This is China! BLOG

The Revolution will Not Be Outsourced

The October 9th edition Economist Magazine had an engaging article about the global outsourcing industry subtitled, “How the financial crisis will affect the outsourcing industry.” The thrust of the article can be summed up in the statement:

“As they struggle for survival, many banks have put discussions about outsourcing contracts on hold or just canceled them altogether. Once the dust settles there will be far fewer financial institutions around, so competition for the remaining contracts will be stiffer.”

The observation resurrects a thesis I proposed at the “Nanjing-Singapore Services Outsourcing Forum: Partnering to Successful Service Outsourcing Solutions,” held last month September at the Ascendas iHub campus in Nanjing Jiangning. During my talk I offered that the most natural course for development of Nanjing’s Services Outsourcing industry - indeed, for nearly all of the 10+ Services Outsourcing Bases Central Government is promoting - is right at its doorstep: it is the capital of a province found most attractive to multi-national corporations (MNCs). Never one to dissuade mavens with grand schemes of conquering the world, I proffered that Nanjing is representative in China as a Services Outsourcing hub to the many countries that have invested in local regions.

I’ve said this before in other posts and other talks that the keys to Indian dominance in the Services Outsourcing industry are found in the Y2K Big Bang and the resourcefulness with which Indian firms set about leveraging their knowledge and experience in IT to gain footholds internationally in Business Process- and Knowledge Process Outsourcing. Question is: what is China’s Big Bang and where is it?

China’s Big Bang came with its entry into the WTO, in 2001. China the debutante found itself courted by the most Foreign Direct Investment (FDI) ever to flood a country in such a short time. Almost overnight every major MNC set up shop in China, a great majority of which did so in the Yangtze River Delta. Concurrently, China’s Services Outsourcing industry - vastly dominated by IT - began sprouting. Still, nearly 90% of all Services Outsourcing in China is domestic, according to a report by Tholons, a consultancy, and is slated to be so for the forseeable future.

Now, the Yangtze River Delta - and Jiangsu Province in particular - is increasingly supporting a 21st-century transport and information infrastructures. Further, the highly competitive domestic market is forcing retail and manufacturing to early adoption of IT, while global economic and demographic pressures are forcing MNCs to reduce costs and increase effectiveness.

In other words, the Nanjing model shows China has an opportunity to develop its services outsourcing industry in a way India does not have because of India’s comparative disadvantages: a weak and fragmented infrastructure and an under-mobilized citizenry. It will take at least another twenty years for India to rationalize its domestic marketplace to the same degree China has, so Indian outsourcers can moderate their escalating costs and insulate themselves somewhat from the travails of the international marketplace.

The same Economist Magazine article points out:

“As they chase new revenues, outsourcing companies will also need to clamp down on costs. These have been soaring, especially in India, where a ferocious war for talent has driven up wages and led to very high staff-turnover rates.”

So what about Nanjing? The city does have one of the best university educations on offer in China, and the local government is hell-bent on encouraging MNCs to settle in or near the city. Jones Lang LaSalle identified in several reports: Nanjing has the fifth highest concentration of hi-tech companies in China (Suzhou is Number 6); the ninth most popular destination for R&d centers in China; in 2005 was the fifth most popular base for expansion of MNC activity; while half of all MNC activity is tied up in finance and banking, and IT and Telecoms sectors - sectors that are amongst the most avid consumers of Services Outsourcing. Nanjing also has at its disposal resources as the capital of one of the richest provinces in China, which also happens to be the province with the most outsourcing bases (which include Kunshan, Suzhou and Wuxi).

The Nanjing Model for Services Outsourcing in China will see service providers taking advantage of the international marketplace through the front door of the MNCs in or near their cities. The support of the MNCs in the region will provide outsourcing vendors the knowledge, experience, relationships and credibility that launched the Indian revolution eight years ago. Coupled with the results of outsourcing partnerships with Chinese customers, Chinese service providers will be able to take out into the world the innovative processes and technologies they’ve developed to meet the unique requirements of Chinese society and business.

One day perhaps, Chinese services outsourcers might be bringing their experience in the world’s most populace country to the world’s second-most populace country. Chicken-Feet Vindaloo, anybody?