By Mary Rose Armstrong, EquaTerra Director of Service Provider Relations
Recently Charles Arnold, Managing Director, EquaTerra IT Advisory, Teri Robinson, EquaTerra Managing Director, Vibhash Ranjan, EquaTerrra Consultant, and I had the opportunity to spend time with six service providers in Shanghai and Guangzhou China, to understand their current operations as well as their future strategies for this region of the world.
In addition to the specifics we learned about each provider, we had a chance to experience the broader business climate in China in two of its primary outsourcing services cities. What we learned surprised and impressed us.
The Chinese government is promoting 20 cities as outsourcing services destinations for service providers – and providing handsome incentives to entice them. All of these cities have populations greater than 2 million people – many of them are little known outside of mainland China. The 10 largest of these cities include
- Shanghai Population 17M
- Beijing Population 13.2M
- Guangzhou Population 12M
- Shenzhen Population 8.6M
- Tianjin Population 8.2M
- Chongqing Population 7.5M (China’s largest total metro population at over 30M people)
- Nanjing Population 6.8M
- Wuhan Population 6.6M
- Hangzhou Population 6.3M
- Chengdu Population 4.8M
The rate of growth and construction that we saw in Shanghai and Guangzhou was astounding. China is investing heavily in all areas of infrastructure – roads, public transportation, data and phone systems, electrical power and housing. The growth of the middle class in the cities is quite evident.
Each of the providers we spoke to have different strategies for both broad regional service delivery and their domestic China sales and delivery. In some cases, China capabilities are being built by shifting India-based jobs to China to “seed” an in-country presence and local workforce. Some of the more mature service providers in China have established partnerships with the Chinese government to grow their domestic businesses – making them a “local local” provider versus a “foreign local.” All providers are employing some mix of two key strategies to grow their businesses: “source-from” and “sell-to.”
Source-from: This is work that is being done for large, global or multi-national organizations with significant business in China and other areas of Asia/Pac and is the more mature business strategy for most of the service providers. This work is in full swing for both BPO and ITO services in multiple locations within China. Delivery centers tend to service back-office functions for other countries within the Asia/Pac region – to the extent that non-client facing work can be moved to China as overall capacity dictates. These services tend to be heavily transactional in nature or involve voice services in native languages that can be handled by the local resources within the centers. Those languages are primarily
- Indonesian dialects
English-language requirements are being addressed in delivery centers, but tend to be written language-focused versus spoken language.
Sell-to: This strategy – selling to domestic China-based companies – is on all the providers’ to-do lists, but few have cracked the code. Those that have been most successful to-date have either created partnerships with the Chinese government for specific industries, such as banking, or have been doing business in China for decades (and have created formal or informal partnerships with the government in that time). But for most, this model is an aspiration today.
Given the level of investment being made by the Chinese government, we will continue to see China expand as a global delivery location for both ITO and BPO services. Maturity of service capabilities will vary from provider to provider – as well as from process to process – but growth is certain. Many of the providers who are not present in China today are developing plans to be there soon. And with a market of 1.3 billion people, who can blame them?