China appeals as an IT outsourcer mainly to its neighbors

Language barriers and a lack of experienced project managers prevent the country from becoming a global player, say analysts

China's appeal as an outsourcing location is limited to a few neighboring countries like Japan and Korea, unlike India and the Philippines, which address global markets including the U.S. and the U.K., according to a report released Wednesday by Everest Research Institute.

The country has a shortage of experienced project managers with skills to interact with North American and European clients, according to the report. Although the talent pool appears large, with more than 4 million graduates from China's universities annually, the vast majority are not employable for offshore services delivery to North America and the U.K., it added.

As a result, more than three-fourths of China's offshore services exports are focused on Japan, Korea, and South-East Asia, it said.

A few years ago a number of analysts had forecast that China would become a significant competitor to India as an outsourcing destination. The country would overcome the English language handicap by aggressive education programs, analysts said.

These education programs are taking shape but the progress is slower than what one would expect, Anand Ramesh, research director at Everest, said on Wednesday. Educating and training helps solve part of the issue, but the lack of exposure to the language in a business context is a serious limitation that will take a few years at the very least to overcome, he added.

As a result of the one-child policy for couples in China, the country now has far fewer younger people than India, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International. These demographic patterns could work against China building itself as an outsourcing giant, he added.

China still figures among the list of countries that customers consider when they decide to outsource offshore, but there aren't service providers in the country that can scale up operations like service providers in India or the Philippines, Pai said. Customers that decide on China have to usually consider setting up a services subsidiary in the country, he added.

A number of multinational companies, including service providers, have however set up delivery centers in China. Indian outsourcers like Tata Consultancy Services also have delivery centers in the country. It also has a small but growing crop of local suppliers, according to Everest.

China's offshore services however remain focused on Japan, Korea, and South-East Asia, according to Everest. A key advantage is common language. The northeastern parts of China have pockets of Japanese and Korean language skills, which help serve these two markets, Ramesh said. The Chinese can also service Hong Kong, he added.

China however has limitations when it comes to serving other parts of the Asian market such as the Philippines, Thailand and Vietnam, according to Ramesh. But these are low cost geographies, and companies from these countries do not have a strong incentive in any case to send work to China, he added.

Concerns around data security and protection of intellectual property are also significant deterrents for companies to operate in China, according to Everest. Services that require access to customer data, sensitive technology platforms, sensitive IT systems, or proprietary tools and knowledge are almost never sent offshore to China, it added.

China has also not been able to put together a countrywide focus on outsourcing, Pai said. The promotion of the business has been left to the provincial governments that compete with one another for business, and do not present a unified front to the market.

The country's low-cost staff however continues to provide an incentive for companies to try out new models for clients in North America, such as a two-tier model where some services are delivered out of China while others are delivered from another location, according to Everest.

Services that are more standardized, require limited interaction with the business in English, and benefit from scale can still be done from China for global markets, Ramesh said. Examples of such services are testing services as part of application development, and digitizing engineering designs, he added.

Join the PC World newsletter!

Error: Please check your email address.

Tags offshoringservicesoutsourcingEverest Research Institute

Our Back to Business guide highlights the best products for you to boost your productivity at home, on the road, at the office, or in the classroom.

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

John Ribeiro

IDG News Service
Show Comments

Essentials

Microsoft L5V-00027 Sculpt Ergonomic Keyboard Desktop

Learn more >

Lexar® JumpDrive® S57 USB 3.0 flash drive

Learn more >

Mobile

Lexar® JumpDrive® S45 USB 3.0 flash drive 

Learn more >

Exec

Lexar® Professional 1800x microSDHC™/microSDXC™ UHS-II cards 

Learn more >

HD Pan/Tilt Wi-Fi Camera with Night Vision NC450

Learn more >

Lexar® JumpDrive® C20c USB Type-C flash drive 

Learn more >

Audio-Technica ATH-ANC70 Noise Cancelling Headphones

Learn more >

Budget

Back To Business Guide

Click for more ›

Most Popular Reviews

Latest News Articles

Resources

PCW Evaluation Team

Azadeh Williams

HP OfficeJet Pro 8730

A smarter way to print for busy small business owners, combining speedy printing with scanning and copying, making it easier to produce high quality documents and images at a touch of a button.

Andrew Grant

HP OfficeJet Pro 8730

I've had a multifunction printer in the office going on 10 years now. It was a neat bit of kit back in the day -- print, copy, scan, fax -- when printing over WiFi felt a bit like magic. It’s seen better days though and an upgrade’s well overdue. This HP OfficeJet Pro 8730 looks like it ticks all the same boxes: print, copy, scan, and fax. (Really? Does anyone fax anything any more? I guess it's good to know the facility’s there, just in case.) Printing over WiFi is more-or- less standard these days.

Ed Dawson

HP OfficeJet Pro 8730

As a freelance writer who is always on the go, I like my technology to be both efficient and effective so I can do my job well. The HP OfficeJet Pro 8730 Inkjet Printer ticks all the boxes in terms of form factor, performance and user interface.

Michael Hargreaves

Windows 10 for Business / Dell XPS 13

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Aysha Strobbe

Windows 10 / HP Spectre x360

Ultimately, I think the Windows 10 environment is excellent for me as it caters for so many different uses. The inclusion of the Xbox app is also great for when you need some downtime too!

Mark Escubio

Windows 10 / Lenovo Yoga 910

For me, the Xbox Play Anywhere is a great new feature as it allows you to play your current Xbox games with higher resolutions and better graphics without forking out extra cash for another copy. Although available titles are still scarce, but I’m sure it will grow in time.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?