India’s Democratic Edge Over China in Services Outsourcing
February 5th, 2008 | by This is China! |
While in Shanghai last week making my rounds of meetings I had a very pleasant conversation with John Huang, a Project Director over at GIC, Global Intelligence Communications. GIC hosts industry-specific conferences in Beijing and Shanghai. I had co-chaired their conference on “The China Summit for Business Development Leaders” back in the summer of 2007.
John is a tall, elegant young Chinese man with an easy smile. We talked a bit over coffee about the state of the IT- and Business Process Outsourcing industries in China. He mentioned that a friend of his was moving from a major outsourcing company back to Shanghai government to head up Shanghai’s push to become the preeminent services outsourcer in China. It seemed that both in corporate and in government the friend’s network of contacts was extensive.
Of course, we agreed, every city in China seemed to want to become an IT Outsourcing hub, it seemed. “I received a call a couple months ago from an old acquaintance of mine in government in Jiaxing,” I said. “She wanted to tell me that Jiaxing Economic Trade and Development Zone was setting up its own outsourcing and R&D center in the area.” Jiaxing is about an hour’s drive to the southwest of Shanghai city limits, in Zhejiang province.
The irony of all this push toward the shared services model was that the central government had already designated ten cities in China as its flagship bases for launching its policy-driven push into technology-based services: Beijing, Shenzhen, Shanghai, Nanjing, Hangzhou, Chengdu, Dalian, Xi’an, Wuhan and Suzhou. One discussion I had during the Ascendas iHub opening in November 2007 was that Beijing is not in the original list, but that Qingdao is; Beijing is the plus-one city. It is to these cities that the Beijing government has since last year been passing down largess to kick-start its national drive into R&D, IT- and BPO industries.
Each city though, whether on the “official list” or not, seems hell-bent on out-doing the other. Like China’s drive into manufacturing through creation of its Economic Development Zones, the cities and the outsourcing companies based in them seem to be promoting themselves individually, competitively. There is no “national brand” for China services outsourcing.
India, on the other hand, has Nasscom, the National Association of Software and Service Companies, to lobby on behalf of its 1100 corporate members worldwide. Nasscom in particular was effective in combating the waves of negative media stemming from the loss of IT jobs in the States in the early 2000’s, during the “meltdown” of the IT industry during the recession. Despite such public relations setbacks, Nasscom has been a great force in promoting the Indian ITO and BPO industries, so that the industry is still growing at a fitful 30% compounded annual rate, according to a report by XMG, a research consultancy.
China, on the other hand, has a government organ called The China Software Industry Association (CSIA), whose mouthpiece is The China Daily and other official newspapers. The creation of the CSIA is a reflection of the Chinese government’s animosity toward the Chinese organizing any body that could threaten the party-line. Hence, promotion and organization must fall to local authorities, who then vie with other cities for customers instead of banding together to offer to the world a unified face. And China will certainly need such unity beyond the bland offerings of Central government to convince the world that its companies’ behavior in such areas as quality and Intellectual Property will be different than that of its manufacturing cousins.
As long as the Chinese government shackles information-based industries to an official yoke, China’s ITO, BPO and R&D centers of excellence will be stunted reflections of Indian enterprise. For once, democracy in the developing world will have trumped central planning in at least one sector.
Bill Dodson
SUZHOU, China
4 Responses to “India’s Democratic Edge Over China in Services Outsourcing”
By PK on Feb 5, 2008 | Reply
First of all - excellent writing on all fronts and thank you for the knowledge you pass.
Regarding Business Process Outsourcing (especially high-value information processing for banks, corporations, insurance, etc.), it will be a considerable effort to get this even to stage one due to the lack of “field” experience that Chinese IT Outsourcing companies have access to in terms of talent. Indian firms have a wealthy resource of experiences and talent that resides in the same exact customers from which it sustains and builds it’s client portfolio. To have domain experience is crucial to build confidence in such opportunities. Albeit, some companies completely “buy out” the IT infrastructure to manage such engagements (IBM, InfoSys, others) and selectively retain talent that was formerly internal to the client, the new China based service providers don’t have, in my opinion, that market access nor are engaging in such fashion.
Software outsourcing is completely different than BPO, KPO, and Infrastructure Support Services (the high value and high margin work) that the Indian companies have matured both in acquisition and delivery. It will be some time and government support by China is readily necessary to ensure that confidence, trust, and domain expertise is at the intersection of possibility and reality. Tons of opportunity, but years of maturity are needed. It will get there, just a matter of time.
By This is China! on Feb 9, 2008 | Reply
PK;
You are right to say that software outsourcing is quite different from BPO, KPO and Infrastructure Support Services. The Chinese have been doing software outsourcing for nearly ten years now, overwhelmingly Japanese and some South Korean clients. BPO, KPO and ISS require hands-on experience, which the Chinese will get in only two ways: the multi-nationals already invested in China that have Chinese managers that want to work with Chinese outsourcing outfits “The Chinese Way;” and by Chinese engineers growing up in Indian outsourcing operations like a Satyam or Infosys to become managers, and then going out on their own to start their own outsourcing firm.
But as you said, it will take time. More time than it took the Indians because the Chinese have no Y2K through which to gain experience and client-access.
By Stephen Smith on Feb 16, 2008 | Reply
Great information, Bill. Thanks for enlightening me as to the state of IT outsourcing in China. What do you think the chances are of China ever moving to the Indian model (or something roughly similar)? The Chinese strike me as being above all a practical minded society. Seems to me that once they could be shown how much better the Indian model works, they would be willing to move in that direction, no matter how grudgingly.
By This is China! on Feb 17, 2008 | Reply
Stephen;
If you define “practical” as always out to make a buck, then, yes, the Chinese are practical. However, the Chinese have little history of working together in a cooperative manner to achieve ends. I do not consider the Chinese predisposition toward collusion in business the same as the kind of cooperation the Indian model has been able to achieve through Nasscom. Until the Chinese government relaxes its autocratic grip and trusts its NGOs are not out to foment revolt, it will always be in the government’s best interest to atomize national representation of its industries.
And as long as the Chinese domestic market (the potential of which over the long run is huge) as well as the Japanese and South Korean markets present big opportunities in IT outsourcing, the Chinese will not push too hard on trying to crack Western markets. Indian vendors by necessity had to break into the West because they do not have the domestic nor neighbor-markets to support such high-end services.
So it’s going to be a while before we see the Chinese well-enough organized and inclined to make as great an impression on Western markets for IT Outsourcing as the Indians.