China: The Next India for IT Outsourcing?
Well we’ve all guessed that the question in the title of this post was coming. It seems that the answer is obvious. As wages increase for the software engineers in India’s silicon valleys of Bangalore and New Delhi, what self-respecting cost-cutter wouldn’t look elsewhere? Not so fast my friends. For a full understanding of the pluses and minuses of a move to China read the article in the blog Recruiting in China entitled China Marches into Outsourcing. The author has an interesting insight into the workings and plans for China’s information technology outsourcing industry.
India was there before China with BPO, Business Processing Outsourcing. Their revenue for 2007, $18 billion, dwarfs China’s for the same period. The author does make an observation that some may take exception to regarding the ability to speak English. I leave it to the reader to make your own determination. Here is the direct quote:
With its history as a British colony, India has workers with strong English skills and familiarity with Western culture. That gives companies there a big edge when bidding for jobs that require reading reports and talking to Americans.
I always get a little nervous when a totalitarian dictatorship comes up with a “plan”, anyone remember Comrade Stalin’s 5 year plans? Well it appears that our friends in the PRC have come up with one called the “Thousand, Hundred, Ten” project. The title is derived from China’s plan to situate 1000 Chinese outsourcing vendors in 10 cities servicing 100 foreign clients. The plan targets foreign clients other than the current Asian clients and moves the vendors out of the bigger and more familiar Chinese cities of Shanghai, Beijing, and Shenzhen to the less costly towns for housing and wages of Wuhan, Jinan, and Changsha. Government incentives abound from two-year tax waivers to subsidies for employee training to cash infusions for certain industry sectors (e.g. $56 million for the animation industry in Changsha).
China does have some hurdles to overcome. Most of their current IT outsourcing is to Japanese firms. The outsourcers that have set-up shop in Changsha are relatively small and prone to failure. The work performed is not the glamorous engineering and design, but the more mundane coding and software testing. Consequently the talented engineers leave for the more exciting cities on China’s coastline with more opportunities.
Search, as you may, for any mention of the over 500,000 Chinese in re-education camps (we call these political prisoners) or for any mention of Tibetan monks being beaten, but you will not find it. I’d put that down as another hurdle China needs to overcome.
That 500,000 figure is higher than any I have heard. Where did you get that? China IT outsourcing has been going on for years and there are at least a dozen cities fairly far along with it. Even a couple of the big Indian outsourcing firms now have operations in China. In deciding between China and India (or Russia, Ukraine, Vietnam, and even North Korea for that matter) much depends on the type of outsourcing you are seeking to do. It is also true that both wages and overall labor costs are rising rapidly in China as well.
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Thank you for your comments above and your added insights into outsourcing in China. The article I cited confirms your comment about rising wages and housing costs in cities like Shanghai, Beijing and Shenzhen and hence the move to the smaller cities mentioned. As for the estimate of political prisoners, I think your question is a good one. I hope it keeps the discussion going.
Sam Conforti