China's Cheaper Cities Prime for IT Outsourcers

CIOs looking for lower costs, specific language skills or local support should consider these five up-and-coming outsourcing cities in China.

By Stephanie Overby
Wed, December 07, 2011

CIO — More than 20 cities in China offer viable IT service delivery, according to a recent report by outsourcing consulting firm Everest Group, each with its pros and cons. And with each municipality offering a different value proposition—from language proficiency, technical skills and scalability to various government incentives, operating costs and regulatory requirements—deciding on the right location can be difficult, says H. Karthik, vice president of global sourcing for Everest.

Beijing boasts a great degree of scalability for regional work, due to its proximity to Japan and Korea and resulting language advantage, while Shanghai has the English skills that make it more suited as a global delivery hub.

But today, some IT leaders are looking beyond the big metropolitan areas, sending work to the country's second-tier cities such as Chengdu, Guangzhou and Dalian. "There is definitely a lot of activity in tier-two cities in China," Karthik says.

Buoyed by the China's long-term plan for development and strong incentives—often negotiable— from local government, such locations account for 42 percent of the delivery centers established in China today. Unlike the second-tier cities emerging in other offshore countries, China's second string has well-developed infrastructure, including existing IT office parks and reliable telecom service.

But while these relatively smaller cities can deliver operating costs as much as 20 percent lower than Shanghai or Beijing, there are a number of trade-offs for IT leaders outsourcing or setting up captive IT centers there, particularly in the areas of language proficiency, specific technical skills and talent pool size.

The Everest report highlights five up-and-coming IT outsourcing cities in China, along with the benefits and drawbacks of each for customers of IT services.

Chengdu

This city in Western China does not offer a distinct regional value proposition, but is emerging as a back-office and data center hub for the financial services industry.

Number of global service providers: 10-plus
Typical delivery center size: 600-800 full-time employees (FTEs)
Operation cost per FTE: $24,000-$26,000
Major players: Wipro, IBM, Maersk Group, Amazon, DHL, GE, Siemens
Language capabilities: Mandarin (Sichuanese dialect) is the primary spoken language; limited scope for other regional languages and English
Annual IT graduates: 52,000-54,000

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