Economy

Outsourcing expected to raise billions of yuan

By Xu Junqian (China Daily)
Updated: 2011-05-30 09:18

In Nanjing, the capital city of Jiangsu province, the industry has already become a pillar of the economy, accounting for 50.7 percent of the city's GDP, and is expected to increase by 10 percent over the next five years, according to a forecast made at the summit by Deputy Mayor Li Qi.

"We enjoy a sufficient talent pool supplied by 6 million graduates every year, and an ever-improving infrastructure including Internet connection and transportation system," said Wang.

It is widely believed that the biggest incentive that has attracted multinational companies and boosted local ones is the huge domestic market demand in China, despite the rising cost of labor, the appreciation of the yuan and fierce competition from other service outsourcing destinations in Asia, such as the Philippines and Vietnam.

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Peter Sondergaard, senior vice-president of Gartner, a research and consulting firm that has studied the phenomenon, said that the real risk, or challenge is in China itself. Once China integrates its manufacturing strength, which has stimulated its economic growth for three decades, with the new industry, the market will have great potential.

Zhou Ming, vice-president of the China Council for International Investment Promotion (CCIIP), said that the onshore outsourcing market will become a new growth driver, since China also boasts a huge internal demand as the world's second largest economy. It will also grow with the increasing involvement of sectors such as medical care, manufacturing and telecommunications.

According to Hong Gang, vice-president of Orchestrall Group, the medical service will be the sector with the biggest potential for "explosive growth".

It is predicted that by the end of 2015, the investment in medical reform and healthcare in China will reach 2,400

billion yuan, with most of the money going to areas such as the development and maintenance of the IT system in hospitals, logistics and home care centers for the elderly.

"Globally, 10 percent of the business will be completed through outsourcing. Currently in China, the percentage is less than 1, and that's where the potential lies," said Hong, who also works as a senior adviser to the China Sourcing Working Committee under the Ministry of Commerce.

The biggest challenges, however, are the shortage of high-end experienced talented staff and information security relating to date privacy and intellectual property protection. The latter is a particular concern for multinational companies.

"Talent has always been a big concern for service outsourcing in China," said Zhou of CCIIP. "Talented people in the sector usually possess more comprehensive skills such as knowledge of IT or a foreign language, aside from the standard professional requirements."

Nigel Knight, managing partner of Ernst & Young Advisory Services in Greater China, also explained the challenges facing the industry.

"It's very difficult to bring in expatriates. It's not impossible, but very difficult, because of the language, the culture, and the other barriers," said Knight, who is also working with a dedicated team with the government to provide consultancy in terms of talent training.

"The hardware is relatively straightforward - for the government to set up a viable environment, like building an industrial park or putting in place the basic incentives. It is difficult to build a talent base quickly, and also to put in place, at least, local policies that encourage information security and give people confidence," he said.