The term outsourcing can have many different meanings to a native English speaker. Some people use the term to refer to the offshore delivery of services, others use it to mean the delivery of services by a third party and others use it to mean something as specific as the management of call centers by third parties, in offshore locations. To make matters, even more complex, the term business process outsourcing (BPO) is, by many, only associated with the outsourcing of contact centers.
So, for me, a recent trip to an outsourcing conference in China was a very valuable experience that forced me to seek clarity from my hosts when the term outsourcing was used. Needless, to say, it was very difficult to ascertain whether or not there was a common understanding of outsourcing among the hosts and the delegates. My experiences led me to believe that there was no common understanding. In fact, identifying the real outsourcing-related opportunities in China and cutting through myths are very difficult tasks. In China, one of the main issues that is discussed around outsourcing is what China can ‘learn’ from India. I assume that what is meant here is how China can replicate India’s success as an offshore destination for the delivery of services, in particular contact center services? This is definitely what people seem to mean. But, it doesn’t really make sense. China and India are so dramatically different. It is a bit like asking the question ‘How can China emulate Australia’s success in crocodile farming?. Surely, the Chinese authorities should focus on developing greater capabilities in the areas where China has some clear differentiation. Creating English-language contact centers in China that are designed to service the US and UK markets seems pointless. Wouldn’t it make more sense for the Chinese authorities to focus on industries in which China excels such as the development of infrastructure, in particular urban transport systems, engineering skills and software development?
Indeed, offering English language contact center services also faces a major cultural challenge. The concept of customer services is not mature in China. There remains a strong belief that the government knows best and that customer s (or individuals) should take what they are given and make the most. The notion of contacting the government, or any other organisation, to complain about a product or service is not one with which most Chinese citizens are familiar.
But the Chinese authorities are investing mind bogglingly large amounts of capital in 21 ‘service outsourcing model cities’. It is not totally clear what kind of outsourcing services are intended to be delivered from these cities but there are strong signals that they seek to emulate India’s success in contact center related offshore outsourcing. My experience and understanding of China suggests that attempting to replicate India’s areas of success would be a complete waste of resources. Instead, Chinese authorities and multinationals that want Chinese business, must focus on the following:
• The potentially enormous domestic market. As the Chinese economy matures, there will be increased demand for specialised services from third party suppliers. Additionally, the cost of local skills will increase and outsourcing will make clear business sense. Today, the Chinese domestic outsourcing market is very small, but will be one of the world’s largest outsourcing markets within the next 10 years. There will be very sizeable opportunities for overseas outsourcing firms such as IBM, HP and Accenture to offer services to Chinese clients. Already, these multinationals are working closely with the Chinese authorities to provide systems integration services locally. It is clear that today, the majority of the IT services opportunity is centered around project skills. China has its own ERP vendors such as Kingdee and Ufida, around which there is a sizeable services (including outsourcing) opportunity. Overseas services vendors will increasingly find it necessary to develop skills in Chinese software products such as these.
• Areas of expertise in which China has a competitive advantage and which also offer long term opportunties. China now leads the world in many types of infrastructure projects. The country has succeeded in creating a sophisticated infrastructure for its population in a remarkably short period of time. In the process of doing this, it has developed world beating skills in areas such as urban rail systems. Companies that wish to outsource engineering processes or other types of knowledge processes will increasingly find that many ‘best of breed’ services can be found in China. In my view, this is one key area where the Chinese authorities should be focusing to a greater extent.
• Software development. China has vast, low cost resources that can be deployed on software development. Many of these projects are comparatively short term so may not fall under typical outsourcing definitions. Nevertheless, there is a huge opportunity in this area. The majority of Chinese outsourcing activity is currently in software development.
• Offering services to Asian economies. China is in a comparatively strong position to focus on offering services to Asian economies. Already, most of its offshore contact center activity is for Japanese and Korean customers. There are strong Japanese and Korean language skills in parts of China. Many in China’s enormous population also have a very strong cultural understanding of other Asian countries. In other words, China may be better placed to offer many types of BPO, in particular contact center services, to other Asian countries rather than to English speaking countries. It has a competitive advantage over both India and the Philippines here and is likely to benefit from better long term growth opportunities.
In summary, if your definition of BPO or outsourcing, is the offshore delivery of English language contact center services, then the opportunities in China are likely to be limited for the forseeable future. Surely, companies operating within China and the Chinese government must focus on areas where China has a competitive advantage and where the future opportunities are greatest rather than developing infrastructure to offer commoditised English language voice services in what is already a crowded and competitive market.