This is China! BLOG

Who is Dodson? Sort of Quoted in China International Business Magazine

I was like a kid in the States who excitedly waited for Christmas and the promise of … toys! Now that I’m older and know there is no Santa Claus, I wait with breathless anticipation for the articles in major magazines in which I have been quoted. In this instance, I had been interviewed on my thoughts on the nascent Business Process Outsourcing (BPO) industry in China. It was an email interview, so I figured something would have to make it into the article, since on paper I sound like I know what I’m talking about.

So when this past Sunday morning an express mail packet arrived at my doorstep in Suzhou, and it was plain it was a copy of the magazine in which I had been extolled as a world-renowned expert (well, that’s taking it a bit far, really), I excitedly tore into the mailing to find the article.

I found the article, on page 32, entitled, “The New BPO Go-to”. The tagline says, “In hopes of becoming the offshoring destination for multinational companies, China is working to mature its still-young BPO industry.”

Yep. Check. OK, so far. No mention of Me Me Me. Yet.

Still in my pajamas (for the courier had rousted me out of bed on the Day of Rest to sign for the delivery), I hurriedly scanned the article to see how well my words of wisdom were framed. Middle of the article. Still no mention. Eighty-percent, and still nothing. Then, the last sentence, a paragraph unto itself, I read:

“So what does China need to do to move up the BPO ladder? “‘They will need to - and have already, to a large extent - gain visibility and the trust and respect of Western customers,’ says Dodson.”

Who’s Dodson, the question occurred to me. Me Dodson? Or my evil twin Skippy Dodson?

I re-read the article, more slowly this time, to see if I had missed the part of the article that said, “according to William Dodson, Managing Director YA DA YA DA YA DA…”

Nope. It wasn’t there. The only mention of the time and research I had put into the interview was at the end of the article: a sort-of-quotation and a sort-of-annotation both amputated by an unknown editor wielding the scribner’s equivalent of a machete. The article presented me as an editorial version of a professional quadraplegic.

After we kill all the lawyers… the editors are next! (of which I’ve already notified those responsible)

Below find a complete text of my interview for the BPO article…

My questions are as follows:
(1) What’s the current condition of China’s BPO industry? What are the weaknesses of the major
Chinese players?

China has had no Y2K-crisis as the Indians did to finance or to educate its armies of fresh-eyed programmers in the hard-as-nails realities of Western business practices and operational processes. The Y2K-crisis provided the Indians with the opportunities for exposure and training in the business processes of Western companies, MNCs and non-MNCs alike. Nor does China have the troops of English-speaking, customer-focused go-getters that India does to kick-start an industry onto the global stage. Instead, China is going to have to boot-strap itself to become a world-beater in both the IT/BPO realms.

One partner in a venture to work with a local government to build its IT/BPO service base told me local Chinese governments are using the same approach they had in developing their manufacturing prowess: if you build it, they – the foreign companies - will come. A Shanghai technology area has built acres of facilities specifically for IT/BPO services with a first-class information and communications infrastructure. The local government is providing training to hundreds of recent university graduates in Java. Problem is, China is not attracting the kind of high-end projects that require Java training; nor is the training really developing the kind of practical skills companies need to support high-value projects that will lead to access to corporate business units.

The Chinese have no credibility when it comes to understanding and articulating the kinds of back-office applications that matter to knowledge-driven Western companies. Most Chinese IT companies cater to domestic Chinese customers; the vast majority of ITO companies support Japanese and Korean companies with programming projects for consumer electronic devices based on highly detailed specifications already developed by the customers. There is little opportunity to gain access to corporate business processes. The Chinese need the access to develop the expertise and credibility Western companies look for when outsourcing their backoffice functions to any company, whether within or outside their own country.

The Chinese and the few BPO resources there are have made it this far performing rote activities that do not require much in the way of experience, analysis or creativity: forms processing and data entry mostly.

Of course, it is well known that the Chinese facility with English as a working language is far behind the Indians’. India had the advantage – from an industrialization point of view – of 350 years of British colonialism. The English language has become an integral part of Indian society. English is also the primary or secondary language of the wealthiest countries in the world, countries with economies that are primarily service-based. The service-based countries have for the past decade been trimming the costs of the services they provide by outsourcing functions to India. The English language – and the desire to adapt and refine their English to suit customer requirements – has been a key factor in the success of the Indian companies. An American in Ohio or a Brit in Birmingham can pick up the phone and discuss a customer issue with someone in Bangalore. That is currently near impossible to do with someone in Xi’an or even Shanghai.

As well, from a functional point of view, an HR manager in Ohio can readily discuss business process matters with a project manager in a conference call to Bangalore; however, the same American manager would be hard-put to find a native Chinese project manager in any Chinese city with whom he could discuss in a straight-forward, transparent manner the issues at hand. China currently has very little talent in the BPO space with such capabilities.

(2) What are some new ideas or approaches used at Chinese BPO firms?
China will go through an M&A phase that India has never really had to go through. India’s development of its BPO industry is a direct outgrowth of its ITO industry. The Y2K phenomenon forced Indian outsourcers early on to develop economies of scale service providers needed to support efforts that required converting billions of lines of COBOL programming code to keep the West from crashing. The Indians were then able to take the economies of scale along with the access they had gained to backoffice functions to directly move into BPO.

China has had no such kick-start, no such opportunity or financial base from which to develop the economies of scale that give BPO operations the credibility and wherewithal they need to grab and keep BPO projects.

Like so many industries in China, the BPO industry is fragmented, with more than 90% of BPO operations supporting only several hundred staff. Indian BPO providers routinely offer tens of thousands of staff to support Western MNCs. China will have to aggregate the economies of scale BPO projects require through domestic mergers and acquisitions to gain profitable projects that will enable companies to grow and to develop higher-value service offerings.

Chinese BPO providers have and will still predominantly support South Korean and Japanese companies. The Indians cannot touch these East Asian markets mostly because of a lack of cultural affinity. Recall: the Indians through 350 years of British occupation were able to learn a great deal about Western proclivities; the Indians have had no such opportunity with the East Asian countries. History and cultural affinity, though, tie the Chinese, the South Koreans and the Japanese together.

The Indian outsourcing companies like Tata and Satyam are well-aware of the potential for BPO in the East Asian markets and are aggressively estabilishing Chinese operations. The Indian operations based in China using Chinese staff with experience in East Asian markets will be able to expand their marketshare in East Asia much more quickly than if they were to attempt to develop the market without leaving India, as they have been able to with Western companies.

The exposure Chinese managers and operators gain through the Indian incursion into East Asia will more quickly develop Chinese talent than if the Chinese had to go through the BPO learning curve themselves.

Another approach Chinese BPO companies have that India-based competition does not is access to the fastest developing economy in the world: China. China now has tens of thousands of Western companies invested in its markets. Many of the companies will be looking at the shared services model to reduce increasing costs of operation in China. Other Western companies – especially the large MNCs – have already been using outsourcing services, and have insisted their Chinese subsidiaries continue using the same Indian vendors. However, Chinese managers and Indian managers a continent away do not necessarily have the affinity Western managers may have. Indeed, Chinese will increasingly find it easier to work with – and will insist on working with – Chinese-based outsourcers to gain the efficiencies headquarters is looking for.

Domestic Chinese companies as well will help Chinese BPO operations mature as partners coming onto the global stage. Increasingly, domestic Chinese companies are looking to Western MNCs as models upon which to base operational structures and business strategies to become competitive in the world market.

(3) When compared with their Asian rivals, in what segments of the market have Chinese players enjoyed
success? Give a specific example.

Chinese are gaining success in forms processing and data entry, tasks that are repetitive and detailed. The most accessible areas for Chinese BPO operations right now are: insurance claims processing, personnel records data entry, patient records entry, and invoice processing.Though gradually changing, the Chinese education system has for thousands of years emphasized rote learning and the regurgitation of facts and figures. As a result, Chinese tend to be more detailed and heads-down in their work than their Indian counterparts, albeit less innovative.

An example of an application of China-talent’s current competitive advantage is a Xian-based BPO operation that performs loan Processing and Accounts Payable Processing services, among others. In the instance of AP processing, the Chinese operation receives a scanned image of an invoice to a vendor. Relevant information such as the invoice date, due date, purchase order number, delivery date, product codes and the rest are manually entered into a computer system on the China side. The Chinese operation then posts the data to the client’s financial accounting software, for instance, SAP. The customer company then has the order in its computer system and can track shipment progress and payment to the vendor accurately.

(4) Some experts say there is a lack of innovation in the BPO sector. In your view, should Chinese players use strategic alliances with their Asian rivals to gain the necessary know-how? Or focus on internal innovation?

Chinese business by definition at this time in China’s economic development is not innovative. China is where Japan was in terms of innovation in 1963, just before the 1964 Olympics. China is still learning to rationalize its own business processes, educate its workforce, modernize its facilities and equipment.

Chinese players have no choice but to form strategic alliances with Indian and American outfits to learn and to grow to sizes that will gain them entry to the global BPO stage. The Chinese do not have the benefit of a Y2K-sized event in the West to give them the training, credibility and access to Western business units the Indians have. Nor do the Chinese have the English-language capabilities – yet – to compete with the Indians in BPO-related services that require end-customers engaging human beings.

The Chinese will have to rely on strategic partnerships with Indian operations to gain the credibility, experience and access they inevitably require to succeed in the BPO space. They will – and have already, to a large extent – ride on the Indians’ coattails to gain visibility and the trust and respect of Western customers. It was the Indians, after all, that made IT and BPO economically viable for the West and gave the disciplines the credibility they now have in the West. The Chinese will also have to watch and learn from the Indians how to apply technology to solve the issues confronted by Western companies both in the West and in China.

Innovation for the Chinese will come after the Chinese have internalized international best-practices through the Indian veil and begin applying what they have learned with companies in the West to their own markets in China. Chinese values, business structures and ways of doing business are not intuitive to Western or to Indian service providers. Chinese operators, though, will be able to learn, understand and deal with their Chinese customers in ways that to Indians and to Westerners would appear innovative. The home-grown innovations will eventually make their way beyond China’s borders to business applications for customers in other countries.

Bill Dodson
SUZHOU, China