said.


"When it reached a certain size and maturity it began to produce its own IP and became very protective. The same thing will happen in China."


But TPI's Mr Franz said China's IP laws now matched those found in most Western economies.


Perception issue

"I think it's an issue of perception for people around China and IP rather than reality," he said.


"The Chinese government has to educate Western economies and demonstrate it isn't a problem."

 

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