China

An Emerging Global Outsourcing

Conventional long form: People's Republic of China Conventional

short form: China

Country Overview

Fact: • Capital: Beijing

• Independence: 1 October 1949

• Population: 1,355,692,576 (July 2014 est.)

• Languages: Standard Chinese or Mandarin

• National Symbol: Dragon

• National Anthem Name: "Yiyongjun Jinxingqu" (The March of the Volunteers)

International Relation: • Time: GMT +8:00

• Fiscal Year: calendar year

• Currency: Chinese Yuan

• GDP - Gross domestic product: 9.24 trillion USD (2013) World Bank

• GDP Per Capita: 6,807.43 USD (2013) World Bank

• Inflation Rate (Consumer Prices): 2.6% (2013 est.)

• Exports: $2.21 trillion (2013 est.)

• Exports - Commodities: Electrical and other machinery, including data processing equipment, apparel, radio telephone handsets, textiles, integrated circuits

• Exports - Partners: Hong Kong 17.4%, US 16.7%, Japan 6.8%, South Korea 4.1% (2013 est.)

• Exchange Rates: Renminbi yuan (RMB) per US dollar -6.2 (2013 est.)

• Imports: $1.95 trillion (2013 est.)

• Imports - Commodities: Electrical and other machinery, oil and mineral fuels; nuclear reactor, boiler, and machinery components; optical and medical equipment, metal ores, motor vehicles; soybeans

• Imports - Partners: South Korea 9.4%, Japan 8.3%, Taiwan 8%, United States 7.8%, Australia 5%, Germany 4.8% (2013 est.)

• Government: Communist state, Socialist state, Single-party state

Country Overview

Available infrastructure for ITO, KPO, or BPO

Most Successful Types of ITO, KPO, or BPO

Big Data Market Split by Industry

• Internet: 14.9%

• Government: 14.9%

• Telecommunications: 10.6%

• Finance: 10.6%

• Medical: 8.5%

• Manufacturing: 8.5%

• Energy: 8.5%

• Retail: 6.4%

• Logistics: 4.3%

• Education: 4.3%

• Transportations: 4.3%

• Others: 4.3%

•Product R&D, Industrial Design and Engineering Design

•Design and development of cartoon animation and online games

•Analysis and data mining •Intellectual property right research •Pharmaceutical and

Biotechnological R&D and testing

KPO: 28.4%

•Software Development •IT software training •Software product support •Application implementation •Integrated circuit design •Software testing •IT advising •Hardware Support

ITO: 56.1 %

•Human Resources •Customer Management •Finance & Accounting •Procurement

BPO: 15.5%

Status of ITO, KPO, or BPO industry

Competitive strengths as a ITO, KPO, or BPO venue Pharmaceutical R&D: China has become a major destination for

pharmaceutical R&D transfer given to its cost and talent advantages. China

boasts relatively low-cost professionals, processes a competitive edge in areas

where scientific research infrastructures are already well

developed, and enjoys relatively lower R&D costs and technologies that are

continually upgraded.

Cloud Ecosystem: Cloud ecosystem is a term used to

describe the complex system of interdependent components

that work together to enable cloud services. Enterprises

tend to increasing capitalize on the cloud ecosystem to gain competitive advantage and

capture value via coordinated activities.

SSCs: MNCs –Multinational Companies

set up of SSC-Shared Service Centers to support front-office operations as well as

back-office operations.

Leading Players

INSIGME

NEUSOFT

HI SOFT

CHINASOFT INTENATIONAL

DHC

ISOFTSTONE

VANCEINFO

BEYONDSOFT

UFIDA

ACHIEVO

Risks

Different Business Culture

Decision making process can take up to 6 months

Takes money, time, and patience to build relationship

High Cost High income tax and social security costs

Difficult and costly customer service due to geographic diversity

Limited Talent Pool

Language skills need to be improved

Insufficient IT-ready talent pool

High cost to relocate senior management/ >20% attrition rate

Business Development

Different business focus and mentality

Deal size normally small

Intellectual Property

Protection (IPR) and Information

Security

No real IPR protection or information security in industry

Process to recover from any IPR violations strenuous

Government Intervention

Fiscal Measures •-Government subsidized HR training •-Tax breaks for technologically advanced enterprises

Talent Training •-Opportunities for university student internships in service outsourcing •-Award credit for job-oriented training

Promotion of Global Presence •-Chinese services sponsored or participated in overseas conference and fairs

Chinese service providers upgrading ISO certifications •-8,321 certifications including 3,688 international certifications

Major Risk Factors

In 2012, China’s total outsourcing value was

USD 46.6 billion, which was an

increase of 43.8% over the previous year (ITO 56.1%/ BPO 15.5%/ KPO

28.4%)

Previous Trends

ITO market close to 50% annual growth in 2012 •Biggest share in outsourcing industry •Cloud Computing, Big Data and e-Commerce big

KPO grew over 100% between 2010-2012 •Pharmaceuticals and IT industry clients the biggest contributors

BPO has high prospective growth, but currently the

smallest

Projections

High growth rate until 2015

2015-2020 growth rate will slow, but continue to steadily increase for all of ITO, BPO,

KPO

Projections for Growth

OUTSOURCE ITO • ITO market immature BUT IT software testing and training has been

a focus in recent years • Majority of service providers main offering is ITO • Fast growth in model cities and ITO accounts for over 50% of total

outsourcing value in China • Government has invested in new technology • Big Data and cloud technologies are emerging

– Can create competitive advantage • e-Commerce has seen fast growth • ITO is becoming customer centric and innovative solutions have

been growing • Main concern of IPR protection is a main concern in China, who has

focused on ISO certifications

Recommendations

1. Glenn, Keeny, and Luis Reategui. "Information Technology Ousourcing in Merging Market." (n.d.): n. pag. June 2002. Web.

2. Central Intelligence Agency. Central Intelligence Agency, n.d. Web. 11 Feb. 2015.

3. Entry Strategy for China ITO – BPO – KPO Market. (n.d.). Retrieved February 21, 2015, from http://survey.nasscom.in/sites/default/files/researchreports/softcopy/KPMG_Entry Strategy for China ITO-BPO- KPO Market.pdf

4. Knowledge Process Outsourcing (KPO) on the Chinese mainland: A new opportunity for Hong Kong services | HKTDC. (n.d.). Retrieved February 22, 2015, from http://economists-pick-research.hktdc.com/business- news/article/Research-Articles/Knowledge-Process-Outsourcing-KPO-on-the-Chinese-mainland-a-new- opportunity-for-Hong-Kong-services/rp/en/1/1X000000/1X09UKIU.htm

5. http://www.forbes.com/2010/10/07/china-india-outsourcing-markets-information-technology-kpmg.html

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