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Outsourcing Market ResearchChina and the World
2008
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Table of contents
Part I.Overview 4
Foreword 5
About the research 7
Executive summary 9
Helping China achieve highperformance 10
Analyzing the scope and scale of China’s outsourcing activities 10
Key research findings 10China’s potential as anoutsourcing leader 11
Fact sheet on outsourcing in China 12
Critical next steps for China 13
Part II.China’s domestic market 14
Scope and key definitions inoutsourcing market 15
Scope of outsourcing 15
Key players in the market 17
Overview 17
Service providers 18
Service providers in the Chinaoutsourcing market 18
The Chinese service provider landscape 20
Analysis of service provider landscapeby product offering 25
Analysis of service provider landscapeby industry 34
Case Study #1Neusoft Group—Informationtechnology outsourcing (ITO)specialist is breaking through withcreative models 26
Case Study #2
WuXi PharmaTech—A pioneer andleader in the contract researchoutsourcing (CRO) sector 32
Case Study #3China Data Group (CDG)—Innovationin professional services 36
Clients 38
Clients in China outsourcing markets 38
Case Study #4China Development Bank—A
domestic client that makes gooduse of outsourcing services 40
China’s outsourcing providers’client base 42
China’s outsourcing market:Notable phenomena 45
Multinational corporations’shared service centers 45
Case Study #5 VanceInfo—Forerunner in the offshore
development center sector 48The use of subcontractingin outsourcing 50
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Designated industry parksand cities 53
Snapshot of outsourcing activityin key cities 53
In-depth analysis and suggestionsfor improvement 54
Case Study #6Accenture Delivery Centers in China:helping clients achieve highperformance in three designatedoutsourcing cities 56
Case Study #7A tale of Beijing’s two industryparks—A comparison of Zhongguancun Software Park andWangjing Technology Park 58
City evaluation model 60
The war for talent 61
Current situation and analysis 61
Introduction of currenttalent policies 62
Introduction of current pilottraining pattern 63
Part III.China and globaloutsourcing 64
Analysis of the globaloutsourcing market for ITO 66
Analysis of the globaloutsourcing market for businessprocess outsourcing (BPO) 70
Services trend watch:bundled outsourcing 72
Services trend watch: knowledgeprocess outsourcing (KPO) 73
Overview of global outsourcinghot spots 74
China’s outsourcing opportunitiesand challenges in a multi-polarworld 77
Outsourcing trend watch: Indiacompanies in China 79
Part IV.Recommendations 81
References 83
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Part I. Overview
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Working in and around China for
many years, I have become very
familiar with the country and its
economic dynamism. Yet, like many
businesspeople, I have tended to
associate the nation’s economic
growth with its manufacturing might.
However, it is quickly becoming
apparent that a powerful service
sector is forming beneath China’s
industrial surface. The rapid
emergence of this sector has
been guided by well-orchestrated
government plans and fueled by
the free markets, and it is evident
in the successes of fast-growing
contenders. Those outsourcing leaders,
and many others like them in China,
are emblems of a new “multi-polar”
world—a reminder that the collective
economic dominance of the United
States, Europe and Japan is quickly
giving way to a broader dispersion of
global economic power.
Of course, China is not alone in
defining the new global economic
power structure. Some other players
already enjoy a cast-iron reputation
for excellence in outsourcing. Forthe most part, China’s outsourcing
providers have some distance to
go before they can match the
expectations, offerings and operations
of their target clients. However, China
brings three powerful advantages that
will help its outsourcing leaders close
the gap over the next decade. First,
the government is wholly committed
to developing a world-class service
sector, with outsourcing services
at its core. Second, China boasts
an education system that reaches
deep into Chinese society at every
level, enabling a future talent pool
of unprecedented impact. And third,
despite rising labor costs, China’s
outsourcing firms still have, and will
continue to have for some time, a
low-cost advantage.
The representative Chinese outsourcing
firms described in this report aremaking astonishing progress, rapidly
acquiring technical competency along
with management and marketing
skills. In the information technology
outsourcing (ITO) sector, some
companies are poised to grow not
only on the strength of infrastructure
expansion programs within China but
also by leveraging cultural similarities
to offer compelling services to Korea
and Japan. In contract research
outsourcing (CRO), several firms are
already playing a global game. And in
business process outsourcing (BPO),
China has enormous potential to be a
power player, particularly in the Asia
Pacific region.
My team and I are excited to see how
China’s outsourcing story unfolds.
More than that, we are committed
to using our outsourcing experience
to help our Chinese and our globalclients to become high-performance
businesses.
Charles Hunting,
Managing Director—Outsourcing,
Greater China, Acccenture
Foreword
By Charles Hunting, Managing Director —Outsourcing, Greater China, Accenture
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Foreword
After 30 years of opening up to the
world, China has made unprecedented
strides in its industrialization. And
now, with the definite allocation of
capital and resources to the service
sector, China is developing its
outsourcing industry. Building on fast-
developing IT technology and on therise of business process outsourcing in
particular, the new industry sector will
make major contributions to China’s
long-term economic growth.
In recent years, China’s outsourcing
industry has received strong support
and significant attention from the
government and from key state-
owned enterprises. The Ministry of
Commerce, in cooperation with other
ministries, has launched the 1000-
100-10 Project in order to attract the
attention of international corporations
and international service providers to
China’s nascent outsourcing sector.
The initiative’s goals are to foster
1,000 internationally accredited
outsourcing providers nationwide,
to encourage 100 multinational
corporations to transfer their
outsourcing needs to China and to
support 10 outsourcing metro centersthat are competitive with the world’s
best outsourcing hubs.
CCIIP and Accenture recently
conducted a national research
project to assess the status and the
potential of China’s outsourcing
sector. This resulting report, titled
Outsourcing Market Research—China
and the World , will meet the growing
demand for such information among
international corporations with
experience in outsourcing elsewhere.
It will help readers to appraise the
scope and scale of China’s emergent
outsourcing industry, understand its
market characteristics and evaluate
the capabilities of China’s fast-
growing service providers.
At the same time, this report, with
its objective analyses and empirical
data, will provide useful insights toChina’s service providers, national
research institutions and economic
policy-makers. It also will help
business leaders and government
officials to examine current global
outsourcing trends: Combining data
from leading research firms with
findings from Accenture’s and CCIIP’s
own survey, the report provides
in-depth analysis of the international
offshore outsourcing market as well as
clear definitions of the categories and
concepts of outsourcing. And China’s
unique market characteristics appear
in the report’s descriptions of the
nation’s new outsourcing parks and in
rich case studies on several of China’s
top outsourcing “success stories.”
Many experts, entrepreneurs and
government officials have contributed
to Outsourcing Market Research—
China and the World . The projectteam and I would like to take this
opportunity to express our thanks
to everyone who helped bring the
report to life. First, our gratitude
goes to Vice Minister Ma Xiuhong
and other Ministry of Commerce
officials. They have already provided
significant support and invaluable
advice. We are very grateful for the
active cooperation and commitment
of the outsourcing enterprises that
participated in our research. Our
special thanks go to the experts
of CCIIP’s China Sourcing Working
Committee who regularly reviewed
the text and argued the viewpoints,
enhancing the academic value of the
report at every step. And I would like
to extend our appreciation to our
partner Accenture for its investment—
and for the strength of its research.
Through the half-year of our close
teamwork, CCIIP and Accenture havedeveloped a truly cooperative spirit.
For the first time, we now have
a report that gives a complete
picture of the development of
China’s outsourcing industry and
its market characteristics. It is
my sincere wish that the impact
of this study will grow with each
year’s new report, and that it will
become a sought-after reference
for global organizations as well as
for China’s outsourcing providers.
On behalf of CCIIP, I would like to
extend my congratulations to all who
helped make this report a reality.
Madam Zhou Ming,
Executive Vice President and
Secretary-General, CCIIP
By Madam Zhou Ming, Executive Vice President and Secretary-General,China Council of International Investment Promotion (CCIIP)
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In 2006, the China Ministry of
Commerce launched its 1000-100-10Project to promote the development of
a robust outsourcing service sector in
the country. The Ministry of Commerce
expects the emerging sector to play
a large part in the development of
China’s own commercial infrastructure
and to help the nation take its
place in the ranks of the world’s
leading outsourcing centers.
In tandem with the 1000-100-
10 Project, the China Council of International Investment Promotion
(CCIIP) formed a partnership with
leading global management consulting,
technology services and outsourcing
company Accenture to sponsor a
wide-ranging research program.
This research program was designed
to provide a deeper understanding
of the scope and scale of China’s
embryonic outsourcing industry and
to spotlight the opportunities and
competition the industry faces. The
program was launched with three
key audiences in mind: potential
customers that may outsource
more to China; service providers,
both Chinese-owned and foreign;and China government officials.
The research program had these keyobjectives:
To provide a strategic review of •
China’s outsourcing market, withdata on market size and growthopportunities over the next five years
To assess and compare the roles of •
both China-owned and multinational
outsourcing providers in China’sdomestic market
To assess and compare the roles of •
China-owned outsourcing providers inglobal markets
To showcase some of China’s leading•
outsourcing providers using in-depthcase studies
The research was designed and ledby an Accenture team of industry
researchers and outsourcing experts.
It involved two multiple-choice surveys.The first survey, asking 43 questions
of outsourcing clients, queried
senior managers at local Chinese
companies, multinational corporations(MNC's) China operations and the
global headquarters offices of MNCs.
MNCs were defined as companies
in which foreign investment
comprises more than 50 percent of
the companies’ capital structure.
A separate 37-question survey was
sent to senior managers at locally
owned and multinational outsourcing
service providers across China.
Altogether, participating companiesreceived 140 questionnaires, and
37 (26.4 percent) responded. Two
hundred questionnaires went out
to service providers, and 53 (26.5
percent) responded. The questionnaires
were sent by direct mail or e-mail
and were followed up by phone
calls. All survey responses were
confirmed in follow-up phone calls.
To supplement the survey findings,
Accenture researchers also conducted
15 in-depth interviews with executives
across China’s outsourcing industry.
About the research
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Executive summary
Over the last two decades, China’s
performance as an industrial power
has been remarkable. The country has
had phenomenal success developing
an export economy that takes
advantage of its supply of cheap and
abundant labor. “Made in China”
labels appear on retail shelves from
Argentina to Australia and from Brazil
to the United Kingdom, on everything
from pencils and shoes to televisions
and mobile phones.
Its industrial companies have made
striking inroads in markets as
demanding as machine tools and high-
quality steel. In mineral and fossil fuel
extraction, Chinese companies have
become global heavyweights. And
with strong capital resources behind
them, companies such as Nanjing
Automobile, Huawei and computer
maker Lenovo have been assertively
acquiring foreign corporations and
operating units.1
Yet there is a notable weakness in
the country’s economic system: China
lacks a mature services sector. It is
an imbalance that must be addressed
before the nation can develop long-
term economic stability.
China’s success in the global services
arena will not be so clearly linked
to low cost and large scale as it has
been in the nation’s manufacturing
sector. Nor will the country have the
head start it enjoyed over its rivals
when entering the manufacturing
sector. From Eastern Europe across
the Middle East to Southeast Asia,
many developing countries have young
service sectors of their own. Spurring
on these nations is rising international
demand in the global services
marketplace. Analysts estimate
that spending on global offshore
outsourcing in 2011 will be triple
2005 levels. Growth rates in the Asia
Pacific region already are impressive:The compound annual growth rate of
outsourcing spending between 2005
and 2011 is about 30 percent in this
region compared with 21 percent in
the United States.2
Contributing to other developing
nations’ viability as outsourcing
centers are their competitively
priced niche skills and their cultural
alignment with clients in neighboring
countries.
Developed countries have also taken
note. Widely circulated studies
show that every new global service
position results in the creation of 12 additional jobs in supporting
industries.3 Consequently, governments
in developed nations have added
emphasis and resources to policies and
programs that support domestic service
providers and their efforts to be more
competitive on the global stage.
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Helping China achievehigh performanceChina’s government leaders are well
aware of the nation’s economic
imbalance. That is why the Ministry
of Commerce, in cooperation with
other government agencies, launchedthe 1000-100-10 Project in 2006.
The project seeks to establish 1,000
internationally accredited outsourcing
providers nationwide, attract 100
MNCs and persuade them to transfer
their outsourcing needs to China,
and support 10 outsourcing centers
in metro areas that rival the world’s
best outsourcing hubs. The initiative,
a focused effort to balance China’s
economic development with more
skills-based service industries, is
intended to help the nation to
generate $10 billion per year in
outsourcing industry revenue by 2010.
The 1000-100-10 Project involves
provincial, municipal, and civic level
governments as well. Some cities with
strong outsourcing economies have
begun to tailor promotion policies
to their locations and outsourcing
landscape. Such policies encourage
competitive taxation supplements
and investment via loans that favor
certain industries, among other
elements. At the same time, local
and regional authorities are offering
targeted measures such as increased
protection of intellectual property and
infrastructure construction.
The government’s initiative is adding
to the growing momentum. Indeed,
China is rapidly becoming a key player
in some corners of the outsourcing
sector and appears to be on track to
meet its 2010 target. The country’s ITO
industry is steadily expanding and is
poised to take advantage of the need
for significant improvements in IT
infrastructure and systems across the
country. Chinese BPO companies have
begun to prove their value to some of
the world’s foremost financial services
firms, signing large-scale contracts
with global clients such as bankingleader HSBC and insurer Allianz
among many others. And for most
of the last decade, China’s contract
research organizations have been
essential to the success of the world’s
largest pharmaceutical companies.
WuXi PharmaTech, for example, has
core relationships with companies
such as Eli Lilly and Merck.
Analyzing the scopeand scale of China’soutsourcing activitiesTo help shed new light on these
dynamic economic activities,
Accenture recently partnered with
CCIP on a large-scale research study
that analyzed the scope and scale
of China’s outsourcing activities.
Blending detailed multiple-choice
surveys with executive interviewsacross China, the study gathered input
from locally owned and multinational
outsourcing service providers as
well as from outsourcing clients,
including local Chinese companies,
the Chinese operations of MNCs and
the headquarter offices of MNCs. (See
“About the Research.”)
Our unique partnership has culminated
in this initial analysis. We envision
three groups of readers for this report:current and prospective clients of
outsourcing services in China; China’s
outsourcing service providers; and
government officials who are tasked
with developing industrial policy and
promoting China’s outsourcing sector.
The report is presented in two
segments. The first part focuses on
the domestic outsourcing market,
featuring in-depth analysis of both
service providers and clients in China.We highlight some industry trends of
note, such as subcontracting within
outsourcing, services centers shared
among MNCs and R&D centers in
China. We shed light on the industry
parks that are emerging as hubs of
outsourcing expertise, and we also
examine the ideal talent mix needed
to sustain a viable outsourcing
economy in China.
The report also features detailed case
studies on a selection of China’s most
prestigious outsourcing providers—the
first time, we believe, that such
insights have become available to
business leaders worldwide. A later
part of the report looks critically
at China’s outsourcing strengthscompared with the services available
from other global outsourcing
hotspots. This section examines
outsourcing activity in India in
particular, reviewing several of that
country’s top outsourcing service
providers.
Key research findingsOur research shows that China must
address several significant barriersbefore it can be considered an
outsourcing leader. Yet encouraging
signs are appearing already. Among
the clients that now use China-based
providers, outsourcing is helping
them to become high-performance
businesses by enabling them to cut
costs, downsize their operations and
improve their business processes.
Many survey respondents reported
high degrees of satisfaction with their
service providers. At the same time,
Chinese providers are rapidly learning
which factors are most critical to the
success of outsourcing engagements.
Through our research, it became
apparent that China’s BPO and ITO
sectors face the following significant
challenges:
The outsourcing sectors in China•
are still in the early in the stages
of development. Respondents
are concerned about issues of
trustworthiness and confidentiality,
the expertise of China’s service
providers and the value they think
they may gain from outsourcing.
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Only a third of survey respondents•
are currently outsourcing services in
China or are planning to do so. Among
those who are now outsourcing,
the key drivers of high performance
are cost, service quality, intellectual
property rights protection, workforce
skills and industry expertise alongwith a high degree of comfort and
familiarity with the use of outsourcing
as an effective business practice.
Half of the Chinese respondents•
to the survey admit to having
limited or no understanding of
outsourcing—meaning that there is
a big opportunity for education. The
clear implication is that China’s goal
of developing a successful outsourcing
industry is heavily dependent on howquickly Chinese companies grasp the
importance of outsourcing and its
potential to enable high performance.
China is still predominantly•
providing BPO services to others
outside the country; Chinese
organizations are not yet using such
services. Most local outsourcing
consumption tends to be of ITO
and processing services. However,
locally owned Chinese companies arereluctant to fully embrace the ITO
services offered in their own country.
The talent crunch affecting many•
sectors of China’s economy is even
more prominent in the emerging
outsourcing sector.
China’s potential as anoutsourcing leaderIn contrast to China’s challenges,
our research uncovered myriad
advantages in China’s mission to
become a center of outsourcing
activity. Respondents widely agreedthat price currently ranks as the
nation’s premier advantage, even
though nearly a third of those
surveyed expect this differential to
be eroded over the next few years
as China’s cost structure grows
more burdensome. China’s status
as a global manufacturing center
also offers unique advantages when
providing offshore R&D services. And
the nation benefits from its longtimeinvestment in education for all.
Our research also shows that China’s
outsourcing providers have a potent
competitive advantage thanks to
China’s proximity (both geographical
and cultural) to Japan and Korea.
Indeed, many Chinese service
providers are targeting Japan and
Korea for future growth. (See “Fact
sheet on outsourcing in China”.)
In addition, respondents expressedgreat confidence that the country’s
outsourcing providers will quickly
improve in key areas such as talent
acquisition and development, service
quality, reputation and branding and
intellectual property rights protection.
Benefiting from almost 30 years of
economic reform, China has built a
solid foundation for the opportunities
ahead. The nation’s transportation,
telecommunications and network
infrastructures have grown rapidly and
improved consistently, some achieving
the quality seen in developedcountries. High-speed Internet access
is standard in all of China’s largest
metropolitan areas, backed by an
uninterrupted dual power supply.
Approximately 150 airports now
connect most of the primary and
secondary cities. Also, in developed
regions such as the Pearl River Delta,
the Yangtze River Delta and the BoHai
Bay area, industrial clusters form a
firm foundation for the transfer of
service and outsourcing skills.
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Fact sheet on outsourcing in China
Client composition bycountry
On average, about 44 percent of
revenues for Chinese outsourcing
providers come from US and
European clients. Just more than
a third of revenues come from
Japan and Korea, with 20 percent
from Chinese customers.
Client composition byindustry
The most represented industries are
electronics and high technology
as well as financial services. In
the United States and Europe, the
media and entertainment businesses
are major customers for Chinese
outsourcing services. In Japan and
Korea, the chemicals industry is a big
buyer. In China, government agencies
and the communications industry arethe major customers.
Best-selling ITO servicesITO in China currently is outselling
BPO, with a universal preference
among consumers of all nationalities
and industries for the following types
of services: customized software
development first, with software
research and development (R&D),
software testing and software
localization also in demand.
Best-selling BPO services
Customer relationship management
services are the most common BPO
projects purchased by American,
European and Chinese companies.
Source: Accenture/CCIIP study: OutsourcingMarket Research-China and the World
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Critical next stepsfor ChinaOur research confirms that China
views its burgeoning outsourcing
industry as a crucial component of
the nation’s future economic growth
and has committed the government
at all levels to providing strong
political and economic support
for outsourcing development.
Yet government officials and businessleaders alike are realistic about what
it will take to achieve success. They
are constantly aware that India is
China’s most formidable competitor
in providing global outsourcing
resources. They know that, to be a
serious contender in this market,
Chinese providers must continue to
improve the fluidity of their business
English and the strength of their
management skills. These leaders know
that new service providers must fully
grasp the contract, legal and sourcing
frameworks of Western MNCs. And
although due diligence and security
measures can limit many sources
of risk exposure for its customers,
China must continue to strengthen
its legal system, improve IPR
protection and encourage companies
to obtain international standards
certification to lure reluctant global
consumers and establish China as a
serious global outsourcing player.
In summary, to achieve its goals in
the outsourcing sector, China must
acquire, develop and nurture all the
characteristics of a mature service
industry. Thanks to the Chinese
government’s 1000-100-10 Project,
a workable framework is in place;
that, together with the amalgamation
of the country’s huge domestic
markets, its growing ranks of well-
educated workers and its efforts to
improve management skills, bodes
well for its future success. Still, if
China does not set high goals forthe development of its outsourcing
sector, it may well fall victim to
labor arbitrage—and foreign clients
in particular will flock quickly to the
next emerging market that offers
even cheaper outsourcing services.
Together, Accenture and CCIIP
have uncovered insights that will
benefit fast-growing outsourcing
firms in China and potentially shape
policy decisions for the next stages
of development of the country’s
outsourcing sector. And for the first
time, potential clients of China’s
outsourcing providers will gain
an up-close view and in-depth
analysis of leading providers in key
sectors such as contract research
outsourcing (CRO), business process
outsourcing (BPO) and information
technology outsourcing (ITO).
Our research is just the beginning.
China’s growing outsourcing
market will benefit enormously
from your questions and
observations as it ventures intothe uncharted territory ahead.
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Part II. China’s domestic market
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Scope of outsourcingServices outsourcing has become
an important strategic tool to
help organizations become high-
performance businesses. Modern
information technology has reduced
the transaction costs of outsourcing,
increased supervision and control over
offsite work, and made the delivery of
outsourcing services faster and more
convenient. International boundaries
have become far less important,and outsourcing on a large scale—
particularly to offshore providers—is
rapidly becoming commonplace.
Accenture and CCIP fully expect that
an increasing range and volume of
services will be outsourced in the next
10 to 15 years.
Although almost any business service
can now be outsourced, the areas
of greatest activity in China are
ITO and BPO. These areas will formthe focus of our report, with some
discussion devoted to the trend
toward knowledge process outsourcing
(KPO) as a high-end outsourcing
offering and an ancillary service to
BPO, as well as to contract research
organizations, a type of outsourcing
with more established roots in China.
Just as the outsourcing marketplace
changes dynamically, so does
the scope of the term “services
outsourcing.” ITO, for example, is
defined differently by many different
vendors and clients. In general terms,
ITO refers to the outsourcing of IT
processes in order to deliver IT-related
products and services such as custom-
developed software applications and
management or maintenance of IT
assets such as data servers.
Similarly, BPO is subject to many
different interpretations. Gartner, the
market research firm, defines BPO
as “the delegation of one or more
IT-intensive business processes to
an external provider that, in turn,owns, administrates and manages the
selected processes based on defined
and measurable performance metrics,”
including enterprise services, supply
management, demand management,
and operations. According to Gartner,
examples of business processes that
are outsourced to an [external service
provider] include “staff functions
such as human resources, finance
and accounting, and contact centers
or vertical specializations such as
insurance claims processing or banking
payments.”4
On the other hand, many companies
use the term BPO to refer to certain
types of business processes provided
and managed by specialist service
providers. The business processes tend
to be operations-oriented rather than
strategic; they are typically higher-
volume and lower-margin processes
in terms of profitability and rarely
involve a business’s differentiating
core activities. (See Figure 1.)
Scope and key definitions in
outsourcing market
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Functional area Definition5
ITO IT infrastructure Entire infrastructure management processes, from network
access and desktop management through remote technical
support. This category includes IT spend management,data center services, service center, security services,
communications services, etc.
IT applications Custom software
development
Software development service, usually as an application system
and not a software product itself.
Software R&D Overall development of complete packaged software as a
discrete product for sales by clients.
Software localization/
globalization
Translation of software content into multiple foreign
languages.
Software testing Customized and integrated test practices, both manual and
automated.
Applications
outsourcing (AO)
Application maintenance and support.
Embedded software development Development of software embedded in other products.
BPO Finance and accounting Typically procure to pay, order to cash and record to report
processes.
Human resource (HR) HR activities and administration processes across the entire
employment cycle.
Training and education Administrative and transactional components of technical
training and soft skills training, including the sourcing and
development of training content.
Procurement Source to pay processes including procurement spend
management.
Client relationship Functions such as client relationship management, including
call centers and call center management.
Supply chain/logistics Functions such as order management, warehousing, fulfillment
and inventory management, transportation management, and
returns management.
Facilities management Services such as maintenance support, support of building
electrical and communications systems, and in some cases,
building development services.
Industry-specificoutsourcing
Services Particular services such credit card services in the financialservices industry and reservation and revenue management for
the airline industry. These services are unique to the particular
industry—in other words, they cannot be applied to other fields.
R&D (CRO) Usually geared to the pharmaceutical and biotech sectors,
covering almost the entire process of new drug development.
Usually focuses on testing for drug safety and effectiveness,
which includes the outsourcing of pre-clinical tests and
clinical trials, data management, new drug applications, and
other technical services.
KPO Currently dominated by activities such as market research and
financial research. Has significant potential in animation, dataanalysis, education, engineering, legal, pharmaceutical, and tax
services along with opportunities to reinforce prized workforce
attributes such creativity and discretion.
Figure 1: Definition of outsourcing terms
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Key players in the market
OverviewThe global outsourcing market is
experiencing exponential growth.
As the maturity and popularity
of IT outsourcing relationships
have become well established,
business process outsourcing has
seen a corresponding gradual
increase in cultural acceptance.
Market research firm Gartner projects
that total IT outsourcing revenue
worldwide, including IT services, will
reach $829 billion in 2012 compared
to $592 billion in 2007; the ITO
component of that will reach $378
billion in 2012, up from $261 billion
in 2007.6 On the BPO front, Gartner
reports that global spending reached
$156 billion in 2007 and is expected
to rise to $239 billion by 2012—a
compound annual growth rate (CAGR)
of 9.0 percent. Although China has a
small share of global BPO spending,this sector is growing very rapidly
on the back of overall economic
growth. Gartner’s projections see BPO
spending in China almost tripling
from $273 million in 2007 to $721
million by 2012, for a five-year
CAGR of 21.4 percent.7 For now,
though, most of China’s outsourcing
business is near-shore, with only a
fraction in offshore outsourcing.
By 2012, forecasts Gartner, the United
States will still be the world’s largest
client for outsourced services; it
will account for about one-third of
worldwide demand for ITO services
and more than half of overall BPO
demand.8 A significant part of
that spending will flow to China;
market-watchers expect China’s
outsourcing revenue to show average
annual growth of 25 percent.
In general, the outsourcing market in
China is still at an embryonic stage
and has not yet developed a robust
field of outsourcing providers. As
this research shows, China remainspredominantly an exporter of BPO
services rather than a consumer
of them; most of the nation’s
outsourcing consumption tends
to involve IT outsourcing and
processing services.
Even when consuming ITO, however,
Chinese corporate clients show only
limited acceptance of broad suites of
ITO services, preferring to pick and
choose discrete services. Contract
values remain small.
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Service providers
Service providers in the Chinaoutsourcing market
For the purposes of this survey, we
have grouped China’s outsourcing
service providers into the categories of
MNCs and local Chinese companies.
China operations of
multinational corporations
The China operations of MNCs can
be divided into three categories
as outlined in Figure 2.
Local providers
To better understand the dynamics of
the emerging industry, this research
report categorizes local outsourcing
providers in three ways: in termsof sources of capital; by target
markets; and in terms of service
offerings. Figure 3 illustrates more
detail at the category of ownership.
Figure 2: MNC provider characteristics by revenue
Figure 3: Local provider characteristics by ownership
Category Standard
High revenue Revenue of more than $200 million annually from servingclients outside China, but starting to generate business inChina.
Medium revenue Mid-sized annual revenue of $50–$100 million outsideChina and beginning to make inroads into China’s markets.
Low revenue Revenue of less than $50 million and almost no businessin China.
Category Standard Comments
Foreign Managed orlaunched bynon-Chineseexecutives
Providers in this category more readily wincontracts with non-Chinese clients—particularlymore profitable, high-end work. However,they tend to lack potential for large-scalegrowth compared to local service providers andtherefore are less desirable targets for investors.Moreover, while these firms handle projectdesign work in-house, they often hand off muchof the detail work to local subcontractors.
Local Managed andowned bynative Chineseexecutives
Although these companies have promisinggrowth potential and therefore are attractingquite a bit of financing interest, only a limitednumber can successfully serve non-Chinese
clients at this stage, which limits theirprofitability. However, their “expand first anddevelop the market later” approach is entirelyfeasible.
Taiwanese Managed orowned byexecutives fromTaiwan
As a whole, Taiwan’s outsourcing companieshave demonstrated striking success, withstrong growth and substantial profit streams.Our research indicates that Taiwan-ownedoutsourcing providers in mainland China willlikely grow at steady rates, though not asquickly as firms with mainland owners.
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This report divides China’s outsourcing
providers into four target markets.
(See Figure 4.) For the purposes
of this report, China’s outsourcing
vendors can be grouped into the
following four categories in terms
of service offerings. (See Figure 5.)
At present, the services provided
by China’s outsourcing vendors
remain geared largely to low-cost
office services, with some staffing
services. They have not yet reached
the levels of sophistication and
complexity seen in the United
States, with its long history of
advanced outsourcing activity and
technology standards-setting. For
now, China’s ITO vendors are still
focused on smaller goals, such as thedevelopment of general application
software and system integration.
Figure 4: Local provider characteristics by target markets
Figure 5: Local provider characteristics by service offerings
Category Standard Comments
US/EU Focus on theUnited Statesand Europeanclients with
more than twothirds of totalrevenue fromthose markets
These providers often have existing, strongrelationships with Western clients. In somecases, they have been able to penetrate theoutsourcing markets through acquisition
of outsourcing operations with alreadyestablished positions in these markets. Someproviders have been launched by non-Chinese;others are funded with venture capital fromoutside China.
Japan/Korea Focus onclients in Japanand Korea, withmore than twothirds of totalrevenue fromthose markets
Providers in this category often have veryrobust relationships with Japanese clients.Some have been launched or are owned byJapanese executives or are subsidiaries or
joint venture partners of Japanese companies.
Domestic Focus on theChina marketwith more thantwo thirds of total revenuefrom thatmarket
These providers are generally China-ownedand run. As a rule, they have good growthprospects, and their general approach is tofirst gain market share in local markets beforereaching overseas.
Un-differentiated
No cleardistinction inany market
Providers in this category usually have beenlaunched by native Chinese executives andhave grown with a diversified managementteam. As a rule, they have operated inisolation from the ups and downs of global
outsourcing markets.
Category Standard Comments
ITO Significant ITOactivity
One interesting subtrend here is that since2007, many local ITO providers have begunadding BPO service lines.
BPO Significant BPOactivity China has very few “power players” in BPOservices, largely because little demand hasexisted thus far in China for such services.
ITO/BPO Offering bothITO and BPOservices
A few Chinese providers have a good trackrecord of providing both types of outsourcingservices.
SI/ITO/BPO SI/ITO/BPOofferings
The providers in this category are traditionalsystems integration (SI) companies thathave recently entered the ITO and BPOfields on the strength of their rich industryexperience and technical backgrounds.
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What China must do to succeed
in Outsourcing
This unique research (See “About
the Research”) study found both
encouraging data about China’s
emerging strengths in the outsourcing
market and vital areas where China
can and must improve if its ambitiousplans for growth are to succeed.
Below are the survey’s key findings.
The outsourcing sector in China•
remains in its early stages of
development. The country is still
predominantly a BPO exporter rather
than a consumer of BPO services. Most
local outsourcing consumption tends
to be of IT outsourcing and processing
services. In the ITO category there
is a strong focus on applicationoutsourcing; in BPO, the emphasis is
on customer relationships.
Only a third of survey respondents•
are currently outsourcing services in
China or are planning to do so within
the next three years. Among those
who are now outsourcing, the key
drivers of high performance are cost,
service quality, intellectual property
rights protection, workforce skills, and
industry expertise along with a high
degree of comfort and familiarity with
the use of outsourcing as an effective
business practice.
Locally owned Chinese companies•
remain reluctant to fully embrace
the ITO services offered in their
own country. Clients as a whole
express concern about issues of
trustworthiness and confidentiality,
the expertise of China’s service
providers, and the value they think
they may gain from outsourcing. For
instance, half of the service providers
surveyed are using subcontracting as
a means to access talent and skills.
However, they acknowledge that while
subcontracting improves efficiency
and costs, it can hurt quality control
and lead to delivery issues.
Half of the Chinese clients•
responding to the survey admit tohaving limited or no understanding
of outsourcing—meaning that there is
a big opportunity for education. The
clear implication is that China’s goal
of developing a successful outsourcing
industry is heavily dependent on how
well and how quickly Chinese clients
grasp the importance of outsourcing
and its potential to deliver high
performance to their enterprises.
The talent crunch affecting many•
sectors of China’s economy weighs
even more heavily in the outsourcing
sector. Among the service providers
surveyed, their major concern is the
lack of locally available skilled talent.
China’s competitive advantages are•
its cost differential and its proximity
(both cultural and geographical) to
Japan and Korea. Within the next five
years, the service providers surveyed
expect China to improve in terms of quality service, talent, reputation,
and intellectual property rights
protection—but they expect its cost
advantage to erode.
Chinese service providers are•
targeting Japan and the United States
for future growth.
The Chinese service provider
landscape
Our research shed new light on
many aspects of the operations
of China’s outsourcing providers.
The highlights follow.
More and more local service
providers are obtaining international
certifications and qualifications,
narrowing the gap with foreign
rivals and allowing them to compete
seriously for significant offshore
contracts. In recent years, China’sservice providers have made
considerable progress in project
and process management, and most
outsourcing service providers have
achieved the related certifications.
These certifications have made an
impact on the numbers: By 2006,
of the approximately 80 Chinese
software companies with more than
1,000 employees, 35 boasted annual
sales greater than 1 billion RMB
compared to only 12 in 2002.
By the end of 2006, 38 software
companies had obtained Capability
Maturity Model Level 5 CMM5
(including Capability Maturity Model
Integration Level 5 CMMI®5), the
highest level certification. Twenty-
three had won CMM4 (including
CMMI®4) certification, and more than200 had obtained CMM3 (including
CMMI®3) certification. In addition,
2,136 Chinese companies rank as
qualified system integrators. The
results of our survey showed that
more than 60 percent of Chinese local
providers had obtained CMMI®3 and
about 44 had won ISO27001—a clear
indication that more and more local
providers have noticed the importance
of international certifications and
improved their delivery capabilities.
(See Figure 6.)
Leading global BPO and ITO vendors
that establish joint ventures or plant
branches in China also are hastening
the maturing of China’s BPO and
ITO capacity. In 2006, two of the
20 organizations worldwide that
published their Level 4 achievements
were in China, as were 16 percent
of those announcing CMMI® Level 5certification.9
China’s outsourcing sector is
consolidating rapidly. Numerous
mergers and acquisitions (M&A)
occurred in 2006 and 2007. This M&A
surge is a predictable outcome of the
rapid growth of China’s outsourcing
sector. In turn, that growth has been
accelerated in the past two years
because of injections of venture
capital—from local financiers suchas Legend Capital as well as large,
non-Chinese sources of capital such
as Citigroup. Many service providers,
such as CDG and VanceInfo, have
experienced more than two rounds of
financing already.
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However, although it is true that M&A
activity forms a reliable shortcut to
the economies of scale necessary for
the next phase of China’s outsourcing
business, it is by no means the
shortest of shortcuts. M&A activities
usually entail a one to two-year
process. By contrast, organic growthoffers the advantage of fostering
highly cohesive teams.
Business in the United States and
European markets is developing much
faster than markets in Japan. Our
survey shows that the average growth
rate of local service providers in 2007
was 52.23 percent relative to 2006.
The highest growth rate appeared
among the subset of providers focused
on markets in the United States andEuropean Union (EU)—89.10 percent.
Those sourcing chiefly to companies
in the Japanese and Korean markets
returned a growth rate of only 24.28
percent. (See Figure 7.)
Chinese service providers are targeting
Japan and the United States for future
growth. China’s outsourcing service
providers state that within the next
five years they will target mainly
China, Japan, Korea, and the UnitedStates (See Figure 8.)
Figure 6: Certificates or qualifications of outsourcing service providers in China
Figure 8: Survey respondents cite four regions as targets for future growth
Figure 7: 2007 provider growth rate by market focus
62%
44%
29%
15%
15%
12%
6%
12% (N=34)
CMMI®3
ISO27001
ISO9001
CMMI®5
ISO9000
ISO9001:2000
ISO2000
Other
44%
44%
45%
32%
China
Japan and Korea
US
EU
N=37
N=10
N=10
N=9
N=5
89.10
24.28
32.40
61.29
52.23
0.00 20.00 40.00 60.00 80.00 100.00
US + EU
Japan + Korea
Domestic
Undifferentiated
Average
Growth Rate
US and Europe: Focus on US and European markets, with more than two thirds of total revenue fromthose markets.
Japan and Korea: Focus on Japanese and Korean markets, with more than two thirds of total revenuefrom those markets.
Domestic: Focus on China’s domestic market, with more than two thirds of total revenue from thatmarket.
Undifferentiated: No clear distinction in any market; no single area accounts for more than two thirdsof total revenue.
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Customized software development
Software R&D
Software testing
Software localization
Embedded software development
IT infrastructures
Customer relationship
Industrial specialized outsourcing
HR
R&D
Supply Chain / Logistics
Finance & Accounting
Training & Learning
Facilities management
Procurement
US / European clientsN=48
Japanese / Korean clientsN=48
Chinese clientsN=49
US / European clientsN=48
Japanese / Korean clientsN=48
Chinese clientsN=49
ITO
BPO
46%
42%
38%
29%
25%
23%
23%
21%
15%15%
13%
10%
10%
10%
6%
4%
13%
6%10%
4%
10%
8%
8%
2%
14%
10%
10%6%
4%
4%
10%
8%
6%
48%
31%
31%
29%
19%
13%
39%
24%
20%
22%
8%
12%
Providers are starting to offer more
types of outsourcing services. More
and more of China’s ITO service
providers have been expanding into
BPO services, and vice versa. Within
the ITO category, there is a strong focus
on application outsourcing. With BPO,
the push is on customer relationships.
As a result, in both cases, the services
provided by China’s vendors remain
narrowly focused. Given the burgeoning
demand for the services these providers
currently offer, and the managementattention they require, local providers
will find it challenging to move up the
value chain, expand their services, and
compete with those firms offering more
profitable services such as R&D and
full-suite services. (See Figures 9–10.)
Most local service providers started
as traditional software companies
or systems integrators. Then they
entered the ITO market, and
now some have begun offeringBPO services. Our survey results
reveal that the wave of homegrown
ITO outsourcing activity in China
precedes that of BPO activity. (See
Figure 11.) Many of the current
BPO service providers started out as
traditional software companies or
systems integrators and entered the
outsourcing sector as opportunities
opened up in the market. The new
players, such as CDG and ICSS, which
began as systems integrators, now
have gained rich industry experience
that they can leverage to offer
services in specialized industries.
However, a truly deep understandingof specialized business processes will
separate the long-term survivors from
their less capable rivals.
Indian service providers are China’s
biggest competition. More than
half of the local Chinese outsourcing
provider respondents cited Indian
service providers as their most
formidable global competitors. Next on
the list of rivals come the China-based
MNC outsourcing providers. Recently,many top Indian outsourcing vendors
have set up offices and established
joint ventures in China, stoking local
providers’ competitive sense. However,
many opportunities remain for
Chinese providers to vie successfully
against the Indian players. Despite
their achievements in other markets,
many Indian providers have faced
cultural challenges in China, leaving
an advantage for Chinese providers
to exploit. In addition, both Chinese
and Indian firms must keep a watchful
eye on burgeoning competition from
outsourcing providers originating from
Mexico, Russia and Eastern Europe.(See "Overview of global outsourcing
hot spots".)
Both Chinese providers and MNC
providers view quality of services
as important. In Figure 12, the
categories represent the factors that
are critical, important and neutral to
their business development efforts
and their future success, as gauged
by both MNC providers and Chinese
providers. Neither group appears tohave a competitive advantage in the
area of quality of service. Survey
respondents ranked MNCs as offering
Figure 9: Market breakdown by outsourcing type, ITO
Figure 10: Market breakdown by outsourcing type, BPO
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superior service to clients but stated
that China’s providers have the upper
hand on price. Survey respondents
ranked the two groups equally on
critical factors such as the ability to
quickly understand clients’ needs and
having a skilled workforce.
China’s outsourcing providers worry
most about talent. China’s outsourcing
providers cite three major barriers to
their development: the lack of suitable
talent with specialized technology
backgrounds (e.g., knowledge of SAP),
lack of a strong brand and lack of
capital, in that order. (See Figure 13.)
Their lack of strong brand recognition
globally is also a matter of concern for
many Chinese outsourcing providers.
While the Chinese government has
pushed to promote the image of
the Chinese outsourcing industry
in general, the effort has been
undercut to some extent by the
individual promotional campaigns of specific Chinese cities—a factor that
respondents to our Accenture-CCIIP
survey believe wastes public resources.
Figure 11: Relative ages of ITO and BPO providers
Foundation year
ITO
BPO
90’s
Time of the service providers commence the business of ITO and/orBPO (N=50)Foundation year: When the service providers were founded.ITO: When the service providers began their ITO businesses.BPO: When the service providers began their BPO businesses.
2000-2002 2003-2005 2006-2007
26%
20%
15%
34%35%
15%
26%
30%
36%
14%15%
32%Critical Factors
Competitive
Advantage
Important
Neutral
NeutralMNC providers
Neutral
Neutral
MNC providers
Neutral
MNC providers
Neutral
Chinese providers
Neutral
Neutral
MNC providers
MNC providers
Quality of serviceSecurity and intellectual property protection
Ability to quickly understand of the clients’ specific needs
Price
Skilled workforce that can meet demand
Have good communication channels with client
Industry experience
Reputation
Good understanding of our business culture
Foreign language ability of workforce
Low talent attrition
Scale of service provider
Geographic proximity
Figure 12: Critical, important and neutral factors for
business development success as listed by survey
respondents; preference in each category as reported by
survey respondents
Figure 13: Barriers that currently constrain the development of local service
providers
67%
44%
40%
25%
23%
13%
13%
13%
10%
2%
6%
Lack of suitable talents
Lack of strong brand
Lack of capital
Lack of suitable channel to
approach clients
Cannot offer service at a
competitive price
Lack of the understanding of
China’s outsourcing market
Lack of appropriate definition of
core competency
Lack of clear strategic positioning
Inability to prioritize to exploit its
business
Lack of a clear future
business strategy
Others
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Attracting and retaining talent
remains a top issue. Outsourcing
providers we surveyed feel hampered
in their ability to scale their operations
in outsourcing hubs, particularly
Dalian, Beijing and Shanghai by the
competition for talent. However, these
Tier One cities10 remain the hubs for
outsourcing activity because of their
proximity to clients, superior industry
infrastructure and stronger talent
bases, among other reasons.
In a related concern, providers
told us they struggle with talent
management, particularly when it
comes to their employees’ acquisition
of foreign language skills—and
especially business English. Providers
also grapple with the soaring costs
of retaining top talent. The retention
pressure may get some relief from
recent efforts by China’s Ministry of
Commerce, such as allowances to
companies for their staff training orrecruitment expenditures. However,
turnover rates are still not at the
high levels faced by most Indian
outsourcing providers in their local
market. (See detail in sections titled
“Industry Parks” and “Talent.”)
More pressing are recruitment issues.
In some cases, local outsourcing
providers are planning huge increases
in their numbers of junior managers—
to as much as 60 percent of their
current junior management staffing
levels in the next year. (See Figure 14.)
In general, attracting and retaining
management talent is becomingmore critical as the local outsourcing
providers grow rapidly and they have
to compete for relatively limited
qualified human resources compared
to the expanding speed with other
players, including service providers in
the market and other organizations
which also need staff with similar skills.
Some companies already have recruited
senior executives from large MNCs.
A significant group of service providers
surveyed are considering shifting
delivery locations to inland and western
areas of China to reduce employment
costs. The research survey indicates
that 55 percent of respondents are
considering making this shift in order
to reduce the costs of retaining talent.
(See Figure 15.)
There are three major reasons for this
trend. First, as some multinational
clients relocate to China’s Tier Two
cities,11 they create demand for high-
quality, fast-response services nearby.
Second, providers can use their local
environments to improve margins
quickly, since labor costs, facilities
and taxes are generally lower in
China’s inland provinces. And third,
the governments of Tier Two cities
are more likely to offer incentives to
attract investment from MNCs and
local outsourcing vendors. However,
the management teams of outsourcing
providers must compare carefully
the considerable costs of relocation
against the benefits. Such costs mayweigh heavily on smaller firms and
may be feasible only for the larger
service providers.
Figure 14: The number of employees companies considered to hire with the next
year compared to the current number of employment (N=30)
269
324
424
46
11
Senior
management
Middle level
management
Junior level
management
Current number of employees
Employees expect to recruit
in the next year
No
45%
Yes
55%
Figure 15: Company considered or
is considering shifting its low-end
delivery center to China’s inland and
western areas or to China’s Tier Two or
Tier Three cities (N=47)
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Quality and reputation will climb, but
China’s pricing advantage probably
will not endure. According to the
survey data, outsourcing providers
believe that, within the next five
years, China in general and the
outsourcing sector in particular will
have made noteworthy strides in
quality of service, quality of talent,
reputation, and intellectual property
rights protection. Yet more than half
of respondents think the gains likely
will come at the expense of Chineseproviders’ pricing advantage. (See
Figure 16.)
Analysis of service providerlandscape by product offering
Information technology outsourcing
From a technical standpoint, China’s
software companies are yet to match
the sophisticated, high-value offerings
of their global competitors because
they lack the necessary skills andexperience. Like those rivals, they too
will have to experience the three key
stages of maturity: localization and
globalization; testing and application
development; and software R&D. They
can expect their profit margins to
improve with each step of maturity.
For now though, thousands of
types of software products need to
be localized, and rich opportunity
awaits China’s outsourcing providers.
Although the margin at this stage
is not especially impressive, many
global service providers, including
leading Indian vendors, are targeting
China’s huge localization market. If
outsourcing providers can match their
business models to the appropriate
cost structures and skills mixes, they
could enjoy promising growth in the
market for localization services for
some time to come.
At the same time, local outsourcing
providers have a golden opportunity
in the IT upgrades demanded by
the many levels of government inChina. Many agencies are investing
in relatively straightforward upgrades
to their existing management
information systems and concurrently
evaluating and implementing new
systems. These less ambitious projects
typically span system development
and systems integration as well as
maintenance services.
Although this basic-level ITO
holds many attractions for China’s
outsourcing providers, it should not
prevent them from striving to deliver
higher-value services. True, as a rule
these providers still have much skill
and experience to gain, and attracting
and retaining talent for these more
complex services may prove doubly
difficult. Yet Accenture believes that
planning for growth into these high-
value markets is vital for the future of
China’s outsourcing industry.
52% service providers think there will be a decrease in price advantage.
Service quality
Talent and skills
China brand
IPR protection
Oversea demand
Domestic demand
Stable policy support
Service cost
Staff attrition
Unsure Deteriorate Remain the same Improve
2%2% 96%
4% 96%
2%2% 96%
4% 4% 92%
4% 8% 88%
6% 6% 88%
28% 20% 52%
6% 52% 8% 34%
18% 28% 26% 28%
Figure 16: Respondents’ views on the future of China’s price advantage (N=51)
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Neusoft offers a constructive example
for rising China ITO service providers.
Neusoft achieved its success by
restructuring its departments and
strengthening its abilities to hire and
train talent to suit China’s business
environment. The company also
has paid considerable attention to
embedded software development,
cultivating a competitive advantage
in this field. As a result, Neusoft
has strong delivery capability, and
outsourcing resides at the core of its
business, especially to the Japanese
and Korean markets.
Neusoft Group is China’s top IT
solutions and services provider,
leading the country’s software
offshore outsourcing market by a
significant margin. According to one
respected source, the China Center
for Information Industry Development
(CCID) report, Neusoft has maintained
its top ranking in this emerging market
for four years based on its talented
staff, its sophisticated management
system and its technological
advantages.12
Founded in 1991, Neusoft has 13,000
employees, including the 7,000 new
hires who joined in 2006 and 2007
alone. Neusoft foresaw the challenge
of obtaining enough talent six years
ago and founded three Institutes
of Information in Dalian, Nanhai
and Chengdu to recruit and train
students not only for Neusoft but also
for the entire IT industry in China.
In addition, Neusoft has long-term
recruiting partnerships with more than
40 domestic universities. With thisstructure, Neusoft has acquired the
capability to recruit 5,000 potential
employees per year—and ensure a rich
human resources reserve for the future.
The company also has attached great
importance to quality management
and process improvement and was
the first to pass quality certifications
and process maturity evaluations that
include CMM5 and CMMI® (V1.2)
5. These well-established, advancedmanagement approaches and
methodologies have not only helped
improve the maturity and quality of
the company's software outsourcing
development, but they also have
reduced operating costs and kept
software development cycles on time
and on track.
This effective HR development
strategy, coupled with its impressive
talent pool, is enabling Neusoft
to acquire and maintain a strong
competitive advantage for its future
outsourcing expansion.
Another significant strength isNeusoft’s technological advantages.
Based on its years of rich experience
and abundant resources in outsourcing
development, the company has
offered a wide range of offshore
outsourcing services in software
and service for more than 50 well-
known MNCs around the world. Of
particular value, it has maintained
a dedicated team of nearly 5,000
employees for its embeddedsoftware outsourcing operation.
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In addition, Neusoft has been
constructing international outsourcing
bases and global delivery centers
in major cities including Shenyang,
Dalian, Beijing, Shanghai, Chengdu
and Nanjing. It also has established
localized technical support centers in
Japan, with locations in Tokyo, Osaka,
Nagoya and Fuchu respectively; the
United States; and Europe; aiming to
create more opportunities for future
global software and service outsourcing
growth.
The company bases its fast expansion
on cohesive organic growth
rather than frequent M&A. It has
strong backing from multinational
shareholders: It collaborates in
digital medical care with Philips, in
telecommunications with Nokia, in
database technology with Oracle, and
in management software with SAP.
With Intel as a springboard, software
outsourcing in the United Statesmarket now has become highly likely.
Although software outsourcing forms
its core business, Neusoft also boasts
significant units in IT solutions,
medical systems and IT education and
training. The company has successfully
developed large-size medical
equipment systems, network security
products, auto electronics and mobile
communication facilities software.
Neusoft has leveraged its success
in the ITO market to add BPO
services to its offerings. Now the
company is offering call center, HR
and administrative, finance and
accounting, as well as supply chain
and procurement services.
Japan accounts for the majority of
Neusoft's offshore business and is the
largest contributor to the company's
sales revenue. Recently, Neusoft’s
European and North American
business has rapidly increased,
enabling the company to open a newoffice in Los Angeles. Its business in
Ireland also is faring well.
Neusoft client profile:Japanese mobile phonemanufacturer
A leading Japanese manufacturer
of mobile phones chose to evaluate
the offshore outsourcing of
software development to help it
meet growing business pressures,
enhance its competitiveness and
improve its shareholder returns.
The decision was a strategic one:
innovative embedded software
applications are key to highly
prized phone features such as
mobile imaging and entertainment.
But the Japanese company faced
high R&D costs and a shortage
of engineers skilled in advanced
embedded software development.
As early as 2002, Neusoft met the
Japanese company’s expectationsduring the pilot stage. It demonstrated
the ability to capture knowledge and
complete assignments within tight
2006
Neusoft IT Service Co., Ltd. was
founded to promote BPO business.
Neusoft joined with SAP and Intel in a
strategic alliance
2005
A Biomedical and Information
Engineering School was established
at Northeastern University, China,
with joint investment from Neusoft,
Philips and Eindhoven University of
Technology (TU/e) of the Netherlands.
2003
Neusoft completed its strategic
restructuring program. Neusoft
Park Industrial DevelopmentCo., Ltd. was founded.
2000
Neusoft Institute of Information began
construction in Dalian. Neusoft HK Ltd.
and Neusoft USA Inc. were established.
1998Neusoft Medical Systems Co., Ltd. was
founded. Construction of Neusoft Park
(in Dalian) began.
1996
Neusoft cooperated with Toshiba to
establish NETS Systems Integration
Co., Ltd. Neusoft Group Ltd. was
founded. Neu-Alpine Software Co., Ltd.
became the first software company
listed on the Chinese stock exchange.
1995
The foundation of Neusoft Park was
laid, and construction of the park
began. Neusoft Park was approved as
China’s first Software Industrial Base
of the National Torch Program.
1991
OpenSoft System Development
Company of Northeastern Engineering
Institute was founded. Northeastern
Engineering Institute Computer
Software Research and Development
Center cooperated with Alpine Japan
to set up the Neu-Alpine Software
Research Institute.
Company Timeline
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timeframe goals and to effectively
transfer knowledge offshore. Besides
meeting most of the client’s key
requirements, Neusoft’s proven core
competencies made it a vendor of
choice. To keep the client’s overhead
to a minimum, Neusoft set up
an offshore development centerthat now has 270 engineers.
The results to date are impressive.
Neusoft’s offshore development
model has dramatically reduced the
client’s total cost of operations and
increased its return on investment.
New products get to market in less
time than before the introduction
of offshore outsourcing into the
production process. Neusoft’s quality
assurance has helped enhance theclient’s reputation for high-quality
products. And as a result of this
partnership, the Japanese company
has secured a top-three mobile phone
market share in the Japanese market.
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Business process outsourcing
China’s BPO market remains in its
earliest stages, and the country stands
largely as a BPO exporter rather
than a large consumer of domestic
BPO activities. The major local BPO
consumers are MNCs in China, and
the secondary consumers are financialservices companies.
According to survey respondents, one
reason for the lack of BPO growth
from in-country consumers is that
most local enterprises still struggle
with which services to outsource and
which to retain in-house. Respondents
also point to the limited number
of qualified and powerful local
BPO service providers in China as a
hindrance to the industry’s growth.
However, BPO in China holds plenty
of promise. Buoyed by the nation’s
overall economic growth, the sector
will receive a boost as the Chinese
government promotes the nation’s IT
sector and its telecom industry, and as
reforms and restructuring begin
to sharpen the competitiveness of
China’s financial industry. A brief
overview of the status of China’s BPOmarket follows.
Finance and accounting: Accounting
firms dominate this segment of BPO
in China. Clients mainly outsource
repetitive, easily automated back-
office functions, such as ledger
entries, data entries, financial record
management, and so on. In the
financial services industry, much
of the BPO demand is to outsource
finance and accounting services.
Human resources (HR): Recruiting,
staffing and HR service centers lead
the way. Staffing will drive the major
growth, as shortages of workers with
the right skills at the right cost in
the right places become more acute.
More and more local companies are
turning to headhunting companies
to find senior managers with strong
leadership and management skills.
Training and education: Outside of
the MNCs’ China offices, our survey
found little spending on training and
education in BPO. However, as soft
skills increase in importance in the
workplace, training and education will
necessarily become more complex and
costly. As a result, we expect to see a
healthy market for specialty providers
of these learning BPO services.
Procurement: This segment remains
quite small. Although other global
markets make strategic use of this
area, in China the BPO procurement
providers focus on less complex tasks
such the outsourcing of transactional,
repetitive and administrative activities
related to purchasing, sourcing, and
procurement spend management. As
such, procurement offers a potential
area for BPO growth in China.
Client relationship management:
Call centers tend to dominate this
segment. (See "Call center services".)
The players include pure call center
outsourcing providers such as China
Center for Information Industry
Development (CCID), companies’
own call centers (such as Lenovo’s),
and local telecom carriers like
China Telecom. Consumers look
increasingly to call center certification
when choosing a provider, thoughcost efficiency, process efficiency,
service quality, and security
remain critical criteria as well.
R&D: Survey respondents mainly
brought up research and development
services in reference to contract
research organizations, which is
discussed below (See “Contract
research”.) Supply chain/logistics:
The fast development of third-party
logistics services is a significant
BPO trend. However, this is still a
very small business in China due
to the early stage of BPO industry
in China which still needs more
education and popularization.
Industry-specific outsourcing: These
kinds of outsourcing services can help
companies attain high performance
through both cost savings and process
efficiency enhancements—at leastas long as China remains a relatively
low-cost place to do business. The
scope of outsourcing opportunities
has grown from relatively simple
account data entry work to all but
the very core banking processes.
Credit card processing serves as a
prime example in this sector. Often,
service contracts will package
several outsourcing processes.
For example, a card processingservice deal may include account
origination services, credit checks,
business statistics, and bill printing.
Huge opportunities await in the
banking sector in China thanks to
significant domestic demand. In
particular, China’s own banks face
challenges in managing enormous
growth in demand for credit
cards, fostering increasing need
for these outsourcing services.
The sections below provide more
detailed views of two facets of
BPO in China: call center and
contract research services.
Call center services
The call center industry fits into
three groups: in-house call centers,
outsourcing call centers and ASP
(application service providers). The
term “outsourcing call center” usually
refers to the complete turnkey service,
from client service and sales and
marketing to equipment lease and
operations management, while “ASP”
refers to the providers that lease
others’ equipment and technology.
With more than 10 years of rapid
development, outsourcing now has
become the mainstay of the entire call
center industry worldwide.
Japanese and South Korean companies
increasingly are transferring the
implementation and management
of their call centers to China and
enormous potential demand lies in
China’s domestic market.
Since the late 1990s, the outsourcing
market of China's call centers has
cultivated by the local providers
gradually, accumulating operating
experience, training staff, andclimbing the learning curve. Years
later, along with some providers
updating their equipment, they began
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to build their brands, and started to
see profits against steady revenues.
In recent years, second-generation
call centers have begun to emerge
and the market started to mature,
and in the economically developed
cities, market competition became
fierce. And since 2007, this industryhas been accelerated by demand from
the 2008 Olympic Games, the 2010
World Expo, and a proliferating array
of conferences and trade fairs. At the
same time, falling equipment costs
have encouraged many enterprises to
start building their own call centers.
Several factors will exert a drag on the
rapid development of the call center
industry in China. First, a sense of
what constitutes best-practice serviceremains hazy within the industry.
Limited operational management
expertise exists within call centers.
And high staff turnover and a lack of
talent continue to plague providers.
Contract research
China is already well-known as a
“world factory” in the pharmaceutical
industry: According to the data
from China Chamber of Commerceof Medicines & Health Products
Importers & Exporters, its companies
produce more than 300 billion tablets
a year and more than 70 billion
capsules. In 2005, China’s exports of
pharmaceutical raw materials totaled
$7.9 billion, accounting for a quarter
of the global market while the number
already increased to $10.6 billion
in 2006. Much of that volume was
shipped to multinational clients. But
now, China hopes to become an evenstronger competitor in the contract
research organization industry.
Contract research organizations
first appeared in the United States
some years ago. Companies such as
Quintiles, Covance and MDS Pharma
have held top-three spots in the
field for a long time. The global CRO
sector is fueled by the pharmaceutical
industry’s huge R&D funds.
Asia Pacific companies became
involved in the CRO business because
of the continent’s cost advantages.
Japan boasts a well-developed
industry (where the largest provider
is EPS, founded by China native Yan
Hao) with a significant presence in
both Singapore and India.
China joined the CRO sector relatively
recently. In 1998, China’s Food and
Drug Administration (SFDA) set up a
series of new laws and regulations
governing drugs, especially the
“Clinical Trials of Drug Quality
Control,” which directly galvanized
the development of the CRO market.
The SFDA classifies CRO service
providers into four main organization
types: universities and not-for-
profit public research institutions
managed along academic lines;
foreign-owned CROs, founded mainlyby multinational contract research
organizations or with foreign capital;
local CRO companies such as Excel
and NewSummit Biopharma; and joint
ventures such as KendleWits and EPS.
Some, such as WuXi PharmaTech, are
focused on preclinical research during
the research and development of
new drugs, mainly involving work on
related chemicals, such as preclinical
pharmacology and toxicology tests.Some, like KendleWits, specialize in
clinical trials. And others are engaged
in advisory services for R&D on new
drugs, such as new drug approval.
The CRO business deals in large
numbers. The future of isolated CROs
looks uncertain; many small players
are struggling for want of funding and
talent. One solution for these smaller
firms would be to raise funds through
overseas listings on public markets—a
move that would help China build a
healthy core CRO industry. In early
2005, Shanghai established a base
of biomedical outsourcing services
as well as the Pudong biomedical
research and development outsourcing
center. At a Chinese medicine
development summit meeting in July
2006, 22 organizations, including the
Beijing Pharmaceutical Group and
Zhongguancun Life Sciences, teamedup to form the Zhongguancun CRO
Union. Presently, there are more than
300 large and small CRO companies in
China, presenting an array of choices
for foreign customers.
The challenge for China’s CRO
industry is its youth. Local vendors
still lack extensive experience, and
other nations provide significant
competition. Very active contract
research organizations from India
and the United States are eager
to establish firm footholds in new
markets before China’s CRO sector
matures. India is especially well
positioned to compete, with more
than 220 universities and extensive
use of English-speaking researchers.
India’s CROs have also benefited from
the country’s well-developed software
industry. Good database management
and rigorous R&D processmanagement have strengthened their
advantages. And India has a strong
cost incentive: Clinical trials there cost
about three-fifths of what they cost in
the United States.
Indian contract research organizations
also attract orders from multinational
pharmaceuticals based on their
quality and efficiency. India has
61 manufacturers authorized by
the United States Food and DrugAdministration (FDA), the largest
number outside the United States. For
the foreseeable future, Indian contract
research organizations will be the
most formidable competitors for their
counterparts in China.
Of course, the Chinese contract
research organizations offer cost
advantages as well. Clinical trials
in China cost about one-third
of the price tag in the United
States. However, the best market
opportunities for China’s contract
research organizations will be won by
those that quickly can achieve GLPS
(Good Laboratory Practice Standards)
and GCP (Good Clinical Practice). With
China’s integration into the global
clinical trials system, an increasing
number of valuable projects will
move to China. Contract research
organizations that cannot providesufficient database capacity and sound
management of clinical trial processes
will gradually lose out.
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China already claims a powerful CRO
service provider in WuXi PharmaTech.
In 2007, the company’s 80 clients
included nine of the world’s top 10
pharmaceutical companies by revenue.
Founded in December 2000, WuXi
PharmaTech is a leading China-based
pharmaceutical and biotechnology
R&D provider. This Shanghai firm
offers global pharmaceutical and
biotechnology companies a broad
and integrated portfolio of laboratory
and research manufacturing services
ranging from discovery chemistry
(the chemistry disciplines used
in discovering new drugs) and
pharmaceutical development to
biological services and manufacturing
of active pharmaceutical ingredients
for R&D use.
The company’s services are not directed
at the development of new drugs but
rather at the development of serviceplatforms for new-drug R&D. Backed
by a strong research team, hundreds
of different projects progress each
day, from forming small compounds
to manufacturing pharmaceutical raw
materials by the ton.
In 2007, WuXi PharmaTech’s 80 clients
included nine of the world’s top 10
pharmaceutical companies by revenue.
(The company does not yet work with
Chinese pharmaceutical companies.)
With more than 2,700 scientific staff
members; a 630,000 sq. ft. research
facility in Shanghai’s Waigaoqiao
Free Trade Zone; a 220,000 sq. ft.
manufacturing plant in Jinshan District,
Shanghai; a new 130,000 sq. ft. Tianjin
research facility; and a 323,450 sq. ft.
Suzhou drug safety evaluation center
under construction; WuXi PharmaTech
is well-positioned to offer its clients
high-quality services.
WuXi PharmaTech received venture
capital investment during its second
year. The company’s top management
team comprises Western-trainedPh.D.s and MBAs with experience
in drug R&D methodologies and
familiarity with Western business
practices. Collectively, its senior
management team holds more than
200 patents pending or granted, has
published more than 800 publications,
and has an average of 15 years
of experience working in major
international pharmaceutical and
biotechnology companies.
The Chinese founder and CEO of
WuXi PharmaTech is Ge Li, who, as
a student at Columbia University
in New York in the early 1990s,
co-invented combinatorial chemistry
technology and set up a company
called Pharmacopoeia that was listed
on NASDAQ in 1995. Initially, his new
company focused on simple synthesis
work. However, Li soon developed
a more profitable model based on
leveraging China’s low-cost and
high-quality advantages to become
competitive in the global drug R&D
service market. At the same time, the
company invested part of its revenuesin internal projects, such as the
development of new drugs, and made
use of its advanced equipment to
Case Study #2WuXi PharmaTech—A pioneer and leader in the CRO sector
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take the lead in developing a series of
precursors to patent drugs.
Currently, WuXi PharmaTech is China’s
largest drug R&D service provider
offering new drug R&D services with
complete service types. With its
acquisition of the US-based AppTec
Laboratory Services, Inc. in early
2008, WuXi PharmaTech’s services
now cover the spectrum of chemical
pharmaceuticals, biopharmaceuticals
and medical devices. The acquisition
will expand its client base and
increase the company’s cross-selling
opportunities and market share.
Milestones"Deloitte Technology Fast 50 China",•
2008, fourth consecutive year
"Deloitte Technology Fast 500 Asia•
Pacific", 2008, fifth consecutive year
CEO Dr. Ge Li among "25 Notable•
Chinese-Americans" from Forbes, 2008
"Frost & Sullivan Award for•
Best in Class Outsourced R&D in
Pharmaceuticals and Biotechnology",2008
"Top 20 Most Innovative Companies•
in China" and CEO Dr. Ge Li among
"Top 10 Most Innovative Leaders of
Chinese Enterprises", 2008
Ms. Trabue D. Bryans, VP and GM•
of WuXi AppTec's Atlanta Operations,
invited to join the Association
for the Advancement of Medical
Instrumentation (AAMI) StandardsBoard, 2008
"50 Local Dynamos" from the Boston•
Consulting Group (BCG), 2008
Completed the acquisition of AppTec•
Laboratory Services, Inc., Jan, 2008
CEO Dr. Ge Li among "China Top 10•
Influential Entrepreneurs", 2007
NYSE listing, Aug 9, 2007•
"Top Chemistry CRO" from Pfizer,•
2007
Became the largest Beilstein•
customer, 2006
"Outstanding Strategic Collaboration•
Award" from Merck, 2006
"Chemical Product R&D Preferred•
Partner" form Eli Lilly, 2006
"Top 103 National Innovative•
Enterprises" in China, 2006
Opened its Tianjin facility•
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Analysis of service provider
landscape by industry
According to Gartner, the financial
services and communications
industries together accounted for
nearly half of all IT spending in China
in 2007.13 The manufacturing sector
also served as a major client. (See
Figure 17.)
Our survey of Chinese IT outsourcing
providers paints a similar picture
of the spread of client spending byindustry. (See Figure 18.) Financial
services rates highly worldwide,
with the media and entertainment
industries spending significantly in
the Unites States and Europe, and
the communications industry and
government sector spending notably
in China.
BPO in the financial services sector
possesses some unique characteristics
compared to other industries.Barriers to entry are high, and
potential providers will find daunting
requirements for fast, reliable and
secure information infrastructure as
well as a demand for top-notch talent.
Financial institutions tend to be
sensitive to outsourcing pricing. And
client relationships develop largely in
stages: first, software development
and services; then data center
management, and eventually, in some
cases, internet banking.
China’s BPO outsourcing providers
offer several advantages to financial
services clients. First, the Chinese
government grants strong levels of
support: In May 2006, the government
founded the Research Center of
Financial Outsourcing Services—the
Chinese outsourcing industry’s
first base for financial information
services—in Shanghai Bank Card
Industry Park. China UnionPay, Bank
of Communications, Industrial Bank,
Shanghai Futures Exchange, and other
financial institutions already have
moved their credit information centersand settlement centers to this new
industry park.
China also presents financial companies
with a sound business environment.
This is particularly crucial in the area
of financial services BPO, which usually
requires significant time to implement,
test and fine-tune processes.
However, some obvious obstacles
stand in China’s path, such as a
limited system of credit, the high
costs of check processing, the risks
of unreliable data, and the need to
develop sound oversight mechanisms.
Accenture believes that progress is
being made on all of those fronts,
but China still must travel some way
down the road of progress before it
can boast truly world-class financial
services outsourcing capabilities.
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Figure 18: Survey data on IT outsourcing spending by industry
Figure 17: IT services spending in China segmented by industry
Source: Gartner MarketView Database, IT Services Market Metrics
Electronics and High Tech
Finance Services
Media and Entertainment
Freight and Logistics
Forest Products
Communications
Medicine
Automotive
Life Science and HealthcareIndustrial Equipment
Energy
Consumer Goods and Services
Government
Public Service
Chemicals
Aviation Industry
Retail
Public Transportation
Aerospace and Defense
MiningTourism
Other
US / European clientsN=50
Japanese / Korean clientsN=49
Chinese clientsN=49
45%
37%
27%
24%
24%
24%
24%
20%
20%
18%
16%
16%
14%
12%
10%
8%
6%
4%
4%
2%
4%
41%
39%
16%
14%
24%
6%
18%
16%
16%
4%
18%
10%
14%
29%
4%
10%
12%
2%4%
2%
44%
32%
20%
26%
10%
32%
14%
18%
12%
14%
14%
10%
32%
14%
12%
4%
6%
12%
8%
2%
4%
IT Services Spending in China by Industry, 2007
Financial Services
20%
National and International
Governments 7%
Discrete Manufacturing
10%
Communications
32%
Retail Trade 3%
Services 5%
Local, Regional
Governments
5%
Process
Manufacturing 3%
Utilities 5%
Transportation 3%
Education 3%
Agriculture, Mining,
and Construction
1%
Healthcare 2%
Wholesale Trade 1%
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CDG at first focused on Chinese clients
to hone its delivery capabilities and
now is extending its services overseas.
CDG has become the industry leader
in total solutions for the credit card
industry in China, covering 90 percent
of its outsourced credit card processes
announced by itself.
Founded in 1998 as a leading imaging
systems integrator for China’s
banking sector, CDG made a strategic
transformation in 2003 to become a
BPO service provider. Its management
team comes from leading financial
institutions and professional service
firms in both China and abroad. The
team members bring industry expertise
and technical knowledge as well as
experience in managing large-scale
BPO operations. In addition, the
company bears the strong financial
backing of leading international
private equity funds.
CDG focuses on providing one-
stop, back-office BPO services to
the banking, financial services and
insurance sectors. The firm also has
ventured into enterprise BPO process
solutions, including finance and
accounting, payroll, and procurement
services. CDG currently employs over
2,500 staff in five delivery centers
in the major financial hubs of China,
with nearly 30 banks and insurance
companies among its clients.
Client profile: Credit
card applicationprocessing
The client is a fast-growing commercial
bank in the Asia Pacific region.
Although a relatively new player in
the sector, the client operates through
a network of 370 branches in 36
major cities in the region, with one of
the most highly regarded credit card
operations in the industry. Feeling the
pressure of market competition and
diversified requirements from its ownclients weighing on its relatively small
size and short operational history, the
client needed to offer products and
services at a lower cost, with higher
efficiency and shorter turnaround.
The client engaged a management
consulting firm to redesign its
business processes and suggest
recommendations on which processes
could be optimized. The consulting firm
found that many front, middle and
back-office functions were repetitive
and labor-intensive, added little value,
and represented a disproportionate
percentage of staff headcount and
management challenges.
The client decided to focus on its
core business and maximize value
by offloading non-core credit card
application processing to a third-
party provider. While price was a
factor early in the selection process,
the client’s concern for quality,
reliability and data security took
priority over the need for pure cost
savings. The project scope included
all typical non-core functions—frommailroom functions to screening,
scanning, indexing, quality and credit
reference checking, data capturing,
Case Study #3China Data Group (CDG)—Innovation in professional services
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and storage. The complexity, security
and segmentation of these processes
required that business process
management systems be in place at
three different client locations.
Six months into the project, the
team ran into a bottleneck: CDG’s
back-office data capture capability
operated much faster and more
efficiently than its onsite staff. CDG
proposed to consolidate all middle-
office processes—including screening,
scanning, archiving, and credit
reference checking—in a centralized
offsite location in Shanghai. Taking
its cue from mass production
innovations in the manufacturing
industry, CDG began to manage
these processes via parallel assembly
lines. As a result, the client retained
quality control and transparency
through real-time video feeds,
regular quality checks and surprise
visits, with project implementationunder a steering committee.
Three years into the project, the client
became an award-winning credit card
operator in the region, with the ability
to roll out new products and services
with almost no extra investments in
fixed assets. Cost savings were realized
in office rental, headcount, hardware
investment, software development,
recruiting, and training as well as in
per-head operations costs. In some
places, savings were as high as 30
percent year-overyear. The satisfaction
levels among the client’s own clientscontinued to rise due to improved
service quality and shortened product-
to-market turnaround time. As a result,
the client’s management was able to
focus on its core credit card business.
CDG’s success stemmed from its
positioning as a long-term strategicpartner in the client’s core businesses
instead of as a simple and passive
service vendor. Its proven record of
success in processing applications
has allowed the company to bundle
additional call center services—from
telemarketing to client support to gift
delivery—to add even more value to its
clients’ enterprises.
Company Snapshot
otal financial services middle and back-office
outsourcing solutions...
...And significant competitive advantage
CDG
Credit Card
Insurance
Banking
FAO
Market Position
• 10 of the big 14 banks• 90% of the outsourced operations
Large client baseOver 30 top clients based in China
Top brand and client loyaltyHighly recognized brand with many clients withover 3-year service history
Nationwide service networkFive delivery centers out of Beijing, Shanghai andGuangzhou
Most integrated service offeringsServices cover several verticals and include both
transactional and voice
Strong IT and data security teamCMMI®3 and ISO 27001 certification leveragingOracle’s BPM technology
Unique Operations ModelMass producer and one-to-many delivery
• 17 leading insurers• 90% of the outsourced operations
• Pioneer with the only live offsiteclient of the sector
• First independent FAO provider inthe country• Pioneer with the only live client of the sector
Figure 19: Factsheet—CDG
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ClientsClients in China outsourcing markets
Currently, most consumers of
outsourcing work in China are MNCs.
However, China’s state-owned
enterprises (SOE) are starting to
embrace outsourcing as well.
Our research uncovered several
interesting insights with regard
to outsourcing clients in China.
First, potential clients lack a clearunderstanding about outsourcing,
which indicates opportunities to raise
awareness and provide education
in the market. Secondly, these
prospective clients express substantial
distrust of the relatively immature
outsourcing market in China. Only
a third of those surveyed currently
are outsourcing or planning to do
so in the next three years—a strong
indication of the reservations theseclients feel about local outsourcing
providers’ value, expertise and control
of confidential information.
Among those companies already
outsourcing, the survey results
indicate that key criteria for choosing
providers include service quality,
intellectual property rights protection,
skilled workforce, and industry
expertise. Existing outsourcing clients
believe that outsourcing helps them
cut costs and improve processes;
most are satisfied with their service
providers. The most critical factor
in the success of an outsourcing
project is the compliance of theservice provider with the service level
agreement (SLA).
Chinese clients surveyed also agree
with providers that China has a
particular advantage in outsourcing
over Japan and Korea—culturally and
geographically as well as in terms of
cost. Further, they agree that China
will rapidly improve in terms of talent,
quality of service and reputation for
reliable outsourcing services thatdeliver high performance.
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China Development Bank (CDB),
founded in March 1994, is under
the direct jurisdiction of the State
Council. At present, it has 32 branches
and four representative offices
across the country. Over the past
decade, CDB has followed China’s
macroeconomic policies and carried
out its macro-control functions
in support of national economic
development and strategic structural
readjustment. CDB has been a major
player in long-term financing for keyprojects and supportive construction
in infrastructure as well as basic and
pillar industries, which are vital to the
development of China’s economy. Over
the past decade, CDB has issued an
accumulated total of 1.6 trillion RMB
in loans for more than 4,000 projects.
As a leading institution in China’s
financial industry, CDB’s total assets
have seen steady growth. Yet despite
this rapid business expansion, its ITdevelopment has lagged. At one point,
CDB’s IT department was composed
of just 30 technicians who managed
all the bank’s IT needs. The rapid
expansion of its business, together
with the increased number of clients,
staff, branch offices, and IT equipment,
simply added to the complexity. Not
surprisingly, the bank’s management
concluded that its systems could not
support the structural and operational
changes that CDB would have to
make in the future. Indeed, the lack of
good IT support had become a major
obstacle to the bank’s development.
Recognizing these challenges, CDB
embarked on a program to upgrade
its IT operations in order to capture
new business opportunities and
compete with its global counterparts.
The revised IT infrastructure would
not only enable the bank to respond
quickly to market changes and adapt
to new business models, but it would
also lower its total cost of ownership
in the long term.
After assessing all options, CDB
decided to engage the help of a global
IT service provider to outsource the
implementation, maintenance and
management of its new IT system.
HP was tasked with providing the
bank with a comprehensive Desktop
Service Management program for
its offices across China. In the
process, CDB became one of the first
financial institutions in the country to
enhance its competitiveness through
technology innovation.
Building on the success of its existing
cooperation, both HP and CDB signed
a three-year strategic IT outsourcingservice contract in April 2006 that
will continue through 2009. Under
the terms of the agreement, HP
Support Services will provide a series
of comprehensive and long-term
outsourcing services that cover the
following areas:
Onsite support•
One-stop hotline service•
Equipment management service•
Monitoring service for mission-•
critical systems
Case Study #4China Development Bank—A domestic client that makes good use of outsourcing services
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New technologies consultation•
Client training•
Outsourcing service management•
Application testing services•
E-procurement system setup and•
management
Following the outsourcing of its IT
services, CDB has streamlined its
business operations. The company has
achieved stronger alignment betweentechnology and its changing business
requirements. This alignment has
endowed CDB with greater agility
and, in turn, a competitive advantage
in the global financial market. The
contract also has provided CDB with
faster information cycles that support
improved decision-making processes.
Having HP China manage its IT system
freed CDB’s resources to focus on the
company’s core business offerings,
which not only has enabled the
company to benefit from the latest
technology but also has brought
about substantial savings in IT costs.
In addition, outsourcing its
hotline services has significantly
shortened the response time per
call, allowing CDB to achieve higher
levels of productivity. This has
greatly increased the level of client
satisfaction. In fact, CDB resolved
16,802 end-user problems in 2005
without a single complaint.
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China’s outsourcing providers’
client base
So where do China’s outsourcingproviders’ clients come from? TheAccenture-CCIIP research indicatesthat about 44 percent of currentoutsourcing revenue comes from theUnited States and Europe, with 34percent from Japan and Korea, androughly a fifth from Chinese clients.(See Figure 20).
A list of sample clients for the services
of China’s outsourcing providersappears in Figure 21.
Our research shows that China’soutsourcing providers, generallyspeaking, have not yet selected onetarget market as their priority for thenext five years. The Japanese marketwill grow at a steady rate, whilethe European and North Americanmarkets will continue to play thestarring outsourcing segments. China’sdomestic market also holds significant
promise for local outsourcingproviders. Figure 22 gives an overallmarket breakdown by client groups,based on the responses from local
outsourcing providers.
Figure 20: Revenue breakdown by client geography
44%
34%
20%
2%
American /European clients
Japan and Korea
Chinese
Other
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Markets Market Size
Market
Share Potential Profitable Risk14 Competition
US Largest Small Big but need substantial
effort to develop the
market
High High Intense
Japan Large Large Middle as the growth
of the total market
size due to system
upgrading of many
Japanese companies
Middle Low Moderate
Domestic Small Middle Great but need
relatively long
period promotion of
outsourcing concept
Middle Low Moderate
EU Middle Small Hard to say as the
market is strongly
influenced by
government policy
Highest High Intense
Korea Small Middle Good Middle Middle Moderate
Figure 22: Outsourcing outlook by market
Figure 21: Representative clients of China’s outsourcing industry
Agile
AIA Life Insurance
AIG
AIS Data Co (US)
Alcatel Shanghai Bell
AllstateAviva-COFCO Life Insurance
Bank of China
Beijing University of
Technology
BOSCH Blaupunkt
Camelot Information
System
China International Travel
Service
China Merchant Bank
ChudenCTIComverse
Concentrix
Crossbeam Systems
CSK
Dassault Systemes
Datang
Decathlon
Denso Japan
Document Sciences
Ericsson
Eze CastleFreescale
FST
FUJITSU Japan
Harbin City Government
HIMACS
Holland Literature Digital
Library
HSBC
Japan IBS
Lenovo Group
Lexis NexisLG
Mecuries Soft (Taiwan)
Mitsubishi Electric Infor Sys
National Library
National Theatre
Network Appliance
New China Life
Novartis
Oracle
Oriental Cable Network
Procter & Gamble
PaciolanPASITS (Panasonic)
Patni Computer Systems
Petrochina
Pitney Bowes
PSA
Q5
RF
Rogers Communications
(Canada)
Samsung
SAP media projectSHANGHAIWINGTECH
ELECTRONICS
SK
SOL
Springer-Verlag
Sun
SYNNEX
Tianjin Daily
Tixa.com
TNT
TTI
US Federal GovermmentWalsin Lihwa
Worth Pointe
Yokogawa
ZTE
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Multinationalcorporations’ sharedservice centersMNCs are establishing shared service
centers in China to support their
global or regional business operations.
In a shared service environment,
common supporting functions are
consolidated rather than spread across
an enterprise. Implementing a shared
service model requires changes inbusiness processes, infrastructure and
even corporate culture. Yet the model
brings big benefits: Organizations
gain a better understanding of their
entire business operation, enabling
them to analyze, change and optimize
the services they provide to internal
clients. Additionally, companies that
leverage shared services can realize
increased flexibility in instituting
business changes, more manageable
costs and greater control.
Large corporations often implement
the shared service concept as a last
step when readying themselves for
outsourcing. The process overlaps
with outsourcing in many respects.
The only difference is if it’s run
internally or by an external service
provider. Companies make a choice
on one or the other based on culture
and readiness, etc., but it is less of a
precursor to outsource than it used to
be. Accordingly, China has witnessed
an increase in MNCs establishingregional shared service centers
in tandem with the growth of its
outsourcing industry.
China’s outsourcing market:
Notable phenomena
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Multinationalcorporations’ researchand developmentcentersIn recent years, foreign enterprises
have established and expanded their
R&D centers in China. According
to the Ministry of Commerce,
there are currently more than 800
R&D centers in China founded by
multinational enterprises from NorthAmerica, Europe, Japan, South Korea,
Taiwan, and others. These centers
focus on several manufacturing
industries, including electronics and
communication, transportation, and
pharmaceuticals and chemicals.
The R&D centers are concentrated in
big cities—such as Beijing, Shanghai,
Shenzhen, and Tianjin—although the
western cities like Chongqing, Xi’an
and Chengdu are drawing new R&D
centers due to their lower costs.
Increasingly, companies are founding
R&D centers as sole proprietorship
enterprises. Only a few centers have
been founded as joint ventures,
including those for Lenovo and Intel,
and Motorola and HuaWei.
China has become a vibrant region
for R&D centers for several reasons,
including the vast potential of the
Chinese market, improvements
in the investment environment,
and the lower cost of R&D talent.
Currently, R&D centers in China
mainly engage in technical support
and applied research to develop
products that are adapted to the
Chinese market. However, due to
the Chinese government’s efforts to
encourage independent innovation,
the R&D centers of MNCs are
starting to track emerging new
technologies and autonomous
local standards. As they cultivate
increased technical power and
accumulate research and development
experience, more MNCs will likelyupgrade their R&D institutions
into global research centers.
The Chinese government is
paying increased attention to the
development of R&D capabilities and
has adopted policies to encourage
investment in R&D from MNCs. The
government also is strengthening the
protection of intellectual property
rights to answer one of multinational
corporations’ key concerns—ensuring
they are able to protect their core
information and technologies.
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Like other Chinese providers in
this sector, VanceInfo already can
support high-level R&D work and
provide full lifecycle services. It also
can compete with Indian providers
in some areas. To fully differentiate
itself from other local providers,
VanceInfo has the opportunity
to boost profitability by moving
into other outsourcing services.
VanceInfo, formerly WorkSoft,
was founded in 1995 under a
long-term contract with IBM. This
organization was the first domestic
ITO company to successfully trade
on the New York Stock Exchange.
After receiving Series A venture capital
financing from DCM and Legend
Capital in 2005, VanceInfo closed its
Series B venture capital financing
round with funds from Sequoia
Capital US, Sequoia Capital China
and existing investors. VanceInfohas established a series of offices
and delivery centers both abroad
and in domestic, tier two cities to
strengthen its delivery capability.
At present, the company runs at
least 10 offices or development
centers worldwide, with locations in
Beijing, Nanjing, Shenzhen, Dalian,
Tianjin, Wuhan, Xi'an, Tokyo, and
the United States (in Seattle, New
York City and the Silicon Valley).
VanceInfo is guided by a globally
educated and experienced
management team whose members
hold degrees from schools in the
United States, Germany and Japan.
CEO Chris Chen first started his
business in the early 1990s. In
addition to servicing MNCs in China,
VanceInfo provides IT outsourcing
services to Asia Pacific, North
American and European clients,
including Microsoft, IBM, Oracle, NEC,
Nokia, HP, and TIBCO. VanceInfo’s
range of IT services includes research
and development services, enterprise
solutions, application development andmaintenance, and quality assurance
and testing. VanceInfo targets high-
growth industries such as technology,
telecommunications, financial services,
manufacturing, retail, and distribution.
Currently, the United States
contributes the largest percentage of
the company’s revenue, accounting
for approximately 80 percent of the
total. Japan contributed about 20
percent of its revenue in 2007.
VanceInfo has become a leading
Offshore Development Center provider
in China by targeting MNCs that
have made strategic investments to
develop, test and maintain software
solutions to achieve increased
productivity, cost savings and faster
speed-to-market. VanceInfo currently
maintains the largest number of
million-dollar offshore development
cetners in China (including offshore
development centers for TIBCO;
PeopleSoft, now Oracle; and EMC2)
and employs the largest number of
engineers for US-focused projects.
However, as the need for high-end
talents increases and employees
chose to join client companies,
Case Study #5 VanceInfo—Forerunner in the offshore development center sector
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The use of subcontracting inoutsourcingSubcontracting in outsourcing—
typically referring to the transfer of
work from MNC service providers to
China’s local providers—is a notable
trend. MNCs that typically subcontract
in China include IBM, Capgemini, CSC,
HP, BearingPoint, Fujitsu, NEC, and
NTT. Key findings from the survey of service providers appear below.
Half of the providers surveyed are•
using subcontracting as a means to
access talent and skills. (See Figure 23.)
The primary reason for providers•
to subcontract is to focus on their
core outsourcing business, followed
by making use of other suppliers’
specialized skills.
For the service providers interviewed•
in this survey, the three main criteria
in selecting a subcontractor are
service quality, workforce skill and IT
security. (See Figure 24.)
Respondents acknowledged that,•
while subcontracting improves
efficiency and costs, its major
drawback is lack of quality control.
(See Figure 25.)
As a result, subcontracting•
could have a negative impact onoutsourcing, because quality is the key
criterion for clients.
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32%
26%
21%
5%
We tend to focus on core
outsourcing business
Can only meet clients demand
with other suppliers’ assist
The sub-contractor has unique
ability in the area
Cost cutting
Don’t know
2%
Yes48%
No50%
Percentage of clients using subcontractors Stated reasons for subcontracting
If Yes
3
1
2
1
2
2
1
2
3
1
1
2
2
2
1
3
4
4
1
1
5
3
5
4
6
5
1
7
5
4
5
8
6
9
8
9
6
7
11
6
8
14
12
11
8
6
5
5
5
5
3
2
1
Service quality
The skill of workforce
IT security
Reputation
Understanding of clients’
requirement
Price
Industry experience
Synergy between the two
Follow special requirement
from clients
Previous relationship with
the subcontractor
Geographical factors, such
as proximity
Talent attrition
5= Not at all important 4 3 2 1= Very important
*Absolute values
Improve efficiency
Reduce cost
Guarantee on-time delivery
Control quality
Negative impact No impact Positive impact
*Absolute values
2 2
2 17
6 4 9
13 2 3
16
Figure 23: Use of subcontractors
Figure 24: Importance of criteria in choosing subcontractors (N=20)
Figure 25: Impact of subcontracting on project
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Snapshot of outsourcingactivity in key citiesIn line with the 1000-100-10 Project,
the Ministry of Commerce—in
conjunction with the Ministry of
Information Industry, the Ministry
of Science and Technology, and the
Ministry of Education—has named a
group of major metropolitan areas
as designated outsourcing cities.
The cities were chosen based on
their capacity to undertake offshoreoutsourcing. Similarly, the Ministry
of Commerce has named a group of
state-level showcase areas—including
national economic and technical
development zones, high-tech
parks, and software parks—that it
hopes will play a pivotal role in
promoting the outsourcing business
of the designated outsourcing
cities and surrounding areas.
To date, 14 designated cities and
four state-level showcase areas
have been chosen. Dalian, Chengdu,
Shanghai, Xian, Shenzhen, Beijing,
Tianjin, Nanjing, Hangzhou, Jinan,
Wuhan, Hefei, Guangzhou, and
Changsha comprise the cities, and
the showcase areas are Suzhou
Industry Park, Wuxi huan-taihu
Protection Zone, Daqing Outsourcing
Industry Park, and Nanchang
High-tech Development Zone.
The designated cities and state-level
showcase areas will enjoy support
from China’s central government in
the form of macroeconomic policies,
investment, and coordination. In
addition, special-purpose funds will
be earmarked for the construction
of public information platforms,
the development of HR, and the
improvement of infrastructure and
the investment environment. Most
of the designated cities also haveissued local policies to promote
the outsourcing industry.
Designated industry parks and cities
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In-depth analysisand suggestions forimprovementIndustry parks are an important enabler
for the outsourcing industry. Our survey
results identified four factors cited by
more than 50 percent of respondents
who have moved to an industry park
as benefits they sought when choosing
their location. Respondents listed,
in order of importance, favorable
policies, available talent supply, support
from local government, and reduced
operating costs. (See Figure 26.)
For service providers that have not
moved into industry parks, high
migration costs seem to be the
main factor keeping them away. (See
Figure 27.)
The designated cities and industry
parks are making significant efforts in
support of China’s outsourcing industry.
From an infrastructure and technology
perspective, many have reached the
level of developed countries.
However, several requirements that
are essential to the outsourcing
industry, such as intellectual property
rights protection and business
convenience, have not yet been
sufficiently addressed.
In addition, this study determined
that the management body of the
cities and parks must shed its current
role in the mold of a real estate
developer, in which it merely aims
to offer sound infrastructure and
lower costs. Instead, it must focus on
improving the cities’ and parks’ ability
to meet the needs of the outsourcing
industry—offering everything from
financial support to laws to protectintellectual property rights.
Another challenge is the lack of
substantial differentiation among
the 14 designated cities and four
showcase areas. Investors often feel
confused when selecting a delivery
location, and fierce competition
between cities and industry parks
vying for investments compounds
the problem. As a result of these
hindrances, it may take a long time
for China’s outsourcing industry to
achieve truly diversified development.
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Figure 26: Factors influencing companies that have moved to industry parks
Favorable policy of the park
Talent supply
Support from localgovernment
Cost of operating in the park
Infrastructure
Public security in the citywhere the park is based
Positioning of the park
Previous cooperation with theoperator of the industry park
Centralization of similarservice providers in this park
Centralization of clients in thecity where the park is based
Price level in the city wherethe park is based
Yes77%
No23%
If Yes
Please evaluate the factors that an industry park can provide and indicatethe level of importance of each factor when you are considering thelocation of your delivery centers on a scale of 1-5 where 1 is veryimportant and 5 is not important at all. (N=34)
Has your company already moved into any of the industry parks ? (N=48)
5=Not at all important 4 3 2 1=Very important
6%
3%
9%
6%
9%
3%
6%
21%
12%
9%
3%9% 39% 42% 6%
18% 24% 39% 9%
18% 24% 36% 18%
18% 24% 21% 18%
39% 33% 21%
15% 18% 36% 27%
11% 43% 37%
3%9% 29% 54%
6% 26% 60%
32% 65%
22% 67%
3%3%
5
3
3
3
2
2
2
1
1
Among the 23% of providers who have not moved into an industry park, thefollowing factors have stood in their way: (N=)11
The cost of company’s migrationis too high
Cannot help in the reduction of talent cost
Lack of attractive policy
Moving into the park will increaseoperational cost
Cannot provide help for ourbusiness
Low quality service provided bythe park
Fear of company scalebeing limited
Parks’ positioning is conflict withthe company
Others
*Absolute values
Figure 27: Factors influencing companies that have not moved to industry parks
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Case Study #6Accenture Delivery Centers in China: helping clients achieve highperformance at three of the countries designated outsourcing cities
The Accenture Delivery Centers in
China are located in the country's
prime growth areas: Shanghai,
Guangzhou and Dalian. More than
1,500 Accenture professionals at these
centers deliver information technology
services as well as BPO services that
range from finance and accounting,
capital market research and data
management to human resources and
procurement. The centers currently
help clients in mainland China, Japan,
Singapore, Malaysia, Hong Kong,Australia, United Kingdom, United
States, Canada and in many other
countries to achieve high performance.
Locations:
Dalian (established in 2002)
The Delivery Center in Dalian supports
Accenture’s own operations in 12
Asia Pacific markets, and also serves
a growing number of BPO clients
with a particular focus on finance,human resources and procurement,
and has a strong IT development and
maintenance capability. Originally
established to service regional
clients in Japan, China and Korea,
the Delivery Center in Dalian has
a clientele that is now global in
scope, reflecting Dalian’s ability to
provide cost-competitive, multilingual
technical and business skills.
Shanghai (established in 2003)
The Delivery Center in Shanghai
benefits from its access to the large,
highly educated labor pool in one
of the world’s most modern cities.
The Shanghai center includes
professionals with extensive business
and technical experience and with
deep language skills.
Guangzhou (established in 2006)
The Delivery Center in Guangzhou
is fast becoming a key location
for the provision of English- and
Cantonese-speaking services.
Proximity to Hong Kong and the
wealth of IT and financial servicescompanies supporting the Hong
Kong Special Administrative Region
make Guangzhou an ideal site for
outsourcing service delivery. This
center is already providing Application
Outsourcing services for clients in
Hong Kong and throughout Asia.
Languages:
Bahasa
Cantonese
Japanese
Korean
Tagalog
Thai
Vietnamese
Services:
Application Outsourcing
Business Process Outsourcing
Infrastructure Outsourcing
Systems Integration
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Cross-Industry BusinessProcess OutsourcingServices:
Capital Market Research
Custom BPO Services
Finance and Accounting BPO Services
HR BPO Services
Procurement BPO Services
Technical Capabilities:Enterprise Application Suites
SAP, Siebel, PeopleSoft, Oracle
Netcentric/Web
Databases: Oracle, SQL Server, UDB
(DB2), Informix
Frameworks: Java/J2EE, Microsoft .NET
Operating Systems: UNIX, Windows
Programming Languages: C, C++, C#,
Java, Visual Basic, PL/SQL,Informix 4GL
Web: HTML, XML, JavaScript, VBScript
Middleware/Enterprise Integration:
BEA WebLogic, IBM MQ Series, IBM
WebSphere, Sun CAPS
Business Intelligence/Data
Warehousing:
Informatica, DataStage, Business
Objects
Mainframe
Control Language/Scripting: JCL
Databases: DB2, IMS/DB, VSAM
Operating Systems: OS/390, MVS,
OS/400, TSO/ISPFProgramming Languages: COBOL,
Fortran
Teleprocessing Monitors: CICS
InfrastructureManagement:
Data Control Services
Communications Services
Service Desk
Certifications:CMMI® Level 5
People CMM Level 5
ISO 27001
SAS 70
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Case Study #7A tale of Beijing’s two industry parks—A comparison of Zhongguancun Software Park and Wangjing Technology Park
58
Zhongguancun Software Park
possesses almost 50 percent of the
total outsourcing market share in
Beijing. Software companies were
among the earliest tenants of the
park, and software exports boosted the
development of the park in its early
years. Today, because the park is home
to the largest number of ITO service
suppliers in Beijing, it is the first stop
for ITO clients looking for a service
provider.
Wangjing Technology Park has
developed in a different, but also
successful, manner. Despite its
youth relative to Zhongguancun
Software Park, it is surrounded by top
MNCs, and some of them—including
Motorola, Novotel and Sony-Ericsson—
have set up their R&D centers in the
park. This proximity has triggered
the development of additional R&D
outsourcing business as well as BPO
business within the park. Today, the
park has become the industry basefor cell phone design and testing, call
centers, and software R&D, among
other services.
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City evaluation modelTo support the implementation of the
1000-100-10 Project, CCIP worked
with Accenture to develop a model
for city/ economic zone selection by
combining both parties’ understanding
of the outsourcing business. The
project centered on quantifying
the key attributes and constraints
associated with the development
of a given city/ economic zone. The
team developed a comprehensivemethodology to score the attributes
of and provide analysis for the
sustainability and constraints of
multiple locations—the ability to
operate within a reasonable cost
structure (Cost Effectiveness) while
sustaining a conducive environment in
which to operate (Viability).
Cost Effectiveness = f (loaded cost per
FTE, facilities cost per FTE)
Loaded cost per FTE = f (direct•
payroll costs, indirect payroll costs)
Facilities cost per FTE = f (property•
leasing costs, building management
fees, utilities costs, telco costs)
Viability = f (demand and supply of
talent, infrastructure and general
development, stability)
Demand and supply of talent = f •
(outsourcing provider demand, non-
outsourcing provider demand, “fresh”
talent, experienced talent)
Infrastructure and general•
development = f (transportation,
telecommunications and technology,
real estate, utilities, social)
Stability = f (indirect costs of doing•
business, exchange rate stability,
labor laws and regulations, crimerate, political stability, environmental
stability)
The model used a standard scoring
approach. The analysis team measured
and quantified attributes in different
units. To assess each city or economic
zone, the team followed a three-
step approach (data collection,
scoring, and weighting and sum)
to transform raw data into a final
score. The analysts then developed
charts in the model to further
illuminate each location’s attributes
from a variety of perspectives.
During the model testing period, a
lack of appropriate statistic data
proved to be the major obstacle for
the model application. However, as
the outsourcing industry develops in
China and data in each city improves,
the model should be able to play a
stronger role in assessing outsourcing
environments in the future.
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The war for talent
Current situationand analysisOutsourcing is a talent-intensive
industry: its forward development
is contingent upon the appropriate
talent supply. Yet, according to the
Accenture-CCIIP survey, the lack
of suitable talent has become a
bottleneck in China, and respondents
considered it one of three major
barriers to the development of service
providers. (See Figure 28.)
Figure 28: Barriers to the development of service providers (N=48)
67%
44%
40%
25%
23%
13%
13%
13%
10%
2%
Lack of suitable talents
The three major barriers to the development of service providers are the lack of suitable talent, the lack
of a strong brand and a lack of capital.
Lack of strong brand
Lack of capital
Lack of suitable channel to
approach clients
Cannot offer service in a
competitive price
Lack of the understanding of China’s outsourcing market
Lack of appropriate definition of
core competency
Lack of clear strategic positioning
No priority in business
exploitation
Lack of clear map of development
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What percentage of your company’s
total expenditures went toward
employee training in fiscal year 2006?
(N=47)
Which training mode do you think can
effectively solve the problem of talent
shortage? (N=46)
62
Although China produces numerous
graduates every year (according to
data from Ministry of Labor and
Social Security, the number of college
graduates was more than 4.9 million
in 2007) and has achieved progress in
reforming its higher education sector,
problems still remain, especially in
its curriculum design and teaching
methodology. A gap exists between
what is taught in universities and
what is required by the market.
This burdens employers with extratraining costs. In fact, for the majority
of respondents, employee training
absorbs from 5 percent to 20 percent
of their total operating costs. (See
Figure 29.)
The survey respondents also indicate
that, in terms of talent management,
lack of language skills and high
retention costs pose major problems.
(See Figure 30.) Moreover, 55 percent
of respondents are considering shiftingtheir low-end delivery centers to
inland and western areas in order to
reduce their talent retention costs.
Introduction of currenttalent policiesTo overcome the shortage of talent,
the Ministry of Commerce has
included in its 1000-100-10 Project
a goal to train 300,000 to 400,000
people for the outsourcing industry
and create outsourcing jobs for
200,000 to 300,000 graduates within
five years. Starting in 2007, the
Ministry of Commerce, in association
with the Ministry of Finance, beganto allocate funds from the Central
Development Fund for Foreign Trade
to support the training of outsourcing
talent. Through this initiative, service
providers in outsourcing delivery
hubs, as well as qualified companies
listed in the Ministry of Commerce’s
key outsourcing enterprises directory,
receive government support to reduce
their training costs. In addition,
training institutions, includinginstitutions of higher learning, are
encouraged to train talent for the
international outsourcing business.
In another government effort, qualified
outsourcing enterprises may receive
a fixed subsidy of not more than
4,500 RMB for each new university
graduate with whom they sign a
labor contract for at least two years.
Qualified training institutions will
receive a fixed subsidy of not more
than 500 RMB for each outsourcing
trainee (college graduate or above)
who passes a test of professional
knowledge and skills and signs a labor
contract of more than two years withan outsourcing enterprise.
Figure 29: Employee training costs
Figure 30: Talent management challenges
32%
27%
14%
11%
8%
5%
3%
Lack of foreign language skills
High retaining cost
High attrition rate
Lack of working experience
Lack of outsourcing-related skills
I do not have any trouble in this field
Other
5% - 10%
10% - 20%
20% and above
5% and below
36%
23%
11%
30%
11%
2%
46%
41%66%
Commercialized training
institutions initiated by
social entitiesPercentage of expenses dedicated
to employee’s training
Government sponsored
training
Joint training program
ran by universities and
service providers
On job training by service
providers
For the majority of respondents, employee training absorbs between 5 percent and 20 percent of their total costs.
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Introduction of currentpilot training patternIn August 2007, the 1000-100-10
Project group of the Ministry of
Commerce signed a cooperative
agreement with the Tianjin Economic
and Technology Development
Zone to jointly establish a state-
level outsourcing training center
in Tianjin. At present, other local
governments also have submitted
applications to the Ministry of Commerce to build state-level
outsourcing training centers.
The Tiajan training center was
designed to integrate various resources
of the Ministry of Commerce, local
government, MNCs, and leading
enterprises in the industry; create and
improve a customized training model;
develop a talent training program to
meet China’s needs; create a human
resources network; and facilitate the
operation of outsourcing HR pools.
The center is run on a non-profit
basis and is open to the public. It
enrolls college students who will
graduate in the current year as well as
unemployed graduates for assessment
and training in fields related to the
outsourcing business. It also trains
technical and management personnel
for every level of the industry.
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Part III. China and
global outsourcing
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The forces driving the emergence
of the multi-polar world—the rapid
growth of emerging economies,
closer economic integration across
geographies, and unparalleled
advances in information and
communications technologies—are
transforming the global outsourcing
landscape. In a world that now
sources services from multiple
locations, China has aggressive plans
to ensure that a significant portion of
global outsourcing spending will flowto its coffers.
Over the last 20 years, China has
experienced phenomenal success in
developing an export economy that
takes advantage of the country’s
cheap and abundant labor. Yet while
China has strengthened its position
as a global manufacturing hub,
India has cornered the market for
offshore outsourcing of IT services.
In a focused effort to balanceChina’s manufacturing success with
progress in more skill-based service
industries, the Chinese government
has committed its support to
developing an economy driven
by innovation and technology.
In 2006, China set an ambitious
target of producing $10 billion in
outsourcing industry revenue by 2010.
It hopes to implement this goal via its
1000-100-10 Project, which seeks to
establish 1,000 world-class Chinese
outsourcing firms, encourage 100
MNCs to shift offshore outsourcing
services to China, and develop 10
outsourcing base cities. With thisplan in place, China will be poised to
capture both ITO and BPO revenue
from several regions—including the
United States, Europe and the Asia
Pacific region. China also will face
stiff competition from a myriad of
developed and developing nations
that have set their own enterprising
goals for garnering a share of global
outsourcing revenue.
The following two sections draw onGartner research data to present
the current and future ITO and BPO
spending landscapes.
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Region Service 2007 2012 CAGR
2007–2012
(%)Market size
($millions)
Market
share (%)
Market size
($millions)
Market
share (%)
Western
Europe
IT outsourcing 94,234 36.1 133,750 35.4 7.3
Discrete IT services 122,739 37.0 159,167 35.3 5.3
IT spending 216,973 36.6 292,917 35.3 6.2
US IT outsourcing 92,266 35.4 126,295 33.4 6.5
Discrete IT services 107,991 32.6 143,661 31.8 5.9
IT spending 200,258 33.8 269,957 32.5 6.2
Japan IT outsourcing 32,571 12.5 43,569 11.5 6.0
Discrete IT services 42,680 12.9 52,574 11.7 4.3
IT spending 75,252 12.7 96,143 11.6 5.0
Asia Pacific IT outsourcing 15,592 6.0 24,468 6.5 9.4
Discrete IT services 26,217 7.9 40,181 8.9 8.9
IT spending 41,809 7.1 64,648 7.8 9.1
Latin
America
IT outsourcing 10,047 3.9 23,355 6.2 18.4
Discrete IT services 11,386 3.4 21,281 4.7 13.3
IT spending 21,433 3.6 44,636 5.4 15.8
Others IT outsourcing 16,037 6.2 26,807 7.1 10.8
Discrete IT services 20,416 6.2 34,296 7.6 10.9
IT spending 36,453 6.2 61,104 7.4 10.9
Total IT outsourcing 260,747 100.0 378,244 100.0 7.7
Discrete IT services 331,429 100.0 451,160 100.0 6.4
IT spending 592,176 100.0 829,405 100.0 7.0
China IT outsourcing 1,073 0.4 2,904 0.8 22.0
Discrete IT services 4,845 1.5 10,083 2.2 15.8
5,918 1.0 12,987 1.6 17.0
Figure 31: Forecasted ITO spending is on the rise
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These more sophisticated,
strategic services are increasingly
driving outsourcing decisions.
The demand for integrating ITO and
BPO services is growing as clients
seek to reduce the complexity of their
processes, strengthen the governance
functions of outsourced contracts, and
feed strategic growth opportunities.
Technological developments that
facilitate remote project management
have made the integration of ITO and
BPO not only possible but profitable.
Gartner’s findings suggest
that many small and medium
enterprises first engage in offshore
ITO as a means to grow their
businesses and compete with the
resources of larger companies.
At present, “Global Top 10” IT service
providers account for more than a
quarter of the market worldwide. (See
Figure 32.) They will continue to havea major impact on the direction of the
global IT outsourcing marketplace.
* Total excluding hardware maintenance and software support
Source: Gartner Market Statistics, 2008. IT Services Market Metrics
Worldwide Market Share. April 2008.
Top IT service providers in the world, 2007
Vendor Total revenue
(US$ millions)
Market share (%)
IBM 54,148 7.2
EDS 22,130 3.0
Accenture 20,616 2.8
Fujitsu 18,620 2.5
Hewlett-Packard 17,252 2.3
Computer Sciences
Corporation (CSC)
16,306 2.2
Lockheed Martin 11,957 1.6
Capgemini 11,914 1.6
Northrop Grumman 9,879 1.3
NEC 9,014 1.2
Other services
vendors
556,189 74.4
Total 748,025 100
Figure 32: Leading global IT service providers by revenue
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On the BPO front, Gartner reports that
global spending reached $156 billion
in 2007 and is expected to reach $239
billion by 2012, with a compound
annual growth rate of 9.0 percent.17
In terms of total BPO spending,
Gartner believes the United States will
hold onto its position as the largest
market in the world for the purchase
of business outsourcing services for
the next five years, with a market size
of $92 billion (59.1 percent of the
total) in 2007 and $138 billion (57.7
percent of the total) in 2012.
The data indicates that demand
management will be the fastest
growing BPO outsourcing category in
the US market; within that category,
customer selection and customer
acquisition services will grow strongly.
Other fast-growing categories will be
enterprise services, such as human
resources and payment processing, andsupply management, which includes
procurement. Enterprise services will
continue to be the largest part of the
outsourcing market with 41.8 percent
market share in 2012 compared to
42.4 percent in 2007. Worldwide,
the trend is more or less the same:
The only significant difference will
be in operations services, such as
healthcare operations, which are the
third fastest-growing BPO category
globally.18
According to Gartner, Japan will
comprise the next largest global
market for the purchase of business
outsourcing services but show the
lowest five-year compound annual
growth rate among the leading
markets, at 5.7 percent. The Asia Pacific
region as a whole (excluding Japan)
will show a five-year compound annual
growth rate of 12 percent from 2007
to 2012, followed by 15.5 percent
for Latin America, 13.2 percent for
the Middle East and Africa, and 12.7
percent for Eastern Europe.
Although China’s share of the
BPO spending market remains
small, it is growing steadily and
rapidly, spurred by the nation’s
strong economic growth. Gartner
anticipates that BPO spending in
China will jump dramatically in the
next five years, from $273 million
in 2007 to $721 million by 2012,
with a five-year compound annual
growth rate of 21.4 percent.
The BPO industry has kept pace
with the increasing sophistication
of clients in multinational and
multifunctional engagements. Cost
is still a major driver for companies
looking to outsource non-core
business procedures, but clients may
uncover even greater savings by using
outsourcing to create economies
of scale across conglomerates. As a
result, in parallel to the ITO market,
BPO providers are evolving beyond
simple and isolated tactical processes
toward strategic, cross-functional,
and higher-value-added services. Thus,
new models of service delivery, suchas bundled outsourcing, are born out
of necessity.
Analysis of the global outsourcing
market for BPO
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Services trend watch: knowledge process outsourcing (KPO)
The traditional outsourcing delivery
model has been to disaggregate high-
volume and labor-intensive processes
to offshore locations where they
could be completed at much lower
costs. However, with the growth
of the MNCs and increased global
competition for talent, the offshore
outsourcing market has begun to
move beyond the arbitrage of simple
labor and capital to the offshore
transfer of knowledge as well.
While cost reduction remains amajor benefit of knowledge process
outsourcing (KPO), it is not the
primary focus. Unlike ITO and BPO,
KPO extends an organization’s reach
to all parts of the world, where it may
access talent in its various forms:
creativity, experience, independent
thinking, and specialized skills. Instead
of simply performing disaggregated
functions, KPO teams directly
support companies’ core businesses.Therefore, it is critical that KPO
services retain the benefits of data
and IT integration, physical security,
and legal protection typical of onsite
services. Depending on the industry,
licensing concerns may present a
significant barrier to successful KPO.
Financial services and market
research dominate the current KPO
market, but significant potential
awaits in animation, data, education,
engineering, legal, pharmaceutical,
and tax services. Industry experts
anticipate that India will capture the
majority of the global KPO market,
although the country’s talent shortageis likely to hamper its progress.
As China moves up the value chain
and expands its service economy, it
faces the opportunity to enter the
KPO market. However, significant
challenges lie in its path. Although
China is producing impressive numbers
of university graduates, its education
system still needs to adjust. To win a
larger share of KPO contracts, China
must cultivate creative, independentand critical thinking, as well as
communication and teamwork skills,
in its current and future workforce.
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due to their minimal time differences
with the continental United States.
To the north, Canada has long been a
low-risk option with native linguistic,
legal and cultural similarities. Yet, as
costs rise, Canada’s skilled labor force
is quickly pricing itself out of basic
outsourcing and into high-value-
added services. To the south, Mexico,
Argentina and Brazil remain strong
near-shore options. At the same time,
many US companies are increasingly
looking toward alternatives in theCaribbean and Central America.
Appealing options in the Caribbean
include Puerto Rico and the Dominican
Republic, as well Jamaica, with its
native English-speaking population,
while in Central America, Costa
Rica, El Salvador, Guatemala, and
Panama have seen strong interest.
In Figure 33, we take a closer look at
the policies promoting outsourcing
in India, the Philippines, Ireland,Canada, and Russia and compare
them with the government efforts to
support China’s outsourcing market.
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Figure 33: Policies promoting outsourcing in five representative nations
Basic Statistics Tax Incentives Policy Highlights
India GDP: $894.1 billion
Population: 1.13 billion
Language skills: Good
English
Tax tariff breaks from central•
government
Individual states offer further•
incentives
National Association of Software and•
Services Companies (NASSCOM)
Government policies overview• 19
Special regulations on Special Economic•
Zones20
Central government working to reduce•
international telecommunications costs
The Philippines GDP: $142.3 billion
Population: 91.1
million
Language skills: Strong
English
Income tax holiday for 4•
years (extendable to 8 years)
for certain businesses registered
in economic zones, followed
by an option to pay a special 5
percent gross income tax in lieuof all national and local taxes21
Import tax and duty•
exemptions for capital
equipment22
Unrestricted use of consigned•
equipment
Additional deductions•
available for some labor
expenses
Exemption from wharfage•
dues, duty import and fees23
Board of Investment, Philippines Economic•
Zone Authority and Business Processing
Association of the Philippines promote and
give incentives to industry
Permanent resident status for foreign•
investors and immediate family members
Incentives under the Build-Operate-•
Transfer Law, which includes government
support for accessing Official Development
Assistance and other sources of financing24
Ireland GDP: $219.7 billion
Population: 4.1 million
Language skills: Native
English
12.5 percent corporate tax,•
lowest in Europe
Irish Investment and Development Agency•
provides “financial and practical” assistance
to businesses
Government push to develop higher-end•
outsourcing in KPO and pharmaceutical R&D
Education system produces 5,000 software•
programmers per year25
Canada GDP: $1.144 trillion
Population: 33.4
million
Language skills: Fluent
English and French
Lowest payroll taxes among•
G7
National incentive programs for R&D•
Some specific incentives in provinces and•
territories
Russia GDP: $1.251 trillion
Population: 141.4
million
Language skills: No
widespread foreign
language fluency
None• Russian Software Developers Association•
(RUSSOFT)
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For China’s outsourcing providers,
today’s multi-polar world presents
two windows of strategic opportunity.
First, providers may benefit from the
influx of MNCs that have been drawn
to China by its impressive economic
growth. China already reigns as the
world’s largest market for mobile
phones, televisions and cars, and
the nation is poised to become the
biggest consumer market overall by
2025.26 MNCs come to China with
deep experience and sophisticatedoperations, and they bring with them
the capacity and desire to outsource
services on a large scale. The
Chinese outsourcing industry has the
opportunity to capture a significant
portion of these contracts.
Chinese vendors also may add value
for MNCs by supporting their other
Asia Pacific operations. The Asia
Pacific markets are expected to
continue to demonstrate the fastestITO and BPO growth of any region,
and China already enjoys geographic,
cultural and linguistic advantages
in serving the Japanese and Korean
markets. China’s outsourcing providers
may use these opportunities as a
springboard for regional expansion.
And if they can translate and
scale those experiences, effectively
matching world-class standards,
Chinese providers will be perfectly
positioned to compete worldwide.
Second, China’s outsourcing
providers may grow by serving
domestic companies that conduct
business abroad. Just as MNCsseek new opportunities in China,
many leading Chinese companies
are entering overseas markets. The
Fortune Global 500 list contained
24 Chinese companies in 2007, up
from 20 in 2006 and 16 in 2005.
China’s outsourcing vendors have a
golden opportunity to leverage their
existing relationships, local experience
and resources to partner with these
Chinese companies and serve overseasmarkets from their base at home.
These factors create unique prospects
for near and mid-term growth in
China’s outsourcing market that are
unequaled by any prospects enjoyed
by its global rivals. To succeed in
both of these scenarios, Chinese
providers must develop capabilities
that align with their clients’ specific
needs. They must evolve the ability
to provide bundled services and
end-to-end process management
offerings that are tailored to the
breadth and sophistication of
their clients’ operations, in areas
such as application management,customer relationship management,
finance and accounting, HR
management, and procurement.
Despite its bright prospects, China
must uphold its end of the bargain in
order to realize its potential. Already,
China has begun by making massive
investments in public education and
infrastructure and is reaping the
dividends of a decade of support for
English and technology education.By contrast, competitor India faces
basic infrastructure bottlenecks and
struggles to manage a limited supply
China’s outsourcing opportunities and
challenges in a multi-polar world
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of labor and salaries driven up by
unmet demand. NASSCOM, an Indiansoftware industry association, predicts
an IT industry labor shortage of
500,000 by 2010. With the benefit of
steady government backing, Chinese
universities have graduated 575,000
engineers in 2006 alone—almost
twice as many as India’s universities,
allowing China to steer clear of labor
problems at this stage.27,28
Significant challenges remain for
China’s outsourcing industry. In anera of increasing economic openness,
China will not be able to rely solely
on its cost advantage. Its lower-end
manufacturing companies are in the
midst of learning this sobering lesson.
China’s ability to scale hinges on the
quality, not the quantity, of the output
from its education system. Despite
increasing numbers of graduates,
China’s workforce must continue to
improve its English language and
management skills as well as gain a
better understanding of the contract,
legal and sourcing frameworks of
Western MNC operations.
In addition, while due diligence
and security measures can limit
risk exposure and help to persuade
reluctant MNCs to outsource to
China, the country also must continue
to strengthen its legal system,
improve intellectual property rights
protection, and encourage service
providers to obtain international
standards certification.
China’s success also depends on a
political climate that favors continued
economic liberalization, allowing
labor and capital to move more
freely. A slowdown in the Chinese
economy may disrupt the country’s
social development and governance.
If economic opportunities raise
the nation’s fortunes, however, an
unintended consequence might be
skyrocketing incomes in Tier Two and
Tier Three Chinese cities, which would
have a significant impact on operating
costs in businesses across the country.
As always, outsourcing investments
are only as safe as the risks inherent
in the host country and its market.
If China can meet its opportunities
with excellence in quality and a
strategic commitment to growth, it
can avoid the fate of becoming a
destination for simple labor arbitrage.
Success in the new global economy
will not be easy. But China has the
potential to become one of the world’s
leading outsourcing hubs.
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Outsourcing trend watch: Indian companies in China
Since Tata Consulting Services first
entered China in 2002, other Indian
outsourcing companies have followed
suit, building a solid and significant
presence of Indian companies there.
Over the last five years, these Indian
companies have set up their own
full-scale development centers across
China, formed strategic partnerships
with both global MNCs and local
players, built solid bases of support
within the various levels of Chinese
government, and aggressivelyexpanded their talent base. At
present, Indian outsourcing companies
employ several thousand people in
China and are planning to expand
significantly by the year 2010.
The Indian players do not merely
view China as a low-cost delivery
location from which to serve the
local operations of many of their
biggest multinational customers from
the United States and Europe. Theyalso see China as a springboard to
the Japanese and Korean markets.
And they have identified the value
of Chinese corporations with global
operations as potential clients, such
as the Bank of China, China Mobile
and PetroChina. Below we provide
a glimpse of the China activities of
three leading Indian IT outsourcing
providers.
Tata Consulting Services
Tata Consulting Services (TCS) was
the first Indian outsourcing provider
to launch its China strategy by
establishing a Shanghai office in
2002. A year later, TCS set up a Global
Development Center in Hangzhou, a
representative office in Beijing, and
an Oracle 11i technology center in
Shanghai.29
Then, in 2007, TCS partnered
with Microsoft and three local,
government-backed software
companies to set up TCS China, which
focuses on the financial services,
telecom and government sectors. The
total cash investment of the joint
venture is estimated to be $14 million.
TCS China follows a “research first,
business second” approach: Invest in
research and technology centers to
build a solid foundation, then leverage
this foundation to obtain global
contracts and local business. Over
the past three years, TCS has invested
more than $10 million in China.
This outlay has not only served as
indication of the company’s ambitious
strategy, but it has also proven to
the Chinese government that TCS is
committed to the Chinese market.
By the end of 2006, TCS China had
served 25 clients in China, most of
them Fortune 500 companies. In
addition to traditional global clients
like AIG, Citibank, GE, and Motorola,
TCS has successfully developed a
number of influential domestic clients
in China, such as PBOC, CITIC Bank,
Huaxia Bank, and China Telecom,
which is a strong testament to the
success of its China strategy.
The key challenge TCS faces in China
is acquiring and retaining top talent.
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According to TCS, recent Chinese
college graduates do not meet the
requirements the company has set
for its Indian college graduates. To
develop loyal and qualified teams of
employees, TCS has begun working
with local universities and English-
language schools to provide specialtraining to students who plan to join
TCS after graduation.
Over the next few years, TCS plans
to expand its Chinese operations,
increasing the number of employees
to 5,000 and setting up subsidiaries
in new cities, with Tianjin, Guangzhou
and Xi’an named as contenders. It
will expand its vertical-industry roster
beyond financial services and telecom
to include airlines, automotive andgeneral manufacturing. TCS also
hopes to enhance its position in the
Japanese and Korean outsourcing
markets, despite facing difficulties in
hiring Japanese and Korean language
speakers in Shanghai and Hangzhou.
In addition to outsourcing, TCS plans
to move into the fields of engineering
and Six Sigma process consulting to
serve China’s large manufacturing
base. TCS also will explore well-established small, local, industry-
oriented outsourcing companies (with
50 to 100 employees) as acquisition
targets to drive its growth.
Infosys Technologies
Infosys Technologies (China) Co.
Ltd. (known as Infosys China) is a
fully owned subsidiary of Infosys
Technologies Ltd. Headquartered
in Shanghai, Infosys China began
operations in 2003 with the goal of
building a world-class delivery hub
in China. With development centers
in Shanghai and Hangzhou and a
representative office in Beijing, Infosys
China now has about 800 consultants
providing ITO and BPO services to
global and Asia Pacific clients. The
Shanghai center focuses on IT services
such as application development and
maintenance, enterprise solutions, and
independent validation services. The
center in Hangzhou specializes in BPOservices.30
Infosys established its China
operations with a relatively modest
investment in Shanghai, but two years
later, the company committed $65
million to build additional software
development centers in Shanghai
and Hangzhou. The new facilities are
designed for onsite training—a key
asset as Infosys China looks to tap the
nation’s deep talent pool.
For its global offshoring work, Infosys
China offers a cost-competitive
delivery hub for customers interested
in alternatives to India-based
outsourcing. The company handles
large enterprise solutions using SAP
and Oracle platforms, and it offers
Infosys’s own core banking solution,
Finacle, which can be deployed at
large and mid-sized banks. In 2007,
Infosys China became the first
company in China to achieve CMMI®
Level 5 (V 1.2). In the same year, the
company was certified to ISO 27001
standards in order to alleviate the
security and intellectual property
concerns of its global customers.
Wipro Technologies
Wipro got its start in China in 2004,
establishing a 50-seat development
center in Shanghai. Its initial customer
base consisted of the Chinese offices
of many of Wipro’s global customers,
with an emphasis on the localization
of software, implementation and
support services. But Wipro has
consistently taken the long view
toward serving China’s domestic
markets and addressing the needs
of its Japanese customers in China.
For instance, since 2004, it has
completed two pan-China rollouts of
SAP applications in multiple cities for
Olympus and for Sanyo.31
Wipro has moved rapidly to expandits footprint in China. Its multiple
delivery centers in the Shanghai area
and Beijing cater largely to the growing
needs of multinational customers’
China operations. The company
currently is planning a major expansion
of its China operations and will likely
grow from a few hundred people
based in China to 2,000 by the end
of the decade. But Wipro’s long-term
plans call for capitalizing on China’s
enormous base of talent, setting upsoftware development centers, and
pursuing Chinese clients.32
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Part IV. Recommendations
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Recommendations for the
Chinese government:
Focus on creating capability and
capacity for outsourcing thoughproactive demand generation.
1. Actively encourage and provide
incentives for all government
departments to pursue an
outsourcing agenda. Leverage the
skills and experience of global
providers to create compelling value
propositions and award service
contracts though an open and
transparent procurement processes.
2. Facilitate the movement of State
Owned Enterprise (SOE) back-
office processes and functions to
outsourcing providers. Use this as
a means to drive transformational
change and best practice into a
suite of businesses getting ready for
competition on the global stage.
3. Continue the education and
information agenda in relation to
outsourcing. Structure industry
briefings that address not only
the ‘how’ and ‘what’ to outsource
but more importantly the ‘why’.
Imbed the underlying concepts of
a service based economy into the
appropriate university curriculums.
Recommendations for
service providers:
Focus on value creation. Build
service delivery models that solvethe unique problems associated
with doing business in the world’s
fastest growing economy.
1. Look to create collaborative
partnerships that bring together
diverse skills and experiences to solve
local client problems. Partner with
local and multi-national providers
to leverage specific relationships
and enhance competitiveness.
2. Build assets and offerings specific
to solving problems unique to
economies in hyper growth mode. Not
only will this provide real competitive
advantage in China, it will be the key
to delivering services, business models
and cost structures that help drive
the next generation of outsourcing
in North America and Europe.
3. Focus on delivering cultural
and relationship synergy. Providers
that truly understand their client’s
business and work together
collaboratively to deliver outcomes
will enjoy the best results.
4. Build a business that first focuses
on countries in Asia Pacific. This
region will become the engine of the
world economy and will fast become
the cornerstone of our business.
Recommendations for
potential clients:
Achieve high performance through
innovation and resilience. Focuson building partnerships rather
than client/vendor hierarchies to
ensure flexibility and joint problem
solving – this is what will make
your business grow, be more
profitable and competitive.
1. Align all outsourcing considerations
to the CEO/board’s agenda and
remember that the most successful
engagements are sponsored at
this level. Make sure you havethe right level of interactions
and executive engagement of
your provider’s executives.
2. Work collaboratively with your
partner to build a solution specific
to your business problem. Start with
the definition of business outcomes
you are looking to achieve and the
respective roles and the principles that
will underpin your mutual success.
3. Expand your thinking beyond
back-office outsourcing. Some of
the best opportunities come from
changing the way you integrate
with your customers and suppliers.
Charles Hunting - Managing Director —Outsourcing, Greater China, Accenture
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1 “Rover sold to Nanjing Automobile,”23 July 2005, BBC, http://news.bbc.co.uk/2/hi/business/4708739.stm;“Huawei accepts 3Com's bid offer to
purchase its stake in H3C,” 29 Nov2006, Huawei press release
2 IDC, BPO, Offshore, “WorldwideOffshore Key Horizontal BusinessOutsourcing Services 2007-2011Forecast and Analysis”
3 Mark Boyle and Andrew Sleigh,“China’s Outsourcing Opportunity”,white paper
4 Gartner press release, http://www.gartner.com/press_releases/asset_123795_11.html
5 Accenture definition, supported bycommon industry definitions presentedby IDC and other third-party industryobservers
6 Gartner, "Forecast: Outsourcing,Worldwide, 2000–2012", 2008
7 Ibid.
8 Ibid.
9 Cyrill Eltschinger, Source Code China:The New Global Hub of IT (InformationTechnology) Outsourcing, Sep.2007
10 “Tier One” refers to the cities of Beijing, Shanghai, Dalian, andShenzhen
11 “Tier Two” cities include Chengdu,Xi’an, Tianjin, Hangzhou, Wuxi,Wuhan, Nanjing, and othersdesignated by China’s government
12 “Annual report of China IT OutsourcingService Market 2007-2008,” CCID,2008
13 Gartner, Market View Database, IT
Services Market Metrics, 200814 The risk is based on the responses from
local providers. It reflects the difficultyof developing new clients whileretaining existing clients in differentgeographic markets
15 Gartner, “Forecast: Outsourcing,Worldwide, 2000–2012”, 2008
16 Ibid.
17 Ibid.
18 Ibid.
19 http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=6169
20 http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=6157
21 http://www.peza.gov.ph/invest_incentives.htm
22 http://www.peza.gov.ph/invest_
incentives.htm23 http://www.philippinebusiness.com.
ph/archives/magazine/vol9-2002/9-5/technology.htm
24 http://www.peza.gov.ph/invest_incentives.htm
25 http://offshoreitoutsourcing.com/Pages/Ireland.asp
26 EIU-Accenture analysis. PPP adjustsfor differences between countries inthe price of a standard basket of goodsand services
27 Approximately 350,000 engineeringgraduates are produced by collegesand universities in India each year.Of these, approximately 120,000specialize in information technology(versus 75,000 US engineeringgraduates that specialize ininformation technology disciplines).http://www.cc.gatech.edu/education/undergrad/bscs/threads_whitepaper.pdf
28 442,463 engineering university
graduates in 2004; 575,634engineering university graduates in2006. http://www.stats.gov.cn/tjsj/ndsj/2005/html/U2113c.htm; http://www.stats.gov.cn/tjsj/ndsj/2007/html/U2113c.htm
29 Overview, TCS site, http://www.tcs.com/worldwide/asia/locations/china/Pages/default.aspx; “TCS FocusesOn China Market,” ChinaTechNews.com, Sept 22, 2004, http://www.chinatechnews.com/2004/09/22/1829-tcs-focuses-on-china-market/
30 Overview, Infosys China site, http://www.infosys.com/china/english/
default.asp
31 “Wipro delivers a multi location SAProllout for Olympus (Beijing) Sales &Service Co. Ltd.,” Wipro press release,Sept 27, 2004, http://www.wipro.com/
news/newsitem1/newstory359.htm
32 “India's Wipro plans big expansionin China,” IDG News Service, Feb 26,2008, http://www.networkworld.com/news/2008/022608-indias-wipro-plans-big-expansion.html
References
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About Accenture
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with clients to help them become
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All rights reserved.
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are trademarks of Accenture.
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