News Feature

Outsourcing Is Cheaper In China

By Stephanie Overby

September 15, 2005 — CIO —

When Mike MacKenty first considered sending Web-based development and maintenance work to China two years ago, he was already well-acquainted with the fourth-largest country in the world. He’d visited his company’s various manufacturing sites in China, a country coming on strong in the offsourcing scene, several times. So he thought he had a good handle on the problems he might face in sending IT work there. He knew he would need to find good IT talent with decent English skills and beef up his own IT department’s internal processes for packaging up projects to send abroad. And he would have to address any internal opposition to offshoring.

Also, as corporate vice president of IT and supply chain services for Nypro, a $605 million global plastics manufacturer, he had access to something other IT leaders might not. His company already had an internal 30-person IT shop in Shenzhen that provided network support and business system implementation for Nypro’s nine facilities in China—which stretch from Beijing in the north to Hong Kong in the south. Surely, he thought, that organization and its native, Mandarin-speaking IT workforce could be a huge help both in setting up an outsourcing relationship there and dealing with any potential problems down the line.

But the Shenzhen-based IT team wasn’t big enough or sophisticated enough to attract the kind of workers MacKenty would require for the offshore projects. Nor were they aligned closely enough with his own business back in the States to help as a liaison between his staff and the offshore partner he eventually selected. Instead, MacKenty and his staff had to do a lot of work back at their Clinton, Mass., headquarters to overcome the difficulties, including deciding on the right type of outsourcing arrangement, creating both more rigorous and more efficient processes for sending work offshore, and coming up with solutions to cross-cultural and communications problems.

It hasn’t been easy. But now, more than a year into the outsourcing, MacKenty has been able to create a relatively stable relationship with his offshore provider and the small staff of 10 Chinese professionals dedicated to Nypro projects. He’s been able to greatly increase the amount of IT work his organization can take on, without having to significantly increase his budget. And he’s learned important lessons about what’s possible and—perhaps more importantly—what’s not.

The Promise of China

Analysts have talked increasingly about China’s bright future as an outsourcing destination for American IT work. Gartner has posited that China could rival India as the leading offshore IT services market as early as 2007. And CIOs are listening. The number of IT leaders who said they expect to outsource some IT function to China sometime within the next three to five years jumped from 8 percent in 2004 to 40 percent this year, according to a survey by DiamondCluster International, a Chicago-based consultancy. However, the same study reveals that only 6 percent of CIOs are actually sourcing in China today. "It seems like China has gotten mind-share acceptance among CIOs, and part of it is the hype. Everything you read says watch out, India, here comes China," says Tom Weakland, managing partner of DiamondCluster. "But another part of it is that we’re starting to see small pockets of success stories emerging from China."