Outsourcing: Make Way for China
It's fast becoming an important hub for IT services. Move over, India
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by 2005. Gartner Inc. predicts that by 2007 China will pull in $27 billion for IT services, including call centers and back-office work, matching India.
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AUGUST 4, 2003
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INTERNATIONAL -- ASIAN BUSINESS
Outsourcing: Make Way for China
It's fast becoming an important hub for IT services. Move over, India
If you visit Tom Reilly's office in Guangzhou, you may have trouble hearing above all the construction noise. Workers at the Cap Gemini Ernst & Young facility in the southern Chinese city hammer away even as employees tap at their computer keyboards. Since it began in 2001 in a tiny, windowless room, the Cap Gemini center has grown to employ 120 people doing everything from entering sales data for a Hong Kong convenience-store chain to processing cargo information for a Norwegian shipping line. And Reilly expects the staff to reach 500 within 18 months. "It's the smell of progress," he says, sniffing the fumes of wet paint permeating the office.
That progress is starting to spread across China. After emerging as the world's hottest manufacturing hub, China is joining English-speaking countries such as India and the Philippines as a key destination for outsourced service jobs. Near Guangzhou's airport, a call center run by Hong Kong's PacificNet Inc. employs 2,000 Chinese manning the phones for telecom and insurance companies in Hong Kong, Taiwan, and China. PacificNet plans to have a staff of 5,000 by the end of next year. Accenture Ltd. has opened a software-development unit in the northern coastal city of Dalian that will soon boast 1,000 staff. And at its new center in Shanghai, BearingPoint Inc. (formerly KPMG Consulting) aims to quadruple its staff, to 600, by yearend 2004.
So far, China's role is largely focused on providing back-office support for financial service, telecom, software, and retail companies in neighboring Asian countries. Operators can easily talk to people in Hong Kong and Taiwan in their own languages. China also has plenty of Japanese and Korean speakers. But it is making inroads as an outsourcing base for English-speaking nations, a business dominated by India, because of the influx of Western multinationals who now are bringing back-office work to China. ConnectITChina, a Shanghai consultancy, estimates China's software outsourcing revenue will more than double, to $5 billion, by 2005. Gartner Inc. predicts that by 2007 China will pull in $27 billion for IT services, including call centers and back-office work, matching India.
China's ascent could inflame an already heated debate in the U.S. about companies sending work abroad. With the U.S. economy still struggling and the jobless rate at 6.4%, lawmakers in several states want to make it harder for governments to contract work to low-wage countries. India is the center of attention. But China, which many Americans view as a political and economic rival, is likely to be a bigger lightning rod for outsourcing foes.
The economic forces driving work to China are powerful, though. There is huge demand inside China for skilled service workers to meet the needs of both the country's own booming economy and of the thousands of multinationals that have set up manufacturing bases on the mainland. Many companies in Greater China are, for instance, turning to outside providers for information technology needs rather than doing the work in-house. "There's massive need for data entry from banks, insurance companies, and hospitals," says PacificNet CEO Tony C.W. Tong. Operators at Tong's call center start at salaries of $150 per month; in Hong Kong they average $1,300. PacificNet serves Chinese cellular carriers and is mulling a Dalian office for Japanese clients.
Chinese officials aim to give this burgeoning industry a push, by forging partnerships with multinationals to train information technology engineers. For example, IBM has signed deals to train 100,000 software specialists in various Chinese cities over three years. Indian computer-training companies are teaching 20,000 students in more than 100 centers across China. Gartner figures China needs 4 million more IT professionals to meet future demand.
Foreign IT services companies also are using China as a base for winning business in Asia. One reason Accenture picked Dalian for its rapidly expanding software-development office, which opened in mid-March, is that the city is a major hub for Japanese and Korean multinationals. When it comes to working in those languages, says Accenture China manager Gong Li, "it's much easier for our people in China" than for those in India or the Philippines.
China's low-cost talent is another edge. Although India is a powerhouse in high-end IT services, latecomers these days must pay higher wages for experienced engineers. That's one reason BearingPoint chose Shanghai for its new software-development center, says the company's Greater China President, Bryan Huang. BearingPoint pays $500 a month for engineers in Shanghai. In India, he says, the pay would be $700, and $4,000 in the U.S. "Where can we sustain our cost advantage for the next 40 years?" Huang asks. "We're convinced that China is the only place."
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