China Outsourcing Market Accenture

8/2/2019 China Outsourcing Market Accenture

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Outsourcing Market ResearchChina and the World

2008



2

Table of contents

Part I.Overview 4

Foreword 5

About the research 7

Executive summary 9

Helping China achieve highperformance 10

Analyzing the scope and scale of China’s outsourcing activities 10

Key research findings 10China’s potential as anoutsourcing leader 11

Fact sheet on outsourcing in China 12

Critical next steps for China 13

Part II.China’s domestic market 14

Scope and key definitions inoutsourcing market 15

Scope of outsourcing 15

Key players in the market 17

Overview 17

Service providers 18

Service providers in the Chinaoutsourcing market 18

The Chinese service provider landscape 20

Analysis of service provider landscapeby product offering 25

Analysis of service provider landscapeby industry 34

Case Study #1Neusoft Group—Informationtechnology outsourcing (ITO)specialist is breaking through withcreative models 26

Case Study #2

WuXi PharmaTech—A pioneer andleader in the contract researchoutsourcing (CRO) sector 32

Case Study #3China Data Group (CDG)—Innovationin professional services 36

Clients 38

Clients in China outsourcing markets 38

Case Study #4China Development Bank—A

domestic client that makes gooduse of outsourcing services 40

China’s outsourcing providers’client base 42

China’s outsourcing market:Notable phenomena 45

Multinational corporations’shared service centers 45

Case Study #5 VanceInfo—Forerunner in the offshore

development center sector 48The use of subcontractingin outsourcing 50



3

Designated industry parksand cities 53

Snapshot of outsourcing activityin key cities 53

In-depth analysis and suggestionsfor improvement 54

Case Study #6Accenture Delivery Centers in China:helping clients achieve highperformance in three designatedoutsourcing cities 56

Case Study #7A tale of Beijing’s two industryparks—A comparison of Zhongguancun Software Park andWangjing Technology Park 58

City evaluation model 60

The war for talent 61

Current situation and analysis 61

Introduction of currenttalent policies 62

Introduction of current pilottraining pattern 63

Part III.China and globaloutsourcing 64

Analysis of the globaloutsourcing market for ITO 66

Analysis of the globaloutsourcing market for businessprocess outsourcing (BPO) 70

Services trend watch:bundled outsourcing 72

Services trend watch: knowledgeprocess outsourcing (KPO) 73

Overview of global outsourcinghot spots 74

China’s outsourcing opportunitiesand challenges in a multi-polarworld 77

Outsourcing trend watch: Indiacompanies in China 79

Part IV.Recommendations 81

References 83



4

Part I. Overview



5

Working in and around China for

many years, I have become very

familiar with the country and its

economic dynamism. Yet, like many

businesspeople, I have tended to

associate the nation’s economic

growth with its manufacturing might.

However, it is quickly becoming

apparent that a powerful service

sector is forming beneath China’s

industrial surface. The rapid

emergence of this sector has

been guided by well-orchestrated

government plans and fueled by

the free markets, and it is evident

in the successes of fast-growing

contenders. Those outsourcing leaders,

and many others like them in China,

are emblems of a new “multi-polar”

world—a reminder that the collective

economic dominance of the United

States, Europe and Japan is quickly

giving way to a broader dispersion of

global economic power.

Of course, China is not alone in

defining the new global economic

power structure. Some other players

already enjoy a cast-iron reputation

for excellence in outsourcing. Forthe most part, China’s outsourcing

providers have some distance to

go before they can match the

expectations, offerings and operations

of their target clients. However, China

brings three powerful advantages that

will help its outsourcing leaders close

the gap over the next decade. First,

the government is wholly committed

to developing a world-class service

sector, with outsourcing services

at its core. Second, China boasts

an education system that reaches

deep into Chinese society at every

level, enabling a future talent pool

of unprecedented impact. And third,

despite rising labor costs, China’s

outsourcing firms still have, and will

continue to have for some time, a

low-cost advantage.

The representative Chinese outsourcing

firms described in this report aremaking astonishing progress, rapidly

acquiring technical competency along

with management and marketing

skills. In the information technology

outsourcing (ITO) sector, some

companies are poised to grow not

only on the strength of infrastructure

expansion programs within China but

also by leveraging cultural similarities

to offer compelling services to Korea

and Japan. In contract research

outsourcing (CRO), several firms are

already playing a global game. And in

business process outsourcing (BPO),

China has enormous potential to be a

power player, particularly in the Asia

Pacific region.

My team and I are excited to see how

China’s outsourcing story unfolds.

More than that, we are committed

to using our outsourcing experience

to help our Chinese and our globalclients to become high-performance

businesses.

Charles Hunting,

Managing Director—Outsourcing,

Greater China, Acccenture

Foreword

By Charles Hunting, Managing Director —Outsourcing, Greater China, Accenture



6

Foreword

After 30 years of opening up to the

world, China has made unprecedented

strides in its industrialization. And

now, with the definite allocation of

capital and resources to the service

sector, China is developing its

outsourcing industry. Building on fast-

developing IT technology and on therise of business process outsourcing in

particular, the new industry sector will

make major contributions to China’s

long-term economic growth.

In recent years, China’s outsourcing

industry has received strong support

and significant attention from the

government and from key state-

owned enterprises. The Ministry of

Commerce, in cooperation with other

ministries, has launched the 1000-

100-10 Project in order to attract the

attention of international corporations

and international service providers to

China’s nascent outsourcing sector.

The initiative’s goals are to foster

1,000 internationally accredited

outsourcing providers nationwide,

to encourage 100 multinational

corporations to transfer their

outsourcing needs to China and to

support 10 outsourcing metro centersthat are competitive with the world’s

best outsourcing hubs.

CCIIP and Accenture recently

conducted a national research

project to assess the status and the

potential of China’s outsourcing

sector. This resulting report, titled

Outsourcing Market Research—China

and the World , will meet the growing

demand for such information among

international corporations with

experience in outsourcing elsewhere.

It will help readers to appraise the

scope and scale of China’s emergent

outsourcing industry, understand its

market characteristics and evaluate

the capabilities of China’s fast-

growing service providers.

At the same time, this report, with

its objective analyses and empirical

data, will provide useful insights toChina’s service providers, national

research institutions and economic

policy-makers. It also will help

business leaders and government

officials to examine current global

outsourcing trends: Combining data

from leading research firms with

findings from Accenture’s and CCIIP’s

own survey, the report provides

in-depth analysis of the international

offshore outsourcing market as well as

clear definitions of the categories and

concepts of outsourcing. And China’s

unique market characteristics appear

in the report’s descriptions of the

nation’s new outsourcing parks and in

rich case studies on several of China’s

top outsourcing “success stories.”

Many experts, entrepreneurs and

government officials have contributed

to Outsourcing Market Research—

China and the World . The projectteam and I would like to take this

opportunity to express our thanks

to everyone who helped bring the

report to life. First, our gratitude

goes to Vice Minister Ma Xiuhong

and other Ministry of Commerce

officials. They have already provided

significant support and invaluable

advice. We are very grateful for the

active cooperation and commitment

of the outsourcing enterprises that

participated in our research. Our

special thanks go to the experts

of CCIIP’s China Sourcing Working

Committee who regularly reviewed

the text and argued the viewpoints,

enhancing the academic value of the

report at every step. And I would like

to extend our appreciation to our

partner Accenture for its investment—

and for the strength of its research.

Through the half-year of our close

teamwork, CCIIP and Accenture havedeveloped a truly cooperative spirit.

For the first time, we now have

a report that gives a complete

picture of the development of

China’s outsourcing industry and

its market characteristics. It is

my sincere wish that the impact

of this study will grow with each

year’s new report, and that it will

become a sought-after reference

for global organizations as well as

for China’s outsourcing providers.

On behalf of CCIIP, I would like to

extend my congratulations to all who

helped make this report a reality.

Madam Zhou Ming,

Executive Vice President and

Secretary-General, CCIIP

By Madam Zhou Ming, Executive Vice President and Secretary-General,China Council of International Investment Promotion (CCIIP)



7

In 2006, the China Ministry of

Commerce launched its 1000-100-10Project to promote the development of

a robust outsourcing service sector in

the country. The Ministry of Commerce

expects the emerging sector to play

a large part in the development of

China’s own commercial infrastructure

and to help the nation take its

place in the ranks of the world’s

leading outsourcing centers.

In tandem with the 1000-100-

10 Project, the China Council of International Investment Promotion

(CCIIP) formed a partnership with

leading global management consulting,

technology services and outsourcing

company Accenture to sponsor a

wide-ranging research program.

This research program was designed

to provide a deeper understanding

of the scope and scale of China’s

embryonic outsourcing industry and

to spotlight the opportunities and

competition the industry faces. The

program was launched with three

key audiences in mind: potential

customers that may outsource

more to China; service providers,

both Chinese-owned and foreign;and China government officials.

The research program had these keyobjectives:

To provide a strategic review of •

China’s outsourcing market, withdata on market size and growthopportunities over the next five years

To assess and compare the roles of •

both China-owned and multinational

outsourcing providers in China’sdomestic market

To assess and compare the roles of •

China-owned outsourcing providers inglobal markets

To showcase some of China’s leading•

outsourcing providers using in-depthcase studies

The research was designed and ledby an Accenture team of industry

researchers and outsourcing experts.

It involved two multiple-choice surveys.The first survey, asking 43 questions

of outsourcing clients, queried

senior managers at local Chinese

companies, multinational corporations(MNC's) China operations and the

global headquarters offices of MNCs.

MNCs were defined as companies

in which foreign investment

comprises more than 50 percent of

the companies’ capital structure.

A separate 37-question survey was

sent to senior managers at locally

owned and multinational outsourcing

service providers across China.

Altogether, participating companiesreceived 140 questionnaires, and

37 (26.4 percent) responded. Two

hundred questionnaires went out

to service providers, and 53 (26.5

percent) responded. The questionnaires

were sent by direct mail or e-mail

and were followed up by phone

calls. All survey responses were

confirmed in follow-up phone calls.

To supplement the survey findings,

Accenture researchers also conducted

15 in-depth interviews with executives

across China’s outsourcing industry.

About the research



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9

Executive summary

Over the last two decades, China’s

performance as an industrial power

has been remarkable. The country has

had phenomenal success developing

an export economy that takes

advantage of its supply of cheap and

abundant labor. “Made in China”

labels appear on retail shelves from

Argentina to Australia and from Brazil

to the United Kingdom, on everything

from pencils and shoes to televisions

and mobile phones.

Its industrial companies have made

striking inroads in markets as

demanding as machine tools and high-

quality steel. In mineral and fossil fuel

extraction, Chinese companies have

become global heavyweights. And

with strong capital resources behind

them, companies such as Nanjing

Automobile, Huawei and computer

maker Lenovo have been assertively

acquiring foreign corporations and

operating units.1

Yet there is a notable weakness in

the country’s economic system: China

lacks a mature services sector. It is

an imbalance that must be addressed

before the nation can develop long-

term economic stability.

China’s success in the global services

arena will not be so clearly linked

to low cost and large scale as it has

been in the nation’s manufacturing

sector. Nor will the country have the

head start it enjoyed over its rivals

when entering the manufacturing

sector. From Eastern Europe across

the Middle East to Southeast Asia,

many developing countries have young

service sectors of their own. Spurring

on these nations is rising international

demand in the global services

marketplace. Analysts estimate

that spending on global offshore

outsourcing in 2011 will be triple

2005 levels. Growth rates in the Asia

Pacific region already are impressive:The compound annual growth rate of

outsourcing spending between 2005

and 2011 is about 30 percent in this

region compared with 21 percent in

the United States.2

Contributing to other developing

nations’ viability as outsourcing

centers are their competitively

priced niche skills and their cultural

alignment with clients in neighboring

countries.

Developed countries have also taken

note. Widely circulated studies

show that every new global service

position results in the creation of 12 additional jobs in supporting

industries.3 Consequently, governments

in developed nations have added

emphasis and resources to policies and

programs that support domestic service

providers and their efforts to be more

competitive on the global stage.



10

Helping China achievehigh performanceChina’s government leaders are well

aware of the nation’s economic

imbalance. That is why the Ministry

of Commerce, in cooperation with

other government agencies, launchedthe 1000-100-10 Project in 2006.

The project seeks to establish 1,000

internationally accredited outsourcing

providers nationwide, attract 100

MNCs and persuade them to transfer

their outsourcing needs to China,

and support 10 outsourcing centers

in metro areas that rival the world’s

best outsourcing hubs. The initiative,

a focused effort to balance China’s

economic development with more

skills-based service industries, is

intended to help the nation to

generate $10 billion per year in

outsourcing industry revenue by 2010.

The 1000-100-10 Project involves

provincial, municipal, and civic level

governments as well. Some cities with

strong outsourcing economies have

begun to tailor promotion policies

to their locations and outsourcing

landscape. Such policies encourage

competitive taxation supplements

and investment via loans that favor

certain industries, among other

elements. At the same time, local

and regional authorities are offering

targeted measures such as increased

protection of intellectual property and

infrastructure construction.

The government’s initiative is adding

to the growing momentum. Indeed,

China is rapidly becoming a key player

in some corners of the outsourcing

sector and appears to be on track to

meet its 2010 target. The country’s ITO

industry is steadily expanding and is

poised to take advantage of the need

for significant improvements in IT

infrastructure and systems across the

country. Chinese BPO companies have

begun to prove their value to some of

the world’s foremost financial services

firms, signing large-scale contracts

with global clients such as bankingleader HSBC and insurer Allianz

among many others. And for most

of the last decade, China’s contract

research organizations have been

essential to the success of the world’s

largest pharmaceutical companies.

WuXi PharmaTech, for example, has

core relationships with companies

such as Eli Lilly and Merck.

Analyzing the scopeand scale of China’soutsourcing activitiesTo help shed new light on these

dynamic economic activities,

Accenture recently partnered with

CCIP on a large-scale research study

that analyzed the scope and scale

of China’s outsourcing activities.

Blending detailed multiple-choice

surveys with executive interviewsacross China, the study gathered input

from locally owned and multinational

outsourcing service providers as

well as from outsourcing clients,

including local Chinese companies,

the Chinese operations of MNCs and

the headquarter offices of MNCs. (See

“About the Research.”)

Our unique partnership has culminated

in this initial analysis. We envision

three groups of readers for this report:current and prospective clients of

outsourcing services in China; China’s

outsourcing service providers; and

government officials who are tasked

with developing industrial policy and

promoting China’s outsourcing sector.

The report is presented in two

segments. The first part focuses on

the domestic outsourcing market,

featuring in-depth analysis of both

service providers and clients in China.We highlight some industry trends of

note, such as subcontracting within

outsourcing, services centers shared

among MNCs and R&D centers in

China. We shed light on the industry

parks that are emerging as hubs of

outsourcing expertise, and we also

examine the ideal talent mix needed

to sustain a viable outsourcing

economy in China.

The report also features detailed case

studies on a selection of China’s most

prestigious outsourcing providers—the

first time, we believe, that such

insights have become available to

business leaders worldwide. A later

part of the report looks critically

at China’s outsourcing strengthscompared with the services available

from other global outsourcing

hotspots. This section examines

outsourcing activity in India in

particular, reviewing several of that

country’s top outsourcing service

providers.

Key research findingsOur research shows that China must

address several significant barriersbefore it can be considered an

outsourcing leader. Yet encouraging

signs are appearing already. Among

the clients that now use China-based

providers, outsourcing is helping

them to become high-performance

businesses by enabling them to cut

costs, downsize their operations and

improve their business processes.

Many survey respondents reported

high degrees of satisfaction with their

service providers. At the same time,

Chinese providers are rapidly learning

which factors are most critical to the

success of outsourcing engagements.

Through our research, it became

apparent that China’s BPO and ITO

sectors face the following significant

challenges:

The outsourcing sectors in China•

are still in the early in the stages

of development. Respondents

are concerned about issues of

trustworthiness and confidentiality,

the expertise of China’s service

providers and the value they think

they may gain from outsourcing.



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Only a third of survey respondents•

are currently outsourcing services in

China or are planning to do so. Among

those who are now outsourcing,

the key drivers of high performance

are cost, service quality, intellectual

property rights protection, workforce

skills and industry expertise alongwith a high degree of comfort and

familiarity with the use of outsourcing

as an effective business practice.

Half of the Chinese respondents•

to the survey admit to having

limited or no understanding of

outsourcing—meaning that there is

a big opportunity for education. The

clear implication is that China’s goal

of developing a successful outsourcing

industry is heavily dependent on howquickly Chinese companies grasp the

importance of outsourcing and its

potential to enable high performance.

China is still predominantly•

providing BPO services to others

outside the country; Chinese

organizations are not yet using such

services. Most local outsourcing

consumption tends to be of ITO

and processing services. However,

locally owned Chinese companies arereluctant to fully embrace the ITO

services offered in their own country.

The talent crunch affecting many•

sectors of China’s economy is even

more prominent in the emerging

outsourcing sector.

China’s potential as anoutsourcing leaderIn contrast to China’s challenges,

our research uncovered myriad

advantages in China’s mission to

become a center of outsourcing

activity. Respondents widely agreedthat price currently ranks as the

nation’s premier advantage, even

though nearly a third of those

surveyed expect this differential to

be eroded over the next few years

as China’s cost structure grows

more burdensome. China’s status

as a global manufacturing center

also offers unique advantages when

providing offshore R&D services. And

the nation benefits from its longtimeinvestment in education for all.

Our research also shows that China’s

outsourcing providers have a potent

competitive advantage thanks to

China’s proximity (both geographical

and cultural) to Japan and Korea.

Indeed, many Chinese service

providers are targeting Japan and

Korea for future growth. (See “Fact

sheet on outsourcing in China”.)

In addition, respondents expressedgreat confidence that the country’s

outsourcing providers will quickly

improve in key areas such as talent

acquisition and development, service

quality, reputation and branding and

intellectual property rights protection.

Benefiting from almost 30 years of

economic reform, China has built a

solid foundation for the opportunities

ahead. The nation’s transportation,

telecommunications and network

infrastructures have grown rapidly and

improved consistently, some achieving

the quality seen in developedcountries. High-speed Internet access

is standard in all of China’s largest

metropolitan areas, backed by an

uninterrupted dual power supply.

Approximately 150 airports now

connect most of the primary and

secondary cities. Also, in developed

regions such as the Pearl River Delta,

the Yangtze River Delta and the BoHai

Bay area, industrial clusters form a

firm foundation for the transfer of

service and outsourcing skills.



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Fact sheet on outsourcing in China

Client composition bycountry

On average, about 44 percent of

revenues for Chinese outsourcing

providers come from US and

European clients. Just more than

a third of revenues come from

Japan and Korea, with 20 percent

from Chinese customers.

Client composition byindustry

The most represented industries are

electronics and high technology

as well as financial services. In

the United States and Europe, the

media and entertainment businesses

are major customers for Chinese

outsourcing services. In Japan and

Korea, the chemicals industry is a big

buyer. In China, government agencies

and the communications industry arethe major customers.

Best-selling ITO servicesITO in China currently is outselling

BPO, with a universal preference

among consumers of all nationalities

and industries for the following types

of services: customized software

development first, with software

research and development (R&D),

software testing and software

localization also in demand.

Best-selling BPO services

Customer relationship management

services are the most common BPO

projects purchased by American,

European and Chinese companies.

Source: Accenture/CCIIP study: OutsourcingMarket Research-China and the World



13

Critical next stepsfor ChinaOur research confirms that China

views its burgeoning outsourcing

industry as a crucial component of

the nation’s future economic growth

and has committed the government

at all levels to providing strong

political and economic support

for outsourcing development.

Yet government officials and businessleaders alike are realistic about what

it will take to achieve success. They

are constantly aware that India is

China’s most formidable competitor

in providing global outsourcing

resources. They know that, to be a

serious contender in this market,

Chinese providers must continue to

improve the fluidity of their business

English and the strength of their

management skills. These leaders know

that new service providers must fully

grasp the contract, legal and sourcing

frameworks of Western MNCs. And

although due diligence and security

measures can limit many sources

of risk exposure for its customers,

China must continue to strengthen

its legal system, improve IPR

protection and encourage companies

to obtain international standards

certification to lure reluctant global

consumers and establish China as a

serious global outsourcing player.

In summary, to achieve its goals in

the outsourcing sector, China must

acquire, develop and nurture all the

characteristics of a mature service

industry. Thanks to the Chinese

government’s 1000-100-10 Project,

a workable framework is in place;

that, together with the amalgamation

of the country’s huge domestic

markets, its growing ranks of well-

educated workers and its efforts to

improve management skills, bodes

well for its future success. Still, if

China does not set high goals forthe development of its outsourcing

sector, it may well fall victim to

labor arbitrage—and foreign clients

in particular will flock quickly to the

next emerging market that offers

even cheaper outsourcing services.

Together, Accenture and CCIIP

have uncovered insights that will

benefit fast-growing outsourcing

firms in China and potentially shape

policy decisions for the next stages

of development of the country’s

outsourcing sector. And for the first

time, potential clients of China’s

outsourcing providers will gain

an up-close view and in-depth

analysis of leading providers in key

sectors such as contract research

outsourcing (CRO), business process

outsourcing (BPO) and information

technology outsourcing (ITO).

Our research is just the beginning.

China’s growing outsourcing

market will benefit enormously

from your questions and

observations as it ventures intothe uncharted territory ahead.



14

Part II. China’s domestic market



15

Scope of outsourcingServices outsourcing has become

an important strategic tool to

help organizations become high-

performance businesses. Modern

information technology has reduced

the transaction costs of outsourcing,

increased supervision and control over

offsite work, and made the delivery of

outsourcing services faster and more

convenient. International boundaries

have become far less important,and outsourcing on a large scale—

particularly to offshore providers—is

rapidly becoming commonplace.

Accenture and CCIP fully expect that

an increasing range and volume of

services will be outsourced in the next

10 to 15 years.

Although almost any business service

can now be outsourced, the areas

of greatest activity in China are

ITO and BPO. These areas will formthe focus of our report, with some

discussion devoted to the trend

toward knowledge process outsourcing

(KPO) as a high-end outsourcing

offering and an ancillary service to

BPO, as well as to contract research

organizations, a type of outsourcing

with more established roots in China.

Just as the outsourcing marketplace

changes dynamically, so does

the scope of the term “services

outsourcing.” ITO, for example, is

defined differently by many different

vendors and clients. In general terms,

ITO refers to the outsourcing of IT

processes in order to deliver IT-related

products and services such as custom-

developed software applications and

management or maintenance of IT

assets such as data servers.

Similarly, BPO is subject to many

different interpretations. Gartner, the

market research firm, defines BPO

as “the delegation of one or more

IT-intensive business processes to

an external provider that, in turn,owns, administrates and manages the

selected processes based on defined

and measurable performance metrics,”

including enterprise services, supply

management, demand management,

and operations. According to Gartner,

examples of business processes that

are outsourced to an [external service

provider] include “staff functions

such as human resources, finance

and accounting, and contact centers

or vertical specializations such as

insurance claims processing or banking

payments.”4

On the other hand, many companies

use the term BPO to refer to certain

types of business processes provided

and managed by specialist service

providers. The business processes tend

to be operations-oriented rather than

strategic; they are typically higher-

volume and lower-margin processes

in terms of profitability and rarely

involve a business’s differentiating

core activities. (See Figure 1.)

Scope and key definitions in

outsourcing market



16

Functional area Definition5

ITO IT infrastructure Entire infrastructure management processes, from network

access and desktop management through remote technical

support. This category includes IT spend management,data center services, service center, security services,

communications services, etc.

IT applications Custom software

development

Software development service, usually as an application system

and not a software product itself.

Software R&D Overall development of complete packaged software as a

discrete product for sales by clients.

Software localization/

globalization

Translation of software content into multiple foreign

languages.

Software testing Customized and integrated test practices, both manual and

automated.

Applications

outsourcing (AO)

Application maintenance and support.

Embedded software development Development of software embedded in other products.

BPO Finance and accounting Typically procure to pay, order to cash and record to report

processes.

Human resource (HR) HR activities and administration processes across the entire

employment cycle.

Training and education Administrative and transactional components of technical

training and soft skills training, including the sourcing and

development of training content.

Procurement Source to pay processes including procurement spend

management.

Client relationship Functions such as client relationship management, including

call centers and call center management.

Supply chain/logistics Functions such as order management, warehousing, fulfillment

and inventory management, transportation management, and

returns management.

Facilities management Services such as maintenance support, support of building

electrical and communications systems, and in some cases,

building development services.

Industry-specificoutsourcing

Services Particular services such credit card services in the financialservices industry and reservation and revenue management for

the airline industry. These services are unique to the particular

industry—in other words, they cannot be applied to other fields.

R&D (CRO) Usually geared to the pharmaceutical and biotech sectors,

covering almost the entire process of new drug development.

Usually focuses on testing for drug safety and effectiveness,

which includes the outsourcing of pre-clinical tests and

clinical trials, data management, new drug applications, and

other technical services.

KPO Currently dominated by activities such as market research and

financial research. Has significant potential in animation, dataanalysis, education, engineering, legal, pharmaceutical, and tax

services along with opportunities to reinforce prized workforce

attributes such creativity and discretion.

Figure 1: Definition of outsourcing terms



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Key players in the market

OverviewThe global outsourcing market is

experiencing exponential growth.

As the maturity and popularity

of IT outsourcing relationships

have become well established,

business process outsourcing has

seen a corresponding gradual

increase in cultural acceptance.

Market research firm Gartner projects

that total IT outsourcing revenue

worldwide, including IT services, will

reach $829 billion in 2012 compared

to $592 billion in 2007; the ITO

component of that will reach $378

billion in 2012, up from $261 billion

in 2007.6 On the BPO front, Gartner

reports that global spending reached

$156 billion in 2007 and is expected

to rise to $239 billion by 2012—a

compound annual growth rate (CAGR)

of 9.0 percent. Although China has a

small share of global BPO spending,this sector is growing very rapidly

on the back of overall economic

growth. Gartner’s projections see BPO

spending in China almost tripling

from $273 million in 2007 to $721

million by 2012, for a five-year

CAGR of 21.4 percent.7 For now,

though, most of China’s outsourcing

business is near-shore, with only a

fraction in offshore outsourcing.

By 2012, forecasts Gartner, the United

States will still be the world’s largest

client for outsourced services; it

will account for about one-third of

worldwide demand for ITO services

and more than half of overall BPO

demand.8 A significant part of

that spending will flow to China;

market-watchers expect China’s

outsourcing revenue to show average

annual growth of 25 percent.

In general, the outsourcing market in

China is still at an embryonic stage

and has not yet developed a robust

field of outsourcing providers. As

this research shows, China remainspredominantly an exporter of BPO

services rather than a consumer

of them; most of the nation’s

outsourcing consumption tends

to involve IT outsourcing and

processing services.

Even when consuming ITO, however,

Chinese corporate clients show only

limited acceptance of broad suites of

ITO services, preferring to pick and

choose discrete services. Contract

values remain small.



18

Service providers

Service providers in the Chinaoutsourcing market

For the purposes of this survey, we

have grouped China’s outsourcing

service providers into the categories of

MNCs and local Chinese companies.

China operations of

multinational corporations

The China operations of MNCs can

be divided into three categories

as outlined in Figure 2.

Local providers

To better understand the dynamics of

the emerging industry, this research

report categorizes local outsourcing

providers in three ways: in termsof sources of capital; by target

markets; and in terms of service

offerings. Figure 3 illustrates more

detail at the category of ownership.

Figure 2: MNC provider characteristics by revenue

Figure 3: Local provider characteristics by ownership

Category Standard

High revenue Revenue of more than $200 million annually from servingclients outside China, but starting to generate business inChina.

Medium revenue Mid-sized annual revenue of $50–$100 million outsideChina and beginning to make inroads into China’s markets.

Low revenue Revenue of less than $50 million and almost no businessin China.

Category Standard Comments

Foreign Managed orlaunched bynon-Chineseexecutives

Providers in this category more readily wincontracts with non-Chinese clients—particularlymore profitable, high-end work. However,they tend to lack potential for large-scalegrowth compared to local service providers andtherefore are less desirable targets for investors.Moreover, while these firms handle projectdesign work in-house, they often hand off muchof the detail work to local subcontractors.

Local Managed andowned bynative Chineseexecutives

Although these companies have promisinggrowth potential and therefore are attractingquite a bit of financing interest, only a limitednumber can successfully serve non-Chinese

clients at this stage, which limits theirprofitability. However, their “expand first anddevelop the market later” approach is entirelyfeasible.

Taiwanese Managed orowned byexecutives fromTaiwan

As a whole, Taiwan’s outsourcing companieshave demonstrated striking success, withstrong growth and substantial profit streams.Our research indicates that Taiwan-ownedoutsourcing providers in mainland China willlikely grow at steady rates, though not asquickly as firms with mainland owners.



19

This report divides China’s outsourcing

providers into four target markets.

(See Figure 4.) For the purposes

of this report, China’s outsourcing

vendors can be grouped into the

following four categories in terms

of service offerings. (See Figure 5.)

At present, the services provided

by China’s outsourcing vendors

remain geared largely to low-cost

office services, with some staffing

services. They have not yet reached

the levels of sophistication and

complexity seen in the United

States, with its long history of

advanced outsourcing activity and

technology standards-setting. For

now, China’s ITO vendors are still

focused on smaller goals, such as thedevelopment of general application

software and system integration.

Figure 4: Local provider characteristics by target markets

Figure 5: Local provider characteristics by service offerings


US/EU Focus on theUnited Statesand Europeanclients with

more than twothirds of totalrevenue fromthose markets

These providers often have existing, strongrelationships with Western clients. In somecases, they have been able to penetrate theoutsourcing markets through acquisition

of outsourcing operations with alreadyestablished positions in these markets. Someproviders have been launched by non-Chinese;others are funded with venture capital fromoutside China.

Japan/Korea Focus onclients in Japanand Korea, withmore than twothirds of totalrevenue fromthose markets

Providers in this category often have veryrobust relationships with Japanese clients.Some have been launched or are owned byJapanese executives or are subsidiaries or

joint venture partners of Japanese companies.

Domestic Focus on theChina marketwith more thantwo thirds of total revenuefrom thatmarket

These providers are generally China-ownedand run. As a rule, they have good growthprospects, and their general approach is tofirst gain market share in local markets beforereaching overseas.

Un-differentiated

No cleardistinction inany market

Providers in this category usually have beenlaunched by native Chinese executives andhave grown with a diversified managementteam. As a rule, they have operated inisolation from the ups and downs of global

outsourcing markets.


ITO Significant ITOactivity

One interesting subtrend here is that since2007, many local ITO providers have begunadding BPO service lines.

BPO Significant BPOactivity China has very few “power players” in BPOservices, largely because little demand hasexisted thus far in China for such services.

ITO/BPO Offering bothITO and BPOservices

A few Chinese providers have a good trackrecord of providing both types of outsourcingservices.

SI/ITO/BPO SI/ITO/BPOofferings

The providers in this category are traditionalsystems integration (SI) companies thathave recently entered the ITO and BPOfields on the strength of their rich industryexperience and technical backgrounds.



20

What China must do to succeed

in Outsourcing

This unique research (See “About

the Research”) study found both

encouraging data about China’s

emerging strengths in the outsourcing

market and vital areas where China

can and must improve if its ambitiousplans for growth are to succeed.

Below are the survey’s key findings.

The outsourcing sector in China•

remains in its early stages of

development. The country is still

predominantly a BPO exporter rather

than a consumer of BPO services. Most

local outsourcing consumption tends

to be of IT outsourcing and processing

services. In the ITO category there

is a strong focus on applicationoutsourcing; in BPO, the emphasis is

on customer relationships.

Only a third of survey respondents•

are currently outsourcing services in

China or are planning to do so within

the next three years. Among those

who are now outsourcing, the key

drivers of high performance are cost,

service quality, intellectual property

rights protection, workforce skills, and

industry expertise along with a high

degree of comfort and familiarity with

the use of outsourcing as an effective

business practice.

Locally owned Chinese companies•

remain reluctant to fully embrace

the ITO services offered in their

own country. Clients as a whole

express concern about issues of

trustworthiness and confidentiality,

the expertise of China’s service

providers, and the value they think

they may gain from outsourcing. For

instance, half of the service providers

surveyed are using subcontracting as

a means to access talent and skills.

However, they acknowledge that while

subcontracting improves efficiency

and costs, it can hurt quality control

and lead to delivery issues.

Half of the Chinese clients•

responding to the survey admit tohaving limited or no understanding

of outsourcing—meaning that there is

a big opportunity for education. The

clear implication is that China’s goal

of developing a successful outsourcing

industry is heavily dependent on how

well and how quickly Chinese clients

grasp the importance of outsourcing

and its potential to deliver high

performance to their enterprises.

The talent crunch affecting many•

sectors of China’s economy weighs

even more heavily in the outsourcing

sector. Among the service providers

surveyed, their major concern is the

lack of locally available skilled talent.

China’s competitive advantages are•

its cost differential and its proximity

(both cultural and geographical) to

Japan and Korea. Within the next five

years, the service providers surveyed

expect China to improve in terms of quality service, talent, reputation,

and intellectual property rights

protection—but they expect its cost

advantage to erode.

Chinese service providers are•

targeting Japan and the United States

for future growth.

The Chinese service provider

landscape

Our research shed new light on

many aspects of the operations

of China’s outsourcing providers.

The highlights follow.

More and more local service

providers are obtaining international

certifications and qualifications,

narrowing the gap with foreign

rivals and allowing them to compete

seriously for significant offshore

contracts. In recent years, China’sservice providers have made

considerable progress in project

and process management, and most

outsourcing service providers have

achieved the related certifications.

These certifications have made an

impact on the numbers: By 2006,

of the approximately 80 Chinese

software companies with more than

1,000 employees, 35 boasted annual

sales greater than 1 billion RMB

compared to only 12 in 2002.

By the end of 2006, 38 software

companies had obtained Capability

Maturity Model Level 5 CMM5

(including Capability Maturity Model

Integration Level 5 CMMI®5), the

highest level certification. Twenty-

three had won CMM4 (including

CMMI®4) certification, and more than200 had obtained CMM3 (including

CMMI®3) certification. In addition,

2,136 Chinese companies rank as

qualified system integrators. The

results of our survey showed that

more than 60 percent of Chinese local

providers had obtained CMMI®3 and

about 44 had won ISO27001—a clear

indication that more and more local

providers have noticed the importance

of international certifications and

improved their delivery capabilities.

(See Figure 6.)

Leading global BPO and ITO vendors

that establish joint ventures or plant

branches in China also are hastening

the maturing of China’s BPO and

ITO capacity. In 2006, two of the

20 organizations worldwide that

published their Level 4 achievements

were in China, as were 16 percent

of those announcing CMMI® Level 5certification.9

China’s outsourcing sector is

consolidating rapidly. Numerous

mergers and acquisitions (M&A)

occurred in 2006 and 2007. This M&A

surge is a predictable outcome of the

rapid growth of China’s outsourcing

sector. In turn, that growth has been

accelerated in the past two years

because of injections of venture

capital—from local financiers suchas Legend Capital as well as large,

non-Chinese sources of capital such

as Citigroup. Many service providers,

such as CDG and VanceInfo, have

experienced more than two rounds of

financing already.



21

However, although it is true that M&A

activity forms a reliable shortcut to

the economies of scale necessary for

the next phase of China’s outsourcing

business, it is by no means the

shortest of shortcuts. M&A activities

usually entail a one to two-year

process. By contrast, organic growthoffers the advantage of fostering

highly cohesive teams.

Business in the United States and

European markets is developing much

faster than markets in Japan. Our

survey shows that the average growth

rate of local service providers in 2007

was 52.23 percent relative to 2006.

The highest growth rate appeared

among the subset of providers focused

on markets in the United States andEuropean Union (EU)—89.10 percent.

Those sourcing chiefly to companies

in the Japanese and Korean markets

returned a growth rate of only 24.28

percent. (See Figure 7.)

Chinese service providers are targeting

Japan and the United States for future

growth. China’s outsourcing service

providers state that within the next

five years they will target mainly

China, Japan, Korea, and the UnitedStates (See Figure 8.)

Figure 6: Certificates or qualifications of outsourcing service providers in China

Figure 8: Survey respondents cite four regions as targets for future growth

Figure 7: 2007 provider growth rate by market focus

62%

44%

29%

15%

15%

12%

6%

12% (N=34)

CMMI®3

ISO27001

ISO9001

CMMI®5

ISO9000

ISO9001:2000

ISO2000

Other

44%

44%

45%

32%

China

Japan and Korea

US

EU

N=37

N=10

N=10

N=9

N=5

89.10

24.28

32.40

61.29

52.23

0.00 20.00 40.00 60.00 80.00 100.00

US + EU

Japan + Korea

Domestic

Undifferentiated

Average

Growth Rate

US and Europe: Focus on US and European markets, with more than two thirds of total revenue fromthose markets.

Japan and Korea: Focus on Japanese and Korean markets, with more than two thirds of total revenuefrom those markets.

Domestic: Focus on China’s domestic market, with more than two thirds of total revenue from thatmarket.

Undifferentiated: No clear distinction in any market; no single area accounts for more than two thirdsof total revenue.



22

Customized software development

Software R&D

Software testing

Software localization

Embedded software development

IT infrastructures

Customer relationship

Industrial specialized outsourcing

HR

R&D

Supply Chain / Logistics

Finance & Accounting

Training & Learning

Facilities management

Procurement

US / European clientsN=48

Japanese / Korean clientsN=48

Chinese clientsN=49



Chinese clientsN=49

ITO

BPO

46%

42%

38%

29%

25%

23%

23%

21%

15%15%

13%

10%

10%

10%

6%

4%

13%

6%10%

4%

10%

8%

8%

2%

14%

10%

10%6%

4%

4%

10%

8%

6%

48%

31%

31%

29%

19%

13%

39%

24%

20%

22%

8%

12%

Providers are starting to offer more

types of outsourcing services. More

and more of China’s ITO service

providers have been expanding into

BPO services, and vice versa. Within

the ITO category, there is a strong focus

on application outsourcing. With BPO,

the push is on customer relationships.

As a result, in both cases, the services

provided by China’s vendors remain

narrowly focused. Given the burgeoning

demand for the services these providers

currently offer, and the managementattention they require, local providers

will find it challenging to move up the

value chain, expand their services, and

compete with those firms offering more

profitable services such as R&D and

full-suite services. (See Figures 9–10.)

Most local service providers started

as traditional software companies

or systems integrators. Then they

entered the ITO market, and

now some have begun offeringBPO services. Our survey results

reveal that the wave of homegrown

ITO outsourcing activity in China

precedes that of BPO activity. (See

Figure 11.) Many of the current

BPO service providers started out as

traditional software companies or

systems integrators and entered the

outsourcing sector as opportunities

opened up in the market. The new

players, such as CDG and ICSS, which

began as systems integrators, now

have gained rich industry experience

that they can leverage to offer

services in specialized industries.

However, a truly deep understandingof specialized business processes will

separate the long-term survivors from

their less capable rivals.

Indian service providers are China’s

biggest competition. More than

half of the local Chinese outsourcing

provider respondents cited Indian

service providers as their most

formidable global competitors. Next on

the list of rivals come the China-based

MNC outsourcing providers. Recently,many top Indian outsourcing vendors

have set up offices and established

joint ventures in China, stoking local

providers’ competitive sense. However,

many opportunities remain for

Chinese providers to vie successfully

against the Indian players. Despite

their achievements in other markets,

many Indian providers have faced

cultural challenges in China, leaving

an advantage for Chinese providers

to exploit. In addition, both Chinese

and Indian firms must keep a watchful

eye on burgeoning competition from

outsourcing providers originating from

Mexico, Russia and Eastern Europe.(See "Overview of global outsourcing

hot spots".)

Both Chinese providers and MNC

providers view quality of services

as important. In Figure 12, the

categories represent the factors that

are critical, important and neutral to

their business development efforts

and their future success, as gauged

by both MNC providers and Chinese

providers. Neither group appears tohave a competitive advantage in the

area of quality of service. Survey

respondents ranked MNCs as offering

Figure 9: Market breakdown by outsourcing type, ITO

Figure 10: Market breakdown by outsourcing type, BPO



23

superior service to clients but stated

that China’s providers have the upper

hand on price. Survey respondents

ranked the two groups equally on

critical factors such as the ability to

quickly understand clients’ needs and

having a skilled workforce.

China’s outsourcing providers worry

most about talent. China’s outsourcing

providers cite three major barriers to

their development: the lack of suitable

talent with specialized technology

backgrounds (e.g., knowledge of SAP),

lack of a strong brand and lack of

capital, in that order. (See Figure 13.)

Their lack of strong brand recognition

globally is also a matter of concern for

many Chinese outsourcing providers.

While the Chinese government has

pushed to promote the image of

the Chinese outsourcing industry

in general, the effort has been

undercut to some extent by the

individual promotional campaigns of specific Chinese cities—a factor that

respondents to our Accenture-CCIIP

survey believe wastes public resources.

Figure 11: Relative ages of ITO and BPO providers

Foundation year

ITO

BPO

90’s

Time of the service providers commence the business of ITO and/orBPO (N=50)Foundation year: When the service providers were founded.ITO: When the service providers began their ITO businesses.BPO: When the service providers began their BPO businesses.

2000-2002 2003-2005 2006-2007

26%

20%

15%

34%35%

15%

26%

30%

36%

14%15%

32%Critical Factors

Competitive

Advantage

Important

Neutral

NeutralMNC providers

Neutral

Neutral

MNC providers

Neutral

MNC providers

Neutral

Chinese providers

Neutral

Neutral

MNC providers

MNC providers

Quality of serviceSecurity and intellectual property protection

Ability to quickly understand of the clients’ specific needs

Price

Skilled workforce that can meet demand

Have good communication channels with client

Industry experience

Reputation

Good understanding of our business culture

Foreign language ability of workforce

Low talent attrition

Scale of service provider

Geographic proximity

Figure 12: Critical, important and neutral factors for

business development success as listed by survey

respondents; preference in each category as reported by

survey respondents

Figure 13: Barriers that currently constrain the development of local service

providers

67%

44%

40%

25%

23%

13%

13%

13%

10%

2%

6%

Lack of suitable talents

Lack of strong brand

Lack of capital

Lack of suitable channel to

approach clients

Cannot offer service at a

competitive price

Lack of the understanding of

China’s outsourcing market

Lack of appropriate definition of

core competency

Lack of clear strategic positioning

Inability to prioritize to exploit its

business

Lack of a clear future

business strategy

Others



24

Attracting and retaining talent

remains a top issue. Outsourcing

providers we surveyed feel hampered

in their ability to scale their operations

in outsourcing hubs, particularly

Dalian, Beijing and Shanghai by the

competition for talent. However, these

Tier One cities10 remain the hubs for

outsourcing activity because of their

proximity to clients, superior industry

infrastructure and stronger talent

bases, among other reasons.

In a related concern, providers

told us they struggle with talent

management, particularly when it

comes to their employees’ acquisition

of foreign language skills—and

especially business English. Providers

also grapple with the soaring costs

of retaining top talent. The retention

pressure may get some relief from

recent efforts by China’s Ministry of

Commerce, such as allowances to

companies for their staff training orrecruitment expenditures. However,

turnover rates are still not at the

high levels faced by most Indian

outsourcing providers in their local

market. (See detail in sections titled

“Industry Parks” and “Talent.”)

More pressing are recruitment issues.

In some cases, local outsourcing

providers are planning huge increases

in their numbers of junior managers—

to as much as 60 percent of their

current junior management staffing

levels in the next year. (See Figure 14.)

In general, attracting and retaining

management talent is becomingmore critical as the local outsourcing

providers grow rapidly and they have

to compete for relatively limited

qualified human resources compared

to the expanding speed with other

players, including service providers in

the market and other organizations

which also need staff with similar skills.

Some companies already have recruited

senior executives from large MNCs.

A significant group of service providers

surveyed are considering shifting

delivery locations to inland and western

areas of China to reduce employment

costs. The research survey indicates

that 55 percent of respondents are

considering making this shift in order

to reduce the costs of retaining talent.

(See Figure 15.)

There are three major reasons for this

trend. First, as some multinational

clients relocate to China’s Tier Two

cities,11 they create demand for high-

quality, fast-response services nearby.

Second, providers can use their local

environments to improve margins

quickly, since labor costs, facilities

and taxes are generally lower in

China’s inland provinces. And third,

the governments of Tier Two cities

are more likely to offer incentives to

attract investment from MNCs and

local outsourcing vendors. However,

the management teams of outsourcing

providers must compare carefully

the considerable costs of relocation

against the benefits. Such costs mayweigh heavily on smaller firms and

may be feasible only for the larger

service providers.

Figure 14: The number of employees companies considered to hire with the next

year compared to the current number of employment (N=30)

269

324

424

46

11

Senior

management

Middle level

management

Junior level

management

Current number of employees

Employees expect to recruit

in the next year

No

45%

Yes

55%

Figure 15: Company considered or

is considering shifting its low-end

delivery center to China’s inland and

western areas or to China’s Tier Two or

Tier Three cities (N=47)



25

Quality and reputation will climb, but

China’s pricing advantage probably

will not endure. According to the

survey data, outsourcing providers

believe that, within the next five

years, China in general and the

outsourcing sector in particular will

have made noteworthy strides in

quality of service, quality of talent,

reputation, and intellectual property

rights protection. Yet more than half

of respondents think the gains likely

will come at the expense of Chineseproviders’ pricing advantage. (See

Figure 16.)

Analysis of service providerlandscape by product offering

Information technology outsourcing

From a technical standpoint, China’s

software companies are yet to match

the sophisticated, high-value offerings

of their global competitors because

they lack the necessary skills andexperience. Like those rivals, they too

will have to experience the three key

stages of maturity: localization and

globalization; testing and application

development; and software R&D. They

can expect their profit margins to

improve with each step of maturity.

For now though, thousands of

types of software products need to

be localized, and rich opportunity

awaits China’s outsourcing providers.

Although the margin at this stage

is not especially impressive, many

global service providers, including

leading Indian vendors, are targeting

China’s huge localization market. If

outsourcing providers can match their

business models to the appropriate

cost structures and skills mixes, they

could enjoy promising growth in the

market for localization services for

some time to come.

At the same time, local outsourcing

providers have a golden opportunity

in the IT upgrades demanded by

the many levels of government inChina. Many agencies are investing

in relatively straightforward upgrades

to their existing management

information systems and concurrently

evaluating and implementing new

systems. These less ambitious projects

typically span system development

and systems integration as well as

maintenance services.

Although this basic-level ITO

holds many attractions for China’s

outsourcing providers, it should not

prevent them from striving to deliver

higher-value services. True, as a rule

these providers still have much skill

and experience to gain, and attracting

and retaining talent for these more

complex services may prove doubly

difficult. Yet Accenture believes that

planning for growth into these high-

value markets is vital for the future of

China’s outsourcing industry.

52% service providers think there will be a decrease in price advantage.

Service quality

Talent and skills

China brand

IPR protection

Oversea demand

Domestic demand

Stable policy support

Service cost

Staff attrition

Unsure Deteriorate Remain the same Improve

2%2% 96%

4% 96%

2%2% 96%

4% 4% 92%

4% 8% 88%

6% 6% 88%

28% 20% 52%

6% 52% 8% 34%

18% 28% 26% 28%

Figure 16: Respondents’ views on the future of China’s price advantage (N=51)



26

Neusoft offers a constructive example

for rising China ITO service providers.

Neusoft achieved its success by

restructuring its departments and

strengthening its abilities to hire and

train talent to suit China’s business

environment. The company also

has paid considerable attention to

embedded software development,

cultivating a competitive advantage

in this field. As a result, Neusoft

has strong delivery capability, and

outsourcing resides at the core of its

business, especially to the Japanese

and Korean markets.

Neusoft Group is China’s top IT

solutions and services provider,

leading the country’s software

offshore outsourcing market by a

significant margin. According to one

respected source, the China Center

for Information Industry Development

(CCID) report, Neusoft has maintained

its top ranking in this emerging market

for four years based on its talented

staff, its sophisticated management

system and its technological

advantages.12

Founded in 1991, Neusoft has 13,000

employees, including the 7,000 new

hires who joined in 2006 and 2007

alone. Neusoft foresaw the challenge

of obtaining enough talent six years

ago and founded three Institutes

of Information in Dalian, Nanhai

and Chengdu to recruit and train

students not only for Neusoft but also

for the entire IT industry in China.

In addition, Neusoft has long-term

recruiting partnerships with more than

40 domestic universities. With thisstructure, Neusoft has acquired the

capability to recruit 5,000 potential

employees per year—and ensure a rich

human resources reserve for the future.

The company also has attached great

importance to quality management

and process improvement and was

the first to pass quality certifications

and process maturity evaluations that

include CMM5 and CMMI® (V1.2)

5. These well-established, advancedmanagement approaches and

methodologies have not only helped

improve the maturity and quality of

the company's software outsourcing

development, but they also have

reduced operating costs and kept

software development cycles on time

and on track.

This effective HR development

strategy, coupled with its impressive

talent pool, is enabling Neusoft

to acquire and maintain a strong

competitive advantage for its future

outsourcing expansion.

Another significant strength isNeusoft’s technological advantages.

Based on its years of rich experience

and abundant resources in outsourcing

development, the company has

offered a wide range of offshore

outsourcing services in software

and service for more than 50 well-

known MNCs around the world. Of

particular value, it has maintained

a dedicated team of nearly 5,000

employees for its embeddedsoftware outsourcing operation.

Case Study #1Neusoft Group—ITO specialist is breaking through with creative models



27

In addition, Neusoft has been

constructing international outsourcing

bases and global delivery centers

in major cities including Shenyang,

Dalian, Beijing, Shanghai, Chengdu

and Nanjing. It also has established

localized technical support centers in

Japan, with locations in Tokyo, Osaka,

Nagoya and Fuchu respectively; the

United States; and Europe; aiming to

create more opportunities for future

global software and service outsourcing

growth.

The company bases its fast expansion

on cohesive organic growth

rather than frequent M&A. It has

strong backing from multinational

shareholders: It collaborates in

digital medical care with Philips, in

telecommunications with Nokia, in

database technology with Oracle, and

in management software with SAP.

With Intel as a springboard, software

outsourcing in the United Statesmarket now has become highly likely.

Although software outsourcing forms

its core business, Neusoft also boasts

significant units in IT solutions,

medical systems and IT education and

training. The company has successfully

developed large-size medical

equipment systems, network security

products, auto electronics and mobile

communication facilities software.

Neusoft has leveraged its success

in the ITO market to add BPO

services to its offerings. Now the

company is offering call center, HR

and administrative, finance and

accounting, as well as supply chain

and procurement services.

Japan accounts for the majority of

Neusoft's offshore business and is the

largest contributor to the company's

sales revenue. Recently, Neusoft’s

European and North American

business has rapidly increased,

enabling the company to open a newoffice in Los Angeles. Its business in

Ireland also is faring well.

Neusoft client profile:Japanese mobile phonemanufacturer

A leading Japanese manufacturer

of mobile phones chose to evaluate

the offshore outsourcing of

software development to help it

meet growing business pressures,

enhance its competitiveness and

improve its shareholder returns.

The decision was a strategic one:

innovative embedded software

applications are key to highly

prized phone features such as

mobile imaging and entertainment.

But the Japanese company faced

high R&D costs and a shortage

of engineers skilled in advanced

embedded software development.

As early as 2002, Neusoft met the

Japanese company’s expectationsduring the pilot stage. It demonstrated

the ability to capture knowledge and

complete assignments within tight

2006

Neusoft IT Service Co., Ltd. was

founded to promote BPO business.

Neusoft joined with SAP and Intel in a

strategic alliance

2005

A Biomedical and Information

Engineering School was established

at Northeastern University, China,

with joint investment from Neusoft,

Philips and Eindhoven University of

Technology (TU/e) of the Netherlands.

2003

Neusoft completed its strategic

restructuring program. Neusoft

Park Industrial DevelopmentCo., Ltd. was founded.

2000

Neusoft Institute of Information began

construction in Dalian. Neusoft HK Ltd.

and Neusoft USA Inc. were established.

1998Neusoft Medical Systems Co., Ltd. was

founded. Construction of Neusoft Park

(in Dalian) began.

1996

Neusoft cooperated with Toshiba to

establish NETS Systems Integration

Co., Ltd. Neusoft Group Ltd. was

founded. Neu-Alpine Software Co., Ltd.

became the first software company

listed on the Chinese stock exchange.

1995

The foundation of Neusoft Park was

laid, and construction of the park

began. Neusoft Park was approved as

China’s first Software Industrial Base

of the National Torch Program.

1991

OpenSoft System Development

Company of Northeastern Engineering

Institute was founded. Northeastern

Engineering Institute Computer

Software Research and Development

Center cooperated with Alpine Japan

to set up the Neu-Alpine Software

Research Institute.

Company Timeline



28

timeframe goals and to effectively

transfer knowledge offshore. Besides

meeting most of the client’s key

requirements, Neusoft’s proven core

competencies made it a vendor of

choice. To keep the client’s overhead

to a minimum, Neusoft set up

an offshore development centerthat now has 270 engineers.

The results to date are impressive.

Neusoft’s offshore development

model has dramatically reduced the

client’s total cost of operations and

increased its return on investment.

New products get to market in less

time than before the introduction

of offshore outsourcing into the

production process. Neusoft’s quality

assurance has helped enhance theclient’s reputation for high-quality

products. And as a result of this

partnership, the Japanese company

has secured a top-three mobile phone

market share in the Japanese market.



29

Business process outsourcing

China’s BPO market remains in its

earliest stages, and the country stands

largely as a BPO exporter rather

than a large consumer of domestic

BPO activities. The major local BPO

consumers are MNCs in China, and

the secondary consumers are financialservices companies.

According to survey respondents, one

reason for the lack of BPO growth

from in-country consumers is that

most local enterprises still struggle

with which services to outsource and

which to retain in-house. Respondents

also point to the limited number

of qualified and powerful local

BPO service providers in China as a

hindrance to the industry’s growth.

However, BPO in China holds plenty

of promise. Buoyed by the nation’s

overall economic growth, the sector

will receive a boost as the Chinese

government promotes the nation’s IT

sector and its telecom industry, and as

reforms and restructuring begin

to sharpen the competitiveness of

China’s financial industry. A brief

overview of the status of China’s BPOmarket follows.

Finance and accounting: Accounting

firms dominate this segment of BPO

in China. Clients mainly outsource

repetitive, easily automated back-

office functions, such as ledger

entries, data entries, financial record

management, and so on. In the

financial services industry, much

of the BPO demand is to outsource

finance and accounting services.

Human resources (HR): Recruiting,

staffing and HR service centers lead

the way. Staffing will drive the major

growth, as shortages of workers with

the right skills at the right cost in

the right places become more acute.

More and more local companies are

turning to headhunting companies

to find senior managers with strong

leadership and management skills.

Training and education: Outside of

the MNCs’ China offices, our survey

found little spending on training and

education in BPO. However, as soft

skills increase in importance in the

workplace, training and education will

necessarily become more complex and

costly. As a result, we expect to see a

healthy market for specialty providers

of these learning BPO services.

Procurement: This segment remains

quite small. Although other global

markets make strategic use of this

area, in China the BPO procurement

providers focus on less complex tasks

such the outsourcing of transactional,

repetitive and administrative activities

related to purchasing, sourcing, and

procurement spend management. As

such, procurement offers a potential

area for BPO growth in China.

Client relationship management:

Call centers tend to dominate this

segment. (See "Call center services".)

The players include pure call center

outsourcing providers such as China

Center for Information Industry

Development (CCID), companies’

own call centers (such as Lenovo’s),

and local telecom carriers like

China Telecom. Consumers look

increasingly to call center certification

when choosing a provider, thoughcost efficiency, process efficiency,

service quality, and security

remain critical criteria as well.

R&D: Survey respondents mainly

brought up research and development

services in reference to contract

research organizations, which is

discussed below (See “Contract

research”.) Supply chain/logistics:

The fast development of third-party

logistics services is a significant

BPO trend. However, this is still a

very small business in China due

to the early stage of BPO industry

in China which still needs more

education and popularization.

Industry-specific outsourcing: These

kinds of outsourcing services can help

companies attain high performance

through both cost savings and process

efficiency enhancements—at leastas long as China remains a relatively

low-cost place to do business. The

scope of outsourcing opportunities

has grown from relatively simple

account data entry work to all but

the very core banking processes.

Credit card processing serves as a

prime example in this sector. Often,

service contracts will package

several outsourcing processes.

For example, a card processingservice deal may include account

origination services, credit checks,

business statistics, and bill printing.

Huge opportunities await in the

banking sector in China thanks to

significant domestic demand. In

particular, China’s own banks face

challenges in managing enormous

growth in demand for credit

cards, fostering increasing need

for these outsourcing services.

The sections below provide more

detailed views of two facets of

BPO in China: call center and

contract research services.

Call center services

The call center industry fits into

three groups: in-house call centers,

outsourcing call centers and ASP

(application service providers). The

term “outsourcing call center” usually

refers to the complete turnkey service,

from client service and sales and

marketing to equipment lease and

operations management, while “ASP”

refers to the providers that lease

others’ equipment and technology.

With more than 10 years of rapid

development, outsourcing now has

become the mainstay of the entire call

center industry worldwide.

Japanese and South Korean companies

increasingly are transferring the

implementation and management

of their call centers to China and

enormous potential demand lies in

China’s domestic market.

Since the late 1990s, the outsourcing

market of China's call centers has

cultivated by the local providers

gradually, accumulating operating

experience, training staff, andclimbing the learning curve. Years

later, along with some providers

updating their equipment, they began



30

to build their brands, and started to

see profits against steady revenues.

In recent years, second-generation

call centers have begun to emerge

and the market started to mature,

and in the economically developed

cities, market competition became

fierce. And since 2007, this industryhas been accelerated by demand from

the 2008 Olympic Games, the 2010

World Expo, and a proliferating array

of conferences and trade fairs. At the

same time, falling equipment costs

have encouraged many enterprises to

start building their own call centers.

Several factors will exert a drag on the

rapid development of the call center

industry in China. First, a sense of

what constitutes best-practice serviceremains hazy within the industry.

Limited operational management

expertise exists within call centers.

And high staff turnover and a lack of

talent continue to plague providers.

Contract research

China is already well-known as a

“world factory” in the pharmaceutical

industry: According to the data

from China Chamber of Commerceof Medicines & Health Products

Importers & Exporters, its companies

produce more than 300 billion tablets

a year and more than 70 billion

capsules. In 2005, China’s exports of

pharmaceutical raw materials totaled

$7.9 billion, accounting for a quarter

of the global market while the number

already increased to $10.6 billion

in 2006. Much of that volume was

shipped to multinational clients. But

now, China hopes to become an evenstronger competitor in the contract

research organization industry.

Contract research organizations

first appeared in the United States

some years ago. Companies such as

Quintiles, Covance and MDS Pharma

have held top-three spots in the

field for a long time. The global CRO

sector is fueled by the pharmaceutical

industry’s huge R&D funds.

Asia Pacific companies became

involved in the CRO business because

of the continent’s cost advantages.

Japan boasts a well-developed

industry (where the largest provider

is EPS, founded by China native Yan

Hao) with a significant presence in

both Singapore and India.

China joined the CRO sector relatively

recently. In 1998, China’s Food and

Drug Administration (SFDA) set up a

series of new laws and regulations

governing drugs, especially the

“Clinical Trials of Drug Quality

Control,” which directly galvanized

the development of the CRO market.

The SFDA classifies CRO service

providers into four main organization

types: universities and not-for-

profit public research institutions

managed along academic lines;

foreign-owned CROs, founded mainlyby multinational contract research

organizations or with foreign capital;

local CRO companies such as Excel

and NewSummit Biopharma; and joint

ventures such as KendleWits and EPS.

Some, such as WuXi PharmaTech, are

focused on preclinical research during

the research and development of

new drugs, mainly involving work on

related chemicals, such as preclinical

pharmacology and toxicology tests.Some, like KendleWits, specialize in

clinical trials. And others are engaged

in advisory services for R&D on new

drugs, such as new drug approval.

The CRO business deals in large

numbers. The future of isolated CROs

looks uncertain; many small players

are struggling for want of funding and

talent. One solution for these smaller

firms would be to raise funds through

overseas listings on public markets—a

move that would help China build a

healthy core CRO industry. In early

2005, Shanghai established a base

of biomedical outsourcing services

as well as the Pudong biomedical

research and development outsourcing

center. At a Chinese medicine

development summit meeting in July

2006, 22 organizations, including the

Beijing Pharmaceutical Group and

Zhongguancun Life Sciences, teamedup to form the Zhongguancun CRO

Union. Presently, there are more than

300 large and small CRO companies in

China, presenting an array of choices

for foreign customers.

The challenge for China’s CRO

industry is its youth. Local vendors

still lack extensive experience, and

other nations provide significant

competition. Very active contract

research organizations from India

and the United States are eager

to establish firm footholds in new

markets before China’s CRO sector

matures. India is especially well

positioned to compete, with more

than 220 universities and extensive

use of English-speaking researchers.

India’s CROs have also benefited from

the country’s well-developed software

industry. Good database management

and rigorous R&D processmanagement have strengthened their

advantages. And India has a strong

cost incentive: Clinical trials there cost

about three-fifths of what they cost in

the United States.

Indian contract research organizations

also attract orders from multinational

pharmaceuticals based on their

quality and efficiency. India has

61 manufacturers authorized by

the United States Food and DrugAdministration (FDA), the largest

number outside the United States. For

the foreseeable future, Indian contract

research organizations will be the

most formidable competitors for their

counterparts in China.

Of course, the Chinese contract

research organizations offer cost

advantages as well. Clinical trials

in China cost about one-third

of the price tag in the United

States. However, the best market

opportunities for China’s contract

research organizations will be won by

those that quickly can achieve GLPS

(Good Laboratory Practice Standards)

and GCP (Good Clinical Practice). With

China’s integration into the global

clinical trials system, an increasing

number of valuable projects will

move to China. Contract research

organizations that cannot providesufficient database capacity and sound

management of clinical trial processes

will gradually lose out.



31



32

China already claims a powerful CRO

service provider in WuXi PharmaTech.

In 2007, the company’s 80 clients

included nine of the world’s top 10

pharmaceutical companies by revenue.

Founded in December 2000, WuXi

PharmaTech is a leading China-based

pharmaceutical and biotechnology

R&D provider. This Shanghai firm

offers global pharmaceutical and

biotechnology companies a broad

and integrated portfolio of laboratory

and research manufacturing services

ranging from discovery chemistry

(the chemistry disciplines used

in discovering new drugs) and

pharmaceutical development to

biological services and manufacturing

of active pharmaceutical ingredients

for R&D use.

The company’s services are not directed

at the development of new drugs but

rather at the development of serviceplatforms for new-drug R&D. Backed

by a strong research team, hundreds

of different projects progress each

day, from forming small compounds

to manufacturing pharmaceutical raw

materials by the ton.

In 2007, WuXi PharmaTech’s 80 clients

included nine of the world’s top 10

pharmaceutical companies by revenue.

(The company does not yet work with

Chinese pharmaceutical companies.)

With more than 2,700 scientific staff

members; a 630,000 sq. ft. research

facility in Shanghai’s Waigaoqiao

Free Trade Zone; a 220,000 sq. ft.

manufacturing plant in Jinshan District,

Shanghai; a new 130,000 sq. ft. Tianjin

research facility; and a 323,450 sq. ft.

Suzhou drug safety evaluation center

under construction; WuXi PharmaTech

is well-positioned to offer its clients

high-quality services.

WuXi PharmaTech received venture

capital investment during its second

year. The company’s top management

team comprises Western-trainedPh.D.s and MBAs with experience

in drug R&D methodologies and

familiarity with Western business

practices. Collectively, its senior

management team holds more than

200 patents pending or granted, has

published more than 800 publications,

and has an average of 15 years

of experience working in major

international pharmaceutical and

biotechnology companies.

The Chinese founder and CEO of

WuXi PharmaTech is Ge Li, who, as

a student at Columbia University

in New York in the early 1990s,

co-invented combinatorial chemistry

technology and set up a company

called Pharmacopoeia that was listed

on NASDAQ in 1995. Initially, his new

company focused on simple synthesis

work. However, Li soon developed

a more profitable model based on

leveraging China’s low-cost and

high-quality advantages to become

competitive in the global drug R&D

service market. At the same time, the

company invested part of its revenuesin internal projects, such as the

development of new drugs, and made

use of its advanced equipment to

Case Study #2WuXi PharmaTech—A pioneer and leader in the CRO sector



33

take the lead in developing a series of

precursors to patent drugs.

Currently, WuXi PharmaTech is China’s

largest drug R&D service provider

offering new drug R&D services with

complete service types. With its

acquisition of the US-based AppTec

Laboratory Services, Inc. in early

2008, WuXi PharmaTech’s services

now cover the spectrum of chemical

pharmaceuticals, biopharmaceuticals

and medical devices. The acquisition

will expand its client base and

increase the company’s cross-selling

opportunities and market share.

Milestones"Deloitte Technology Fast 50 China",•

2008, fourth consecutive year

"Deloitte Technology Fast 500 Asia•

Pacific", 2008, fifth consecutive year

CEO Dr. Ge Li among "25 Notable•

Chinese-Americans" from Forbes, 2008

"Frost & Sullivan Award for•

Best in Class Outsourced R&D in

Pharmaceuticals and Biotechnology",2008

"Top 20 Most Innovative Companies•

in China" and CEO Dr. Ge Li among

"Top 10 Most Innovative Leaders of

Chinese Enterprises", 2008

Ms. Trabue D. Bryans, VP and GM•

of WuXi AppTec's Atlanta Operations,

invited to join the Association

for the Advancement of Medical

Instrumentation (AAMI) StandardsBoard, 2008

"50 Local Dynamos" from the Boston•

Consulting Group (BCG), 2008

Completed the acquisition of AppTec•

Laboratory Services, Inc., Jan, 2008

CEO Dr. Ge Li among "China Top 10•

Influential Entrepreneurs", 2007

NYSE listing, Aug 9, 2007•

"Top Chemistry CRO" from Pfizer,•

2007

Became the largest Beilstein•

customer, 2006

"Outstanding Strategic Collaboration•

Award" from Merck, 2006

"Chemical Product R&D Preferred•

Partner" form Eli Lilly, 2006

"Top 103 National Innovative•

Enterprises" in China, 2006

Opened its Tianjin facility•



34

Analysis of service provider

landscape by industry

According to Gartner, the financial

services and communications

industries together accounted for

nearly half of all IT spending in China

in 2007.13 The manufacturing sector

also served as a major client. (See

Figure 17.)

Our survey of Chinese IT outsourcing

providers paints a similar picture

of the spread of client spending byindustry. (See Figure 18.) Financial

services rates highly worldwide,

with the media and entertainment

industries spending significantly in

the Unites States and Europe, and

the communications industry and

government sector spending notably

in China.

BPO in the financial services sector

possesses some unique characteristics

compared to other industries.Barriers to entry are high, and

potential providers will find daunting

requirements for fast, reliable and

secure information infrastructure as

well as a demand for top-notch talent.

Financial institutions tend to be

sensitive to outsourcing pricing. And

client relationships develop largely in

stages: first, software development

and services; then data center

management, and eventually, in some

cases, internet banking.

China’s BPO outsourcing providers

offer several advantages to financial

services clients. First, the Chinese

government grants strong levels of

support: In May 2006, the government

founded the Research Center of

Financial Outsourcing Services—the

Chinese outsourcing industry’s

first base for financial information

services—in Shanghai Bank Card

Industry Park. China UnionPay, Bank

of Communications, Industrial Bank,

Shanghai Futures Exchange, and other

financial institutions already have

moved their credit information centersand settlement centers to this new

industry park.

China also presents financial companies

with a sound business environment.

This is particularly crucial in the area

of financial services BPO, which usually

requires significant time to implement,

test and fine-tune processes.

However, some obvious obstacles

stand in China’s path, such as a

limited system of credit, the high

costs of check processing, the risks

of unreliable data, and the need to

develop sound oversight mechanisms.

Accenture believes that progress is

being made on all of those fronts,

but China still must travel some way

down the road of progress before it

can boast truly world-class financial

services outsourcing capabilities.



35

Figure 18: Survey data on IT outsourcing spending by industry

Figure 17: IT services spending in China segmented by industry

Source: Gartner MarketView Database, IT Services Market Metrics

Electronics and High Tech

Finance Services

Media and Entertainment

Freight and Logistics

Forest Products

Communications

Medicine

Automotive

Life Science and HealthcareIndustrial Equipment

Energy

Consumer Goods and Services

Government

Public Service

Chemicals

Aviation Industry

Retail

Public Transportation

Aerospace and Defense

MiningTourism

Other



Chinese clientsN=49

45%

37%

27%

24%

24%

24%

24%

20%

20%

18%

16%

16%

14%

12%

10%

8%

6%

4%

4%

2%

4%

41%

39%

16%

14%

24%

6%

18%

16%

16%

4%

18%

10%

14%

29%

4%

10%

12%

2%4%

2%

44%

32%

20%

26%

10%

32%

14%

18%

12%

14%

14%

10%

32%

14%

12%

4%

6%

12%

8%

2%

4%

IT Services Spending in China by Industry, 2007

Financial Services

20%

National and International

Governments 7%

Discrete Manufacturing

10%

Communications

32%

Retail Trade 3%

Services 5%

Local, Regional

Governments

5%

Process

Manufacturing 3%

Utilities 5%

Transportation 3%

Education 3%

Agriculture, Mining,

and Construction

1%

Healthcare 2%

Wholesale Trade 1%



36

CDG at first focused on Chinese clients

to hone its delivery capabilities and

now is extending its services overseas.

CDG has become the industry leader

in total solutions for the credit card

industry in China, covering 90 percent

of its outsourced credit card processes

announced by itself.

Founded in 1998 as a leading imaging

systems integrator for China’s

banking sector, CDG made a strategic

transformation in 2003 to become a

BPO service provider. Its management

team comes from leading financial

institutions and professional service

firms in both China and abroad. The

team members bring industry expertise

and technical knowledge as well as

experience in managing large-scale

BPO operations. In addition, the

company bears the strong financial

backing of leading international

private equity funds.

CDG focuses on providing one-

stop, back-office BPO services to

the banking, financial services and

insurance sectors. The firm also has

ventured into enterprise BPO process

solutions, including finance and

accounting, payroll, and procurement

services. CDG currently employs over

2,500 staff in five delivery centers

in the major financial hubs of China,

with nearly 30 banks and insurance

companies among its clients.

Client profile: Credit

card applicationprocessing

The client is a fast-growing commercial

bank in the Asia Pacific region.

Although a relatively new player in

the sector, the client operates through

a network of 370 branches in 36

major cities in the region, with one of

the most highly regarded credit card

operations in the industry. Feeling the

pressure of market competition and

diversified requirements from its ownclients weighing on its relatively small

size and short operational history, the

client needed to offer products and

services at a lower cost, with higher

efficiency and shorter turnaround.

The client engaged a management

consulting firm to redesign its

business processes and suggest

recommendations on which processes

could be optimized. The consulting firm

found that many front, middle and

back-office functions were repetitive

and labor-intensive, added little value,

and represented a disproportionate

percentage of staff headcount and

management challenges.

The client decided to focus on its

core business and maximize value

by offloading non-core credit card

application processing to a third-

party provider. While price was a

factor early in the selection process,

the client’s concern for quality,

reliability and data security took

priority over the need for pure cost

savings. The project scope included

all typical non-core functions—frommailroom functions to screening,

scanning, indexing, quality and credit

reference checking, data capturing,

Case Study #3China Data Group (CDG)—Innovation in professional services



37

and storage. The complexity, security

and segmentation of these processes

required that business process

management systems be in place at

three different client locations.

Six months into the project, the

team ran into a bottleneck: CDG’s

back-office data capture capability

operated much faster and more

efficiently than its onsite staff. CDG

proposed to consolidate all middle-

office processes—including screening,

scanning, archiving, and credit

reference checking—in a centralized

offsite location in Shanghai. Taking

its cue from mass production

innovations in the manufacturing

industry, CDG began to manage

these processes via parallel assembly

lines. As a result, the client retained

quality control and transparency

through real-time video feeds,

regular quality checks and surprise

visits, with project implementationunder a steering committee.

Three years into the project, the client

became an award-winning credit card

operator in the region, with the ability

to roll out new products and services

with almost no extra investments in

fixed assets. Cost savings were realized

in office rental, headcount, hardware

investment, software development,

recruiting, and training as well as in

per-head operations costs. In some

places, savings were as high as 30

percent year-overyear. The satisfaction

levels among the client’s own clientscontinued to rise due to improved

service quality and shortened product-

to-market turnaround time. As a result,

the client’s management was able to

focus on its core credit card business.

CDG’s success stemmed from its

positioning as a long-term strategicpartner in the client’s core businesses

instead of as a simple and passive

service vendor. Its proven record of

success in processing applications

has allowed the company to bundle

additional call center services—from

telemarketing to client support to gift

delivery—to add even more value to its

clients’ enterprises.

Company Snapshot

otal financial services middle and back-office

outsourcing solutions...

...And significant competitive advantage

CDG

Credit Card

Insurance

Banking

FAO

Market Position

• 10 of the big 14 banks• 90% of the outsourced operations

Large client baseOver 30 top clients based in China

Top brand and client loyaltyHighly recognized brand with many clients withover 3-year service history

Nationwide service networkFive delivery centers out of Beijing, Shanghai andGuangzhou

Most integrated service offeringsServices cover several verticals and include both

transactional and voice

Strong IT and data security teamCMMI®3 and ISO 27001 certification leveragingOracle’s BPM technology

Unique Operations ModelMass producer and one-to-many delivery

• 17 leading insurers• 90% of the outsourced operations

• Pioneer with the only live offsiteclient of the sector

• First independent FAO provider inthe country• Pioneer with the only live client of the sector

Figure 19: Factsheet—CDG



38

ClientsClients in China outsourcing markets

Currently, most consumers of

outsourcing work in China are MNCs.

However, China’s state-owned

enterprises (SOE) are starting to

embrace outsourcing as well.

Our research uncovered several

interesting insights with regard

to outsourcing clients in China.

First, potential clients lack a clearunderstanding about outsourcing,

which indicates opportunities to raise

awareness and provide education

in the market. Secondly, these

prospective clients express substantial

distrust of the relatively immature

outsourcing market in China. Only

a third of those surveyed currently

are outsourcing or planning to do

so in the next three years—a strong

indication of the reservations theseclients feel about local outsourcing

providers’ value, expertise and control

of confidential information.

Among those companies already

outsourcing, the survey results

indicate that key criteria for choosing

providers include service quality,

intellectual property rights protection,

skilled workforce, and industry

expertise. Existing outsourcing clients

believe that outsourcing helps them

cut costs and improve processes;

most are satisfied with their service

providers. The most critical factor

in the success of an outsourcing

project is the compliance of theservice provider with the service level

agreement (SLA).

Chinese clients surveyed also agree

with providers that China has a

particular advantage in outsourcing

over Japan and Korea—culturally and

geographically as well as in terms of

cost. Further, they agree that China

will rapidly improve in terms of talent,

quality of service and reputation for

reliable outsourcing services thatdeliver high performance.



39



40

China Development Bank (CDB),

founded in March 1994, is under

the direct jurisdiction of the State

Council. At present, it has 32 branches

and four representative offices

across the country. Over the past

decade, CDB has followed China’s

macroeconomic policies and carried

out its macro-control functions

in support of national economic

development and strategic structural

readjustment. CDB has been a major

player in long-term financing for keyprojects and supportive construction

in infrastructure as well as basic and

pillar industries, which are vital to the

development of China’s economy. Over

the past decade, CDB has issued an

accumulated total of 1.6 trillion RMB

in loans for more than 4,000 projects.

As a leading institution in China’s

financial industry, CDB’s total assets

have seen steady growth. Yet despite

this rapid business expansion, its ITdevelopment has lagged. At one point,

CDB’s IT department was composed

of just 30 technicians who managed

all the bank’s IT needs. The rapid

expansion of its business, together

with the increased number of clients,

staff, branch offices, and IT equipment,

simply added to the complexity. Not

surprisingly, the bank’s management

concluded that its systems could not

support the structural and operational

changes that CDB would have to

make in the future. Indeed, the lack of

good IT support had become a major

obstacle to the bank’s development.

Recognizing these challenges, CDB

embarked on a program to upgrade

its IT operations in order to capture

new business opportunities and

compete with its global counterparts.

The revised IT infrastructure would

not only enable the bank to respond

quickly to market changes and adapt

to new business models, but it would

also lower its total cost of ownership

in the long term.

After assessing all options, CDB

decided to engage the help of a global

IT service provider to outsource the

implementation, maintenance and

management of its new IT system.

HP was tasked with providing the

bank with a comprehensive Desktop

Service Management program for

its offices across China. In the

process, CDB became one of the first

financial institutions in the country to

enhance its competitiveness through

technology innovation.

Building on the success of its existing

cooperation, both HP and CDB signed

a three-year strategic IT outsourcingservice contract in April 2006 that

will continue through 2009. Under

the terms of the agreement, HP

Support Services will provide a series

of comprehensive and long-term

outsourcing services that cover the

following areas:

Onsite support•

One-stop hotline service•

Equipment management service•

Monitoring service for mission-•

critical systems

Case Study #4China Development Bank—A domestic client that makes good use of outsourcing services



41

New technologies consultation•

Client training•

Outsourcing service management•

Application testing services•

E-procurement system setup and•

management

Following the outsourcing of its IT

services, CDB has streamlined its

business operations. The company has

achieved stronger alignment betweentechnology and its changing business

requirements. This alignment has

endowed CDB with greater agility

and, in turn, a competitive advantage

in the global financial market. The

contract also has provided CDB with

faster information cycles that support

improved decision-making processes.

Having HP China manage its IT system

freed CDB’s resources to focus on the

company’s core business offerings,

which not only has enabled the

company to benefit from the latest

technology but also has brought

about substantial savings in IT costs.

In addition, outsourcing its

hotline services has significantly

shortened the response time per

call, allowing CDB to achieve higher

levels of productivity. This has

greatly increased the level of client

satisfaction. In fact, CDB resolved

16,802 end-user problems in 2005

without a single complaint.



42

China’s outsourcing providers’

client base

So where do China’s outsourcingproviders’ clients come from? TheAccenture-CCIIP research indicatesthat about 44 percent of currentoutsourcing revenue comes from theUnited States and Europe, with 34percent from Japan and Korea, androughly a fifth from Chinese clients.(See Figure 20).

A list of sample clients for the services

of China’s outsourcing providersappears in Figure 21.

Our research shows that China’soutsourcing providers, generallyspeaking, have not yet selected onetarget market as their priority for thenext five years. The Japanese marketwill grow at a steady rate, whilethe European and North Americanmarkets will continue to play thestarring outsourcing segments. China’sdomestic market also holds significant

promise for local outsourcingproviders. Figure 22 gives an overallmarket breakdown by client groups,based on the responses from local

outsourcing providers.

Figure 20: Revenue breakdown by client geography

44%

34%

20%

2%

American /European clients

Japan and Korea

Chinese

Other



43

Markets Market Size

Market

Share Potential Profitable Risk14 Competition

US Largest Small Big but need substantial

effort to develop the

market

High High Intense

Japan Large Large Middle as the growth

of the total market

size due to system

upgrading of many

Japanese companies

Middle Low Moderate

Domestic Small Middle Great but need

relatively long

period promotion of

outsourcing concept

Middle Low Moderate

EU Middle Small Hard to say as the

market is strongly

influenced by

government policy

Highest High Intense

Korea Small Middle Good Middle Middle Moderate

Figure 22: Outsourcing outlook by market

Figure 21: Representative clients of China’s outsourcing industry

Agile

AIA Life Insurance

AIG

AIS Data Co (US)

Alcatel Shanghai Bell

AllstateAviva-COFCO Life Insurance

Bank of China

Beijing University of

Technology

BOSCH Blaupunkt

Camelot Information

System

China International Travel

Service

China Merchant Bank

ChudenCTIComverse

Concentrix

Crossbeam Systems

CSK

Dassault Systemes

Datang

Decathlon

Denso Japan

Document Sciences

Ericsson

Eze CastleFreescale

FST

FUJITSU Japan

Harbin City Government

HIMACS

Holland Literature Digital

Library

HSBC

Japan IBS

Lenovo Group

Lexis NexisLG

Mecuries Soft (Taiwan)

Mitsubishi Electric Infor Sys

National Library

National Theatre

Network Appliance

New China Life

Novartis

Oracle

Oriental Cable Network

Procter & Gamble

PaciolanPASITS (Panasonic)

Patni Computer Systems

Petrochina

Pitney Bowes

PSA

Q5

RF

Rogers Communications

(Canada)

Samsung

SAP media projectSHANGHAIWINGTECH

ELECTRONICS

SK

SOL

Springer-Verlag

Sun

SYNNEX

Tianjin Daily

Tixa.com

TNT

TTI

US Federal GovermmentWalsin Lihwa

Worth Pointe

Yokogawa

ZTE



44



45

Multinationalcorporations’ sharedservice centersMNCs are establishing shared service

centers in China to support their

global or regional business operations.

In a shared service environment,

common supporting functions are

consolidated rather than spread across

an enterprise. Implementing a shared

service model requires changes inbusiness processes, infrastructure and

even corporate culture. Yet the model

brings big benefits: Organizations

gain a better understanding of their

entire business operation, enabling

them to analyze, change and optimize

the services they provide to internal

clients. Additionally, companies that

leverage shared services can realize

increased flexibility in instituting

business changes, more manageable

costs and greater control.

Large corporations often implement

the shared service concept as a last

step when readying themselves for

outsourcing. The process overlaps

with outsourcing in many respects.

The only difference is if it’s run

internally or by an external service

provider. Companies make a choice

on one or the other based on culture

and readiness, etc., but it is less of a

precursor to outsource than it used to

be. Accordingly, China has witnessed

an increase in MNCs establishingregional shared service centers

in tandem with the growth of its

outsourcing industry.

China’s outsourcing market:

Notable phenomena



46

Multinationalcorporations’ researchand developmentcentersIn recent years, foreign enterprises

have established and expanded their

R&D centers in China. According

to the Ministry of Commerce,

there are currently more than 800

R&D centers in China founded by

multinational enterprises from NorthAmerica, Europe, Japan, South Korea,

Taiwan, and others. These centers

focus on several manufacturing

industries, including electronics and

communication, transportation, and

pharmaceuticals and chemicals.

The R&D centers are concentrated in

big cities—such as Beijing, Shanghai,

Shenzhen, and Tianjin—although the

western cities like Chongqing, Xi’an

and Chengdu are drawing new R&D

centers due to their lower costs.

Increasingly, companies are founding

R&D centers as sole proprietorship

enterprises. Only a few centers have

been founded as joint ventures,

including those for Lenovo and Intel,

and Motorola and HuaWei.

China has become a vibrant region

for R&D centers for several reasons,

including the vast potential of the

Chinese market, improvements

in the investment environment,

and the lower cost of R&D talent.

Currently, R&D centers in China

mainly engage in technical support

and applied research to develop

products that are adapted to the

Chinese market. However, due to

the Chinese government’s efforts to

encourage independent innovation,

the R&D centers of MNCs are

starting to track emerging new

technologies and autonomous

local standards. As they cultivate

increased technical power and

accumulate research and development

experience, more MNCs will likelyupgrade their R&D institutions

into global research centers.

The Chinese government is

paying increased attention to the

development of R&D capabilities and

has adopted policies to encourage

investment in R&D from MNCs. The

government also is strengthening the

protection of intellectual property

rights to answer one of multinational

corporations’ key concerns—ensuring

they are able to protect their core

information and technologies.



47



48

Like other Chinese providers in

this sector, VanceInfo already can

support high-level R&D work and

provide full lifecycle services. It also

can compete with Indian providers

in some areas. To fully differentiate

itself from other local providers,

VanceInfo has the opportunity

to boost profitability by moving

into other outsourcing services.

VanceInfo, formerly WorkSoft,

was founded in 1995 under a

long-term contract with IBM. This

organization was the first domestic

ITO company to successfully trade

on the New York Stock Exchange.

After receiving Series A venture capital

financing from DCM and Legend

Capital in 2005, VanceInfo closed its

Series B venture capital financing

round with funds from Sequoia

Capital US, Sequoia Capital China

and existing investors. VanceInfohas established a series of offices

and delivery centers both abroad

and in domestic, tier two cities to

strengthen its delivery capability.

At present, the company runs at

least 10 offices or development

centers worldwide, with locations in

Beijing, Nanjing, Shenzhen, Dalian,

Tianjin, Wuhan, Xi'an, Tokyo, and

the United States (in Seattle, New

York City and the Silicon Valley).

VanceInfo is guided by a globally

educated and experienced

management team whose members

hold degrees from schools in the

United States, Germany and Japan.

CEO Chris Chen first started his

business in the early 1990s. In

addition to servicing MNCs in China,

VanceInfo provides IT outsourcing

services to Asia Pacific, North

American and European clients,

including Microsoft, IBM, Oracle, NEC,

Nokia, HP, and TIBCO. VanceInfo’s

range of IT services includes research

and development services, enterprise

solutions, application development andmaintenance, and quality assurance

and testing. VanceInfo targets high-

growth industries such as technology,

telecommunications, financial services,

manufacturing, retail, and distribution.

Currently, the United States

contributes the largest percentage of

the company’s revenue, accounting

for approximately 80 percent of the

total. Japan contributed about 20

percent of its revenue in 2007.

VanceInfo has become a leading

Offshore Development Center provider

in China by targeting MNCs that

have made strategic investments to

develop, test and maintain software

solutions to achieve increased

productivity, cost savings and faster

speed-to-market. VanceInfo currently

maintains the largest number of

million-dollar offshore development

cetners in China (including offshore

development centers for TIBCO;

PeopleSoft, now Oracle; and EMC2)

and employs the largest number of

engineers for US-focused projects.

However, as the need for high-end

talents increases and employees

chose to join client companies,

Case Study #5 VanceInfo—Forerunner in the offshore development center sector





50

The use of subcontracting inoutsourcingSubcontracting in outsourcing—

typically referring to the transfer of

work from MNC service providers to

China’s local providers—is a notable

trend. MNCs that typically subcontract

in China include IBM, Capgemini, CSC,

HP, BearingPoint, Fujitsu, NEC, and

NTT. Key findings from the survey of service providers appear below.

Half of the providers surveyed are•

using subcontracting as a means to

access talent and skills. (See Figure 23.)

The primary reason for providers•

to subcontract is to focus on their

core outsourcing business, followed

by making use of other suppliers’

specialized skills.

For the service providers interviewed•

in this survey, the three main criteria

in selecting a subcontractor are

service quality, workforce skill and IT

security. (See Figure 24.)

Respondents acknowledged that,•

while subcontracting improves

efficiency and costs, its major

drawback is lack of quality control.

(See Figure 25.)

As a result, subcontracting•

could have a negative impact onoutsourcing, because quality is the key

criterion for clients.



51

32%

26%

21%

5%

We tend to focus on core

outsourcing business

Can only meet clients demand

with other suppliers’ assist

The sub-contractor has unique

ability in the area

Cost cutting

Don’t know

2%

Yes48%

No50%

Percentage of clients using subcontractors Stated reasons for subcontracting

If Yes

3

1

2

1

2

2

1

2

3

1

1

2

2

2

1

3

4

4

1

1

5

3

5

4

6

5

1

7

5

4

5

8

6

9

8

9

6

7

11

6

8

14

12

11

8

6

5

5

5

5

3

2

1

Service quality

The skill of workforce

IT security

Reputation

Understanding of clients’

requirement

Price

Industry experience

Synergy between the two

Follow special requirement

from clients

Previous relationship with

the subcontractor

Geographical factors, such

as proximity

Talent attrition

5= Not at all important 4 3 2 1= Very important

*Absolute values

Improve efficiency

Reduce cost

Guarantee on-time delivery

Control quality

Negative impact No impact Positive impact

*Absolute values

2 2

2 17

6 4 9

13 2 3

16

Figure 23: Use of subcontractors

Figure 24: Importance of criteria in choosing subcontractors (N=20)

Figure 25: Impact of subcontracting on project



52



53

Snapshot of outsourcingactivity in key citiesIn line with the 1000-100-10 Project,

the Ministry of Commerce—in

conjunction with the Ministry of

Information Industry, the Ministry

of Science and Technology, and the

Ministry of Education—has named a

group of major metropolitan areas

as designated outsourcing cities.

The cities were chosen based on

their capacity to undertake offshoreoutsourcing. Similarly, the Ministry

of Commerce has named a group of

state-level showcase areas—including

national economic and technical

development zones, high-tech

parks, and software parks—that it

hopes will play a pivotal role in

promoting the outsourcing business

of the designated outsourcing

cities and surrounding areas.

To date, 14 designated cities and

four state-level showcase areas

have been chosen. Dalian, Chengdu,

Shanghai, Xian, Shenzhen, Beijing,

Tianjin, Nanjing, Hangzhou, Jinan,

Wuhan, Hefei, Guangzhou, and

Changsha comprise the cities, and

the showcase areas are Suzhou

Industry Park, Wuxi huan-taihu

Protection Zone, Daqing Outsourcing

Industry Park, and Nanchang

High-tech Development Zone.

The designated cities and state-level

showcase areas will enjoy support

from China’s central government in

the form of macroeconomic policies,

investment, and coordination. In

addition, special-purpose funds will

be earmarked for the construction

of public information platforms,

the development of HR, and the

improvement of infrastructure and

the investment environment. Most

of the designated cities also haveissued local policies to promote

the outsourcing industry.

Designated industry parks and cities



54

In-depth analysisand suggestions forimprovementIndustry parks are an important enabler

for the outsourcing industry. Our survey

results identified four factors cited by

more than 50 percent of respondents

who have moved to an industry park

as benefits they sought when choosing

their location. Respondents listed,

in order of importance, favorable

policies, available talent supply, support

from local government, and reduced

operating costs. (See Figure 26.)

For service providers that have not

moved into industry parks, high

migration costs seem to be the

main factor keeping them away. (See

Figure 27.)

The designated cities and industry

parks are making significant efforts in

support of China’s outsourcing industry.

From an infrastructure and technology

perspective, many have reached the

level of developed countries.

However, several requirements that

are essential to the outsourcing

industry, such as intellectual property

rights protection and business

convenience, have not yet been

sufficiently addressed.

In addition, this study determined

that the management body of the

cities and parks must shed its current

role in the mold of a real estate

developer, in which it merely aims

to offer sound infrastructure and

lower costs. Instead, it must focus on

improving the cities’ and parks’ ability

to meet the needs of the outsourcing

industry—offering everything from

financial support to laws to protectintellectual property rights.

Another challenge is the lack of

substantial differentiation among

the 14 designated cities and four

showcase areas. Investors often feel

confused when selecting a delivery

location, and fierce competition

between cities and industry parks

vying for investments compounds

the problem. As a result of these

hindrances, it may take a long time

for China’s outsourcing industry to

achieve truly diversified development.



55

Figure 26: Factors influencing companies that have moved to industry parks

Favorable policy of the park

Talent supply

Support from localgovernment

Cost of operating in the park

Infrastructure

Public security in the citywhere the park is based

Positioning of the park

Previous cooperation with theoperator of the industry park

Centralization of similarservice providers in this park

Centralization of clients in thecity where the park is based

Price level in the city wherethe park is based

Yes77%

No23%

If Yes

Please evaluate the factors that an industry park can provide and indicatethe level of importance of each factor when you are considering thelocation of your delivery centers on a scale of 1-5 where 1 is veryimportant and 5 is not important at all. (N=34)

Has your company already moved into any of the industry parks ? (N=48)

5=Not at all important 4 3 2 1=Very important

6%

3%

9%

6%

9%

3%

6%

21%

12%

9%

3%9% 39% 42% 6%

18% 24% 39% 9%

18% 24% 36% 18%

18% 24% 21% 18%

39% 33% 21%

15% 18% 36% 27%

11% 43% 37%

3%9% 29% 54%

6% 26% 60%

32% 65%

22% 67%

3%3%

5

3

3

3

2

2

2

1

1

Among the 23% of providers who have not moved into an industry park, thefollowing factors have stood in their way: (N=)11

The cost of company’s migrationis too high

Cannot help in the reduction of talent cost

Lack of attractive policy

Moving into the park will increaseoperational cost

Cannot provide help for ourbusiness

Low quality service provided bythe park

Fear of company scalebeing limited

Parks’ positioning is conflict withthe company

Others

*Absolute values

Figure 27: Factors influencing companies that have not moved to industry parks



56

Case Study #6Accenture Delivery Centers in China: helping clients achieve highperformance at three of the countries designated outsourcing cities

The Accenture Delivery Centers in

China are located in the country's

prime growth areas: Shanghai,

Guangzhou and Dalian. More than

1,500 Accenture professionals at these

centers deliver information technology

services as well as BPO services that

range from finance and accounting,

capital market research and data

management to human resources and

procurement. The centers currently

help clients in mainland China, Japan,

Singapore, Malaysia, Hong Kong,Australia, United Kingdom, United

States, Canada and in many other

countries to achieve high performance.

Locations:

Dalian (established in 2002)

The Delivery Center in Dalian supports

Accenture’s own operations in 12

Asia Pacific markets, and also serves

a growing number of BPO clients

with a particular focus on finance,human resources and procurement,

and has a strong IT development and

maintenance capability. Originally

established to service regional

clients in Japan, China and Korea,

the Delivery Center in Dalian has

a clientele that is now global in

scope, reflecting Dalian’s ability to

provide cost-competitive, multilingual

technical and business skills.

Shanghai (established in 2003)

The Delivery Center in Shanghai

benefits from its access to the large,

highly educated labor pool in one

of the world’s most modern cities.

The Shanghai center includes

professionals with extensive business

and technical experience and with

deep language skills.

Guangzhou (established in 2006)

The Delivery Center in Guangzhou

is fast becoming a key location

for the provision of English- and

Cantonese-speaking services.

Proximity to Hong Kong and the

wealth of IT and financial servicescompanies supporting the Hong

Kong Special Administrative Region

make Guangzhou an ideal site for

outsourcing service delivery. This

center is already providing Application

Outsourcing services for clients in

Hong Kong and throughout Asia.

Languages:

Bahasa

Cantonese

Japanese

Korean

Tagalog

Thai

Vietnamese

Services:

Application Outsourcing

Business Process Outsourcing

Infrastructure Outsourcing

Systems Integration



57

Cross-Industry BusinessProcess OutsourcingServices:

Capital Market Research

Custom BPO Services

Finance and Accounting BPO Services

HR BPO Services

Procurement BPO Services

Technical Capabilities:Enterprise Application Suites

SAP, Siebel, PeopleSoft, Oracle

Netcentric/Web

Databases: Oracle, SQL Server, UDB

(DB2), Informix

Frameworks: Java/J2EE, Microsoft .NET

Operating Systems: UNIX, Windows

Programming Languages: C, C++, C#,

Java, Visual Basic, PL/SQL,Informix 4GL

Web: HTML, XML, JavaScript, VBScript

Middleware/Enterprise Integration:

BEA WebLogic, IBM MQ Series, IBM

WebSphere, Sun CAPS

Business Intelligence/Data

Warehousing:

Informatica, DataStage, Business

Objects

Mainframe

Control Language/Scripting: JCL

Databases: DB2, IMS/DB, VSAM

Operating Systems: OS/390, MVS,

OS/400, TSO/ISPFProgramming Languages: COBOL,

Fortran

Teleprocessing Monitors: CICS

InfrastructureManagement:

Data Control Services

Communications Services

Service Desk

Certifications:CMMI® Level 5

People CMM Level 5

ISO 27001

SAS 70



Case Study #7A tale of Beijing’s two industry parks—A comparison of Zhongguancun Software Park and Wangjing Technology Park

58

Zhongguancun Software Park

possesses almost 50 percent of the

total outsourcing market share in

Beijing. Software companies were

among the earliest tenants of the

park, and software exports boosted the

development of the park in its early

years. Today, because the park is home

to the largest number of ITO service

suppliers in Beijing, it is the first stop

for ITO clients looking for a service

provider.

Wangjing Technology Park has

developed in a different, but also

successful, manner. Despite its

youth relative to Zhongguancun

Software Park, it is surrounded by top

MNCs, and some of them—including

Motorola, Novotel and Sony-Ericsson—

have set up their R&D centers in the

park. This proximity has triggered

the development of additional R&D

outsourcing business as well as BPO

business within the park. Today, the

park has become the industry basefor cell phone design and testing, call

centers, and software R&D, among

other services.



59



60

City evaluation modelTo support the implementation of the

1000-100-10 Project, CCIP worked

with Accenture to develop a model

for city/ economic zone selection by

combining both parties’ understanding

of the outsourcing business. The

project centered on quantifying

the key attributes and constraints

associated with the development

of a given city/ economic zone. The

team developed a comprehensivemethodology to score the attributes

of and provide analysis for the

sustainability and constraints of

multiple locations—the ability to

operate within a reasonable cost

structure (Cost Effectiveness) while

sustaining a conducive environment in

which to operate (Viability).

Cost Effectiveness = f (loaded cost per

FTE, facilities cost per FTE)

Loaded cost per FTE = f (direct•

payroll costs, indirect payroll costs)

Facilities cost per FTE = f (property•

leasing costs, building management

fees, utilities costs, telco costs)

Viability = f (demand and supply of

talent, infrastructure and general

development, stability)

Demand and supply of talent = f •

(outsourcing provider demand, non-

outsourcing provider demand, “fresh”

talent, experienced talent)

Infrastructure and general•

development = f (transportation,

telecommunications and technology,

real estate, utilities, social)

Stability = f (indirect costs of doing•

business, exchange rate stability,

labor laws and regulations, crimerate, political stability, environmental

stability)

The model used a standard scoring

approach. The analysis team measured

and quantified attributes in different

units. To assess each city or economic

zone, the team followed a three-

step approach (data collection,

scoring, and weighting and sum)

to transform raw data into a final

score. The analysts then developed

charts in the model to further

illuminate each location’s attributes

from a variety of perspectives.

During the model testing period, a

lack of appropriate statistic data

proved to be the major obstacle for

the model application. However, as

the outsourcing industry develops in

China and data in each city improves,

the model should be able to play a

stronger role in assessing outsourcing

environments in the future.



61

The war for talent

Current situationand analysisOutsourcing is a talent-intensive

industry: its forward development

is contingent upon the appropriate

talent supply. Yet, according to the

Accenture-CCIIP survey, the lack

of suitable talent has become a

bottleneck in China, and respondents

considered it one of three major

barriers to the development of service

providers. (See Figure 28.)

Figure 28: Barriers to the development of service providers (N=48)

67%

44%

40%

25%

23%

13%

13%

13%

10%

2%

Lack of suitable talents

The three major barriers to the development of service providers are the lack of suitable talent, the lack

of a strong brand and a lack of capital.

Lack of strong brand

Lack of capital

Lack of suitable channel to

approach clients

Cannot offer service in a

competitive price

Lack of the understanding of China’s outsourcing market

Lack of appropriate definition of

core competency

Lack of clear strategic positioning

No priority in business

exploitation

Lack of clear map of development



What percentage of your company’s

total expenditures went toward

employee training in fiscal year 2006?

(N=47)

Which training mode do you think can

effectively solve the problem of talent

shortage? (N=46)

62

Although China produces numerous

graduates every year (according to

data from Ministry of Labor and

Social Security, the number of college

graduates was more than 4.9 million

in 2007) and has achieved progress in

reforming its higher education sector,

problems still remain, especially in

its curriculum design and teaching

methodology. A gap exists between

what is taught in universities and

what is required by the market.

This burdens employers with extratraining costs. In fact, for the majority

of respondents, employee training

absorbs from 5 percent to 20 percent

of their total operating costs. (See

Figure 29.)

The survey respondents also indicate

that, in terms of talent management,

lack of language skills and high

retention costs pose major problems.

(See Figure 30.) Moreover, 55 percent

of respondents are considering shiftingtheir low-end delivery centers to

inland and western areas in order to

reduce their talent retention costs.

Introduction of currenttalent policiesTo overcome the shortage of talent,

the Ministry of Commerce has

included in its 1000-100-10 Project

a goal to train 300,000 to 400,000

people for the outsourcing industry

and create outsourcing jobs for

200,000 to 300,000 graduates within

five years. Starting in 2007, the

Ministry of Commerce, in association

with the Ministry of Finance, beganto allocate funds from the Central

Development Fund for Foreign Trade

to support the training of outsourcing

talent. Through this initiative, service

providers in outsourcing delivery

hubs, as well as qualified companies

listed in the Ministry of Commerce’s

key outsourcing enterprises directory,

receive government support to reduce

their training costs. In addition,

training institutions, includinginstitutions of higher learning, are

encouraged to train talent for the

international outsourcing business.

In another government effort, qualified

outsourcing enterprises may receive

a fixed subsidy of not more than

4,500 RMB for each new university

graduate with whom they sign a

labor contract for at least two years.

Qualified training institutions will

receive a fixed subsidy of not more

than 500 RMB for each outsourcing

trainee (college graduate or above)

who passes a test of professional

knowledge and skills and signs a labor

contract of more than two years withan outsourcing enterprise.

Figure 29: Employee training costs

Figure 30: Talent management challenges

32%

27%

14%

11%

8%

5%

3%

Lack of foreign language skills

High retaining cost

High attrition rate

Lack of working experience

Lack of outsourcing-related skills

I do not have any trouble in this field

Other

5% - 10%

10% - 20%

20% and above

5% and below

36%

23%

11%

30%

11%

2%

46%

41%66%

Commercialized training

institutions initiated by

social entitiesPercentage of expenses dedicated

to employee’s training

Government sponsored

training

Joint training program

ran by universities and

service providers

On job training by service

providers

For the majority of respondents, employee training absorbs between 5 percent and 20 percent of their total costs.



63

Introduction of currentpilot training patternIn August 2007, the 1000-100-10

Project group of the Ministry of

Commerce signed a cooperative

agreement with the Tianjin Economic

and Technology Development

Zone to jointly establish a state-

level outsourcing training center

in Tianjin. At present, other local

governments also have submitted

applications to the Ministry of Commerce to build state-level

outsourcing training centers.

The Tiajan training center was

designed to integrate various resources

of the Ministry of Commerce, local

government, MNCs, and leading

enterprises in the industry; create and

improve a customized training model;

develop a talent training program to

meet China’s needs; create a human

resources network; and facilitate the

operation of outsourcing HR pools.

The center is run on a non-profit

basis and is open to the public. It

enrolls college students who will

graduate in the current year as well as

unemployed graduates for assessment

and training in fields related to the

outsourcing business. It also trains

technical and management personnel

for every level of the industry.



64

Part III. China and

global outsourcing



65

The forces driving the emergence

of the multi-polar world—the rapid

growth of emerging economies,

closer economic integration across

geographies, and unparalleled

advances in information and

communications technologies—are

transforming the global outsourcing

landscape. In a world that now

sources services from multiple

locations, China has aggressive plans

to ensure that a significant portion of

global outsourcing spending will flowto its coffers.

Over the last 20 years, China has

experienced phenomenal success in

developing an export economy that

takes advantage of the country’s

cheap and abundant labor. Yet while

China has strengthened its position

as a global manufacturing hub,

India has cornered the market for

offshore outsourcing of IT services.

In a focused effort to balanceChina’s manufacturing success with

progress in more skill-based service

industries, the Chinese government

has committed its support to

developing an economy driven

by innovation and technology.

In 2006, China set an ambitious

target of producing $10 billion in

outsourcing industry revenue by 2010.

It hopes to implement this goal via its

1000-100-10 Project, which seeks to

establish 1,000 world-class Chinese

outsourcing firms, encourage 100

MNCs to shift offshore outsourcing

services to China, and develop 10

outsourcing base cities. With thisplan in place, China will be poised to

capture both ITO and BPO revenue

from several regions—including the

United States, Europe and the Asia

Pacific region. China also will face

stiff competition from a myriad of

developed and developing nations

that have set their own enterprising

goals for garnering a share of global

outsourcing revenue.

The following two sections draw onGartner research data to present

the current and future ITO and BPO

spending landscapes.





67

Region Service 2007 2012 CAGR

2007–2012

(%)Market size

($millions)

Market

share (%)

Market size

($millions)

Market

share (%)

Western

Europe

IT outsourcing 94,234 36.1 133,750 35.4 7.3

Discrete IT services 122,739 37.0 159,167 35.3 5.3

IT spending 216,973 36.6 292,917 35.3 6.2

US IT outsourcing 92,266 35.4 126,295 33.4 6.5


IT spending 200,258 33.8 269,957 32.5 6.2

Japan IT outsourcing 32,571 12.5 43,569 11.5 6.0


IT spending 75,252 12.7 96,143 11.6 5.0

Asia Pacific IT outsourcing 15,592 6.0 24,468 6.5 9.4


IT spending 41,809 7.1 64,648 7.8 9.1

Latin

America

IT outsourcing 10,047 3.9 23,355 6.2 18.4


IT spending 21,433 3.6 44,636 5.4 15.8

Others IT outsourcing 16,037 6.2 26,807 7.1 10.8


IT spending 36,453 6.2 61,104 7.4 10.9

Total IT outsourcing 260,747 100.0 378,244 100.0 7.7


IT spending 592,176 100.0 829,405 100.0 7.0

China IT outsourcing 1,073 0.4 2,904 0.8 22.0


5,918 1.0 12,987 1.6 17.0

Figure 31: Forecasted ITO spending is on the rise



68

These more sophisticated,

strategic services are increasingly

driving outsourcing decisions.

The demand for integrating ITO and

BPO services is growing as clients

seek to reduce the complexity of their

processes, strengthen the governance

functions of outsourced contracts, and

feed strategic growth opportunities.

Technological developments that

facilitate remote project management

have made the integration of ITO and

BPO not only possible but profitable.

Gartner’s findings suggest

that many small and medium

enterprises first engage in offshore

ITO as a means to grow their

businesses and compete with the

resources of larger companies.

At present, “Global Top 10” IT service

providers account for more than a

quarter of the market worldwide. (See

Figure 32.) They will continue to havea major impact on the direction of the

global IT outsourcing marketplace.

* Total excluding hardware maintenance and software support

Source: Gartner Market Statistics, 2008. IT Services Market Metrics

Worldwide Market Share. April 2008.

Top IT service providers in the world, 2007

Vendor Total revenue

(US$ millions)

Market share (%)

IBM 54,148 7.2

EDS 22,130 3.0

Accenture 20,616 2.8

Fujitsu 18,620 2.5

Hewlett-Packard 17,252 2.3

Computer Sciences

Corporation (CSC)

16,306 2.2

Lockheed Martin 11,957 1.6

Capgemini 11,914 1.6

Northrop Grumman 9,879 1.3

NEC 9,014 1.2

Other services

vendors

556,189 74.4

Total 748,025 100

Figure 32: Leading global IT service providers by revenue



69



70

On the BPO front, Gartner reports that

global spending reached $156 billion

in 2007 and is expected to reach $239

billion by 2012, with a compound

annual growth rate of 9.0 percent.17

In terms of total BPO spending,

Gartner believes the United States will

hold onto its position as the largest

market in the world for the purchase

of business outsourcing services for

the next five years, with a market size

of $92 billion (59.1 percent of the

total) in 2007 and $138 billion (57.7

percent of the total) in 2012.

The data indicates that demand

management will be the fastest

growing BPO outsourcing category in

the US market; within that category,

customer selection and customer

acquisition services will grow strongly.

Other fast-growing categories will be

enterprise services, such as human

resources and payment processing, andsupply management, which includes

procurement. Enterprise services will

continue to be the largest part of the

outsourcing market with 41.8 percent

market share in 2012 compared to

42.4 percent in 2007. Worldwide,

the trend is more or less the same:

The only significant difference will

be in operations services, such as

healthcare operations, which are the

third fastest-growing BPO category

globally.18

According to Gartner, Japan will

comprise the next largest global

market for the purchase of business

outsourcing services but show the

lowest five-year compound annual

growth rate among the leading

markets, at 5.7 percent. The Asia Pacific

region as a whole (excluding Japan)

will show a five-year compound annual

growth rate of 12 percent from 2007

to 2012, followed by 15.5 percent

for Latin America, 13.2 percent for

the Middle East and Africa, and 12.7

percent for Eastern Europe.

Although China’s share of the

BPO spending market remains

small, it is growing steadily and

rapidly, spurred by the nation’s

strong economic growth. Gartner

anticipates that BPO spending in

China will jump dramatically in the

next five years, from $273 million

in 2007 to $721 million by 2012,

with a five-year compound annual

growth rate of 21.4 percent.

The BPO industry has kept pace

with the increasing sophistication

of clients in multinational and

multifunctional engagements. Cost

is still a major driver for companies

looking to outsource non-core

business procedures, but clients may

uncover even greater savings by using

outsourcing to create economies

of scale across conglomerates. As a

result, in parallel to the ITO market,

BPO providers are evolving beyond

simple and isolated tactical processes

toward strategic, cross-functional,

and higher-value-added services. Thus,

new models of service delivery, suchas bundled outsourcing, are born out

of necessity.

Analysis of the global outsourcing

market for BPO



71



Services trend watch: knowledge process outsourcing (KPO)

The traditional outsourcing delivery

model has been to disaggregate high-

volume and labor-intensive processes

to offshore locations where they

could be completed at much lower

costs. However, with the growth

of the MNCs and increased global

competition for talent, the offshore

outsourcing market has begun to

move beyond the arbitrage of simple

labor and capital to the offshore

transfer of knowledge as well.

While cost reduction remains amajor benefit of knowledge process

outsourcing (KPO), it is not the

primary focus. Unlike ITO and BPO,

KPO extends an organization’s reach

to all parts of the world, where it may

access talent in its various forms:

creativity, experience, independent

thinking, and specialized skills. Instead

of simply performing disaggregated

functions, KPO teams directly

support companies’ core businesses.Therefore, it is critical that KPO

services retain the benefits of data

and IT integration, physical security,

and legal protection typical of onsite

services. Depending on the industry,

licensing concerns may present a

significant barrier to successful KPO.

Financial services and market

research dominate the current KPO

market, but significant potential

awaits in animation, data, education,

engineering, legal, pharmaceutical,

and tax services. Industry experts

anticipate that India will capture the

majority of the global KPO market,

although the country’s talent shortageis likely to hamper its progress.

As China moves up the value chain

and expands its service economy, it

faces the opportunity to enter the

KPO market. However, significant

challenges lie in its path. Although

China is producing impressive numbers

of university graduates, its education

system still needs to adjust. To win a

larger share of KPO contracts, China

must cultivate creative, independentand critical thinking, as well as

communication and teamwork skills,

in its current and future workforce.

72







75

due to their minimal time differences

with the continental United States.

To the north, Canada has long been a

low-risk option with native linguistic,

legal and cultural similarities. Yet, as

costs rise, Canada’s skilled labor force

is quickly pricing itself out of basic

outsourcing and into high-value-

added services. To the south, Mexico,

Argentina and Brazil remain strong

near-shore options. At the same time,

many US companies are increasingly

looking toward alternatives in theCaribbean and Central America.

Appealing options in the Caribbean

include Puerto Rico and the Dominican

Republic, as well Jamaica, with its

native English-speaking population,

while in Central America, Costa

Rica, El Salvador, Guatemala, and

Panama have seen strong interest.

In Figure 33, we take a closer look at

the policies promoting outsourcing

in India, the Philippines, Ireland,Canada, and Russia and compare

them with the government efforts to

support China’s outsourcing market.



76

Figure 33: Policies promoting outsourcing in five representative nations

Basic Statistics Tax Incentives Policy Highlights

India GDP: $894.1 billion

Population: 1.13 billion

Language skills: Good

English

Tax tariff breaks from central•

government

Individual states offer further•

incentives

National Association of Software and•

Services Companies (NASSCOM)

Government policies overview• 19

Special regulations on Special Economic•

Zones20

Central government working to reduce•

international telecommunications costs

The Philippines GDP: $142.3 billion

Population: 91.1

million

Language skills: Strong

English

Income tax holiday for 4•

years (extendable to 8 years)

for certain businesses registered

in economic zones, followed

by an option to pay a special 5

percent gross income tax in lieuof all national and local taxes21

Import tax and duty•

exemptions for capital

equipment22

Unrestricted use of consigned•

equipment

Additional deductions•

available for some labor

expenses

Exemption from wharfage•

dues, duty import and fees23

Board of Investment, Philippines Economic•

Zone Authority and Business Processing

Association of the Philippines promote and

give incentives to industry

Permanent resident status for foreign•

investors and immediate family members

Incentives under the Build-Operate-•

Transfer Law, which includes government

support for accessing Official Development

Assistance and other sources of financing24

Ireland GDP: $219.7 billion

Population: 4.1 million

Language skills: Native

English

12.5 percent corporate tax,•

lowest in Europe

Irish Investment and Development Agency•

provides “financial and practical” assistance

to businesses

Government push to develop higher-end•

outsourcing in KPO and pharmaceutical R&D

Education system produces 5,000 software•

programmers per year25

Canada GDP: $1.144 trillion

Population: 33.4

million

Language skills: Fluent

English and French

Lowest payroll taxes among•

G7

National incentive programs for R&D•

Some specific incentives in provinces and•

territories

Russia GDP: $1.251 trillion

Population: 141.4

million

Language skills: No

widespread foreign

language fluency

None• Russian Software Developers Association•

(RUSSOFT)



77

For China’s outsourcing providers,

today’s multi-polar world presents

two windows of strategic opportunity.

First, providers may benefit from the

influx of MNCs that have been drawn

to China by its impressive economic

growth. China already reigns as the

world’s largest market for mobile

phones, televisions and cars, and

the nation is poised to become the

biggest consumer market overall by

2025.26 MNCs come to China with

deep experience and sophisticatedoperations, and they bring with them

the capacity and desire to outsource

services on a large scale. The

Chinese outsourcing industry has the

opportunity to capture a significant

portion of these contracts.

Chinese vendors also may add value

for MNCs by supporting their other

Asia Pacific operations. The Asia

Pacific markets are expected to

continue to demonstrate the fastestITO and BPO growth of any region,

and China already enjoys geographic,

cultural and linguistic advantages

in serving the Japanese and Korean

markets. China’s outsourcing providers

may use these opportunities as a

springboard for regional expansion.

And if they can translate and

scale those experiences, effectively

matching world-class standards,

Chinese providers will be perfectly

positioned to compete worldwide.

Second, China’s outsourcing

providers may grow by serving

domestic companies that conduct

business abroad. Just as MNCsseek new opportunities in China,

many leading Chinese companies

are entering overseas markets. The

Fortune Global 500 list contained

24 Chinese companies in 2007, up

from 20 in 2006 and 16 in 2005.

China’s outsourcing vendors have a

golden opportunity to leverage their

existing relationships, local experience

and resources to partner with these

Chinese companies and serve overseasmarkets from their base at home.

These factors create unique prospects

for near and mid-term growth in

China’s outsourcing market that are

unequaled by any prospects enjoyed

by its global rivals. To succeed in

both of these scenarios, Chinese

providers must develop capabilities

that align with their clients’ specific

needs. They must evolve the ability

to provide bundled services and

end-to-end process management

offerings that are tailored to the

breadth and sophistication of

their clients’ operations, in areas

such as application management,customer relationship management,

finance and accounting, HR

management, and procurement.

Despite its bright prospects, China

must uphold its end of the bargain in

order to realize its potential. Already,

China has begun by making massive

investments in public education and

infrastructure and is reaping the

dividends of a decade of support for

English and technology education.By contrast, competitor India faces

basic infrastructure bottlenecks and

struggles to manage a limited supply

China’s outsourcing opportunities and

challenges in a multi-polar world



78

of labor and salaries driven up by

unmet demand. NASSCOM, an Indiansoftware industry association, predicts

an IT industry labor shortage of

500,000 by 2010. With the benefit of

steady government backing, Chinese

universities have graduated 575,000

engineers in 2006 alone—almost

twice as many as India’s universities,

allowing China to steer clear of labor

problems at this stage.27,28

Significant challenges remain for

China’s outsourcing industry. In anera of increasing economic openness,

China will not be able to rely solely

on its cost advantage. Its lower-end

manufacturing companies are in the

midst of learning this sobering lesson.

China’s ability to scale hinges on the

quality, not the quantity, of the output

from its education system. Despite

increasing numbers of graduates,

China’s workforce must continue to

improve its English language and

management skills as well as gain a

better understanding of the contract,

legal and sourcing frameworks of

Western MNC operations.

In addition, while due diligence

and security measures can limit

risk exposure and help to persuade

reluctant MNCs to outsource to

China, the country also must continue

to strengthen its legal system,

improve intellectual property rights

protection, and encourage service

providers to obtain international

standards certification.

China’s success also depends on a

political climate that favors continued

economic liberalization, allowing

labor and capital to move more

freely. A slowdown in the Chinese

economy may disrupt the country’s

social development and governance.

If economic opportunities raise

the nation’s fortunes, however, an

unintended consequence might be

skyrocketing incomes in Tier Two and

Tier Three Chinese cities, which would

have a significant impact on operating

costs in businesses across the country.

As always, outsourcing investments

are only as safe as the risks inherent

in the host country and its market.

If China can meet its opportunities

with excellence in quality and a

strategic commitment to growth, it

can avoid the fate of becoming a

destination for simple labor arbitrage.

Success in the new global economy

will not be easy. But China has the

potential to become one of the world’s

leading outsourcing hubs.



Outsourcing trend watch: Indian companies in China

Since Tata Consulting Services first

entered China in 2002, other Indian

outsourcing companies have followed

suit, building a solid and significant

presence of Indian companies there.

Over the last five years, these Indian

companies have set up their own

full-scale development centers across

China, formed strategic partnerships

with both global MNCs and local

players, built solid bases of support

within the various levels of Chinese

government, and aggressivelyexpanded their talent base. At

present, Indian outsourcing companies

employ several thousand people in

China and are planning to expand

significantly by the year 2010.

The Indian players do not merely

view China as a low-cost delivery

location from which to serve the

local operations of many of their

biggest multinational customers from

the United States and Europe. Theyalso see China as a springboard to

the Japanese and Korean markets.

And they have identified the value

of Chinese corporations with global

operations as potential clients, such

as the Bank of China, China Mobile

and PetroChina. Below we provide

a glimpse of the China activities of

three leading Indian IT outsourcing

providers.

Tata Consulting Services

Tata Consulting Services (TCS) was

the first Indian outsourcing provider

to launch its China strategy by

establishing a Shanghai office in

2002. A year later, TCS set up a Global

Development Center in Hangzhou, a

representative office in Beijing, and

an Oracle 11i technology center in

Shanghai.29

Then, in 2007, TCS partnered

with Microsoft and three local,

government-backed software

companies to set up TCS China, which

focuses on the financial services,

telecom and government sectors. The

total cash investment of the joint

venture is estimated to be $14 million.

TCS China follows a “research first,

business second” approach: Invest in

research and technology centers to

build a solid foundation, then leverage

this foundation to obtain global

contracts and local business. Over

the past three years, TCS has invested

more than $10 million in China.

This outlay has not only served as

indication of the company’s ambitious

strategy, but it has also proven to

the Chinese government that TCS is

committed to the Chinese market.

By the end of 2006, TCS China had

served 25 clients in China, most of

them Fortune 500 companies. In

addition to traditional global clients

like AIG, Citibank, GE, and Motorola,

TCS has successfully developed a

number of influential domestic clients

in China, such as PBOC, CITIC Bank,

Huaxia Bank, and China Telecom,

which is a strong testament to the

success of its China strategy.

The key challenge TCS faces in China

is acquiring and retaining top talent.

79



According to TCS, recent Chinese

college graduates do not meet the

requirements the company has set

for its Indian college graduates. To

develop loyal and qualified teams of

employees, TCS has begun working

with local universities and English-

language schools to provide specialtraining to students who plan to join

TCS after graduation.

Over the next few years, TCS plans

to expand its Chinese operations,

increasing the number of employees

to 5,000 and setting up subsidiaries

in new cities, with Tianjin, Guangzhou

and Xi’an named as contenders. It

will expand its vertical-industry roster

beyond financial services and telecom

to include airlines, automotive andgeneral manufacturing. TCS also

hopes to enhance its position in the

Japanese and Korean outsourcing

markets, despite facing difficulties in

hiring Japanese and Korean language

speakers in Shanghai and Hangzhou.

In addition to outsourcing, TCS plans

to move into the fields of engineering

and Six Sigma process consulting to

serve China’s large manufacturing

base. TCS also will explore well-established small, local, industry-

oriented outsourcing companies (with

50 to 100 employees) as acquisition

targets to drive its growth.

Infosys Technologies

Infosys Technologies (China) Co.

Ltd. (known as Infosys China) is a

fully owned subsidiary of Infosys

Technologies Ltd. Headquartered

in Shanghai, Infosys China began

operations in 2003 with the goal of

building a world-class delivery hub

in China. With development centers

in Shanghai and Hangzhou and a

representative office in Beijing, Infosys

China now has about 800 consultants

providing ITO and BPO services to

global and Asia Pacific clients. The

Shanghai center focuses on IT services

such as application development and

maintenance, enterprise solutions, and

independent validation services. The

center in Hangzhou specializes in BPOservices.30

Infosys established its China

operations with a relatively modest

investment in Shanghai, but two years

later, the company committed $65

million to build additional software

development centers in Shanghai

and Hangzhou. The new facilities are

designed for onsite training—a key

asset as Infosys China looks to tap the

nation’s deep talent pool.

For its global offshoring work, Infosys

China offers a cost-competitive

delivery hub for customers interested

in alternatives to India-based

outsourcing. The company handles

large enterprise solutions using SAP

and Oracle platforms, and it offers

Infosys’s own core banking solution,

Finacle, which can be deployed at

large and mid-sized banks. In 2007,

Infosys China became the first

company in China to achieve CMMI®

Level 5 (V 1.2). In the same year, the

company was certified to ISO 27001

standards in order to alleviate the

security and intellectual property

concerns of its global customers.

Wipro Technologies

Wipro got its start in China in 2004,

establishing a 50-seat development

center in Shanghai. Its initial customer

base consisted of the Chinese offices

of many of Wipro’s global customers,

with an emphasis on the localization

of software, implementation and

support services. But Wipro has

consistently taken the long view

toward serving China’s domestic

markets and addressing the needs

of its Japanese customers in China.

For instance, since 2004, it has

completed two pan-China rollouts of

SAP applications in multiple cities for

Olympus and for Sanyo.31

Wipro has moved rapidly to expandits footprint in China. Its multiple

delivery centers in the Shanghai area

and Beijing cater largely to the growing

needs of multinational customers’

China operations. The company

currently is planning a major expansion

of its China operations and will likely

grow from a few hundred people

based in China to 2,000 by the end

of the decade. But Wipro’s long-term

plans call for capitalizing on China’s

enormous base of talent, setting upsoftware development centers, and

pursuing Chinese clients.32

80



81

Part IV. Recommendations



82

Recommendations for the

Chinese government:

Focus on creating capability and

capacity for outsourcing thoughproactive demand generation.

1. Actively encourage and provide

incentives for all government

departments to pursue an

outsourcing agenda. Leverage the

skills and experience of global

providers to create compelling value

propositions and award service

contracts though an open and

transparent procurement processes.

2. Facilitate the movement of State

Owned Enterprise (SOE) back-

office processes and functions to

outsourcing providers. Use this as

a means to drive transformational

change and best practice into a

suite of businesses getting ready for

competition on the global stage.

3. Continue the education and

information agenda in relation to

outsourcing. Structure industry

briefings that address not only

the ‘how’ and ‘what’ to outsource

but more importantly the ‘why’.

Imbed the underlying concepts of

a service based economy into the

appropriate university curriculums.

Recommendations for

service providers:

Focus on value creation. Build

service delivery models that solvethe unique problems associated

with doing business in the world’s

fastest growing economy.

1. Look to create collaborative

partnerships that bring together

diverse skills and experiences to solve

local client problems. Partner with

local and multi-national providers

to leverage specific relationships

and enhance competitiveness.

2. Build assets and offerings specific

to solving problems unique to

economies in hyper growth mode. Not

only will this provide real competitive

advantage in China, it will be the key

to delivering services, business models

and cost structures that help drive

the next generation of outsourcing

in North America and Europe.

3. Focus on delivering cultural

and relationship synergy. Providers

that truly understand their client’s

business and work together

collaboratively to deliver outcomes

will enjoy the best results.

4. Build a business that first focuses

on countries in Asia Pacific. This

region will become the engine of the

world economy and will fast become

the cornerstone of our business.

Recommendations for

potential clients:

Achieve high performance through

innovation and resilience. Focuson building partnerships rather

than client/vendor hierarchies to

ensure flexibility and joint problem

solving – this is what will make

your business grow, be more

profitable and competitive.

1. Align all outsourcing considerations

to the CEO/board’s agenda and

remember that the most successful

engagements are sponsored at

this level. Make sure you havethe right level of interactions

and executive engagement of

your provider’s executives.

2. Work collaboratively with your

partner to build a solution specific

to your business problem. Start with

the definition of business outcomes

you are looking to achieve and the

respective roles and the principles that

will underpin your mutual success.

3. Expand your thinking beyond

back-office outsourcing. Some of

the best opportunities come from

changing the way you integrate

with your customers and suppliers.

Charles Hunting - Managing Director —Outsourcing, Greater China, Accenture



83

1 “Rover sold to Nanjing Automobile,”23 July 2005, BBC, http://news.bbc.co.uk/2/hi/business/4708739.stm;“Huawei accepts 3Com's bid offer to

purchase its stake in H3C,” 29 Nov2006, Huawei press release

2 IDC, BPO, Offshore, “WorldwideOffshore Key Horizontal BusinessOutsourcing Services 2007-2011Forecast and Analysis”

3 Mark Boyle and Andrew Sleigh,“China’s Outsourcing Opportunity”,white paper

4 Gartner press release, http://www.gartner.com/press_releases/asset_123795_11.html

5 Accenture definition, supported bycommon industry definitions presentedby IDC and other third-party industryobservers

6 Gartner, "Forecast: Outsourcing,Worldwide, 2000–2012", 2008

7 Ibid.

8 Ibid.

9 Cyrill Eltschinger, Source Code China:The New Global Hub of IT (InformationTechnology) Outsourcing, Sep.2007

10 “Tier One” refers to the cities of Beijing, Shanghai, Dalian, andShenzhen

11 “Tier Two” cities include Chengdu,Xi’an, Tianjin, Hangzhou, Wuxi,Wuhan, Nanjing, and othersdesignated by China’s government

12 “Annual report of China IT OutsourcingService Market 2007-2008,” CCID,2008

13 Gartner, Market View Database, IT

Services Market Metrics, 200814 The risk is based on the responses from

local providers. It reflects the difficultyof developing new clients whileretaining existing clients in differentgeographic markets

15 Gartner, “Forecast: Outsourcing,Worldwide, 2000–2012”, 2008

16 Ibid.

17 Ibid.

18 Ibid.

19 http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=6169

20 http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=6157

21 http://www.peza.gov.ph/invest_incentives.htm

22 http://www.peza.gov.ph/invest_

incentives.htm23 http://www.philippinebusiness.com.

ph/archives/magazine/vol9-2002/9-5/technology.htm

24 http://www.peza.gov.ph/invest_incentives.htm

25 http://offshoreitoutsourcing.com/Pages/Ireland.asp

26 EIU-Accenture analysis. PPP adjustsfor differences between countries inthe price of a standard basket of goodsand services

27 Approximately 350,000 engineeringgraduates are produced by collegesand universities in India each year.Of these, approximately 120,000specialize in information technology(versus 75,000 US engineeringgraduates that specialize ininformation technology disciplines).http://www.cc.gatech.edu/education/undergrad/bscs/threads_whitepaper.pdf

28 442,463 engineering university

graduates in 2004; 575,634engineering university graduates in2006. http://www.stats.gov.cn/tjsj/ndsj/2005/html/U2113c.htm; http://www.stats.gov.cn/tjsj/ndsj/2007/html/U2113c.htm

29 Overview, TCS site, http://www.tcs.com/worldwide/asia/locations/china/Pages/default.aspx; “TCS FocusesOn China Market,” ChinaTechNews.com, Sept 22, 2004, http://www.chinatechnews.com/2004/09/22/1829-tcs-focuses-on-china-market/

30 Overview, Infosys China site, http://www.infosys.com/china/english/

default.asp

31 “Wipro delivers a multi location SAProllout for Olympus (Beijing) Sales &Service Co. Ltd.,” Wipro press release,Sept 27, 2004, http://www.wipro.com/

news/newsitem1/newstory359.htm

32 “India's Wipro plans big expansionin China,” IDG News Service, Feb 26,2008, http://www.networkworld.com/news/2008/022608-indias-wipro-plans-big-expansion.html

References



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