What You Should Know About Outsourcing to China

A veteran watcher of India's outsourcing market, researcher Joseph Rottman says that China is worth evaluating for offshore work but he warns labor costs are rising.

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How deeply involved is the Chinese government in the outsourcing industry– for better or for worse?

Rottman: I never saw any communism, per se. Some officials I met with had the word “party” on their business card. I was never questioned. The visa was easy to get. It was just as easy to go there as anywhere else I’ve been. I asked the guy who set up the captive center for Oracle about government bureaucracy. He’s from Singapore, went to college in the U.S. and spent his whole career with Oracle. He said the bureaucracy and rules within Oracle made the transaction more difficult than anything the Chinese government did.

Tell me about the “10+100+1000” project.

Rottman: It’s a national initiative set up by the government. It’s a five-year plan, set up last year, to do with the service industry what they did with manufacturing. The goal is to have 1,000 Chinese IT and business process services companies, 100 multinational services companies with a significant presence there, and 10 service center hubs like Dalian.

Will that transformation from "made in China" to "serviced in China" be difficult? Is it one China is capable of making?

Rottman: They certainly think so. They’ve got a long way to go. But they want to be in the race. They’ll tell you, sure, we’d like to be India, but right now our goal is just to stay in the race. It’s my personal impression that they’re happy being a supplement or complement to India. They don’t need to replace India. And India doesn’t have that many Chinese- or Japanese-speaking people like China. So there’s definitely a role they can play.

Is China's outsourcing market dependent on the investment of big multinationals? Why?

Rottman: They’re a key part of this. China needs the multinationals to come in and build up the intellectual infrastructure. In terms of understanding Western business models, Chinese companies almost seem to need a mentor. They need to see, up close and personal, how things work.

Part of that is happening with the return of expatriates educated in the West. The CTO of Neusoft was with IBM for 21 years. He’s their mentor. That’s why he was hired.

Having those 100 multinationals in China will help the outsourcing market. If my memory serves me right, that’s not how India grew. They grew organically with the TCS’s and Wipros leading the way. GE was there early on, but it was the Indian companies that attracted the attention.

Next: How China stacks up compared to India

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