BRIC Outsourcing Business

China place in BRIC offshore services

BRIC Business

China's fast growth as an economic power has brought new businesses and created an outsourcing industry to support them. This industry also has the capacity to support firms outside China by offering IT services.

China is one of a group of emerging economies which also includes Brazil, Russia and India. These countries, known as the BRIC countries, have been touted as potential new regions to offshore services.

India is the leader among outsourcing in BRIC countries. China has the potential to become India's nearest rival, but it has major cultural and legal hurdles to overcome, which will take time.

The Chinese government is supporting the development of its offshore Business Process Outsourcing (BPO) industry through legislative changes and incentives.

These include a tax policy that favors offshore services, training funds and interest-free loans.

The Chinese offshore service providers often support other service providers with low-cost business processing. But it is now ready to take a more prominent front line role.

Chinese providers have grown up in a short space of time and are now in a position to deal with Western companies direct. This, he says, is a result of the growth in China's economy

If Chinese company's want to follow the example set by their Indian peers they will have to ensure they are ready before they commit to providing extensive services, according to Andy Gallagher, consultant at Compass managing Consultants.

If the Satyam fraud scandal, where the Indian IT service provider's former chairman admitted to cooking the books, had happened a few years ago, India would have struggled to get where it is today.

To become a frontline service provider, Chinese companies must develop their brand and be more than just an offshore service for a more established offshore service provider.

China has the potential to be the next India but it will take a long time.

Gallagher at Compass Consulting says this approach can help overcome cultural obstacle. "They have to establish a credible national presence in these countries, which are run by locals."

Peter Brudenall, outsourcing Lawyer at Hunton & Williams, said China does not have the language skills and major project management skills that India has. But he says there are also major legal issues to overcome before China will be seen as a trusted destination for offshore IT services.

Robert Morgan, director at Hamilton Bailey, says China is a long way off being able to provide frontline services. "China is not anywhere near ready because of the physical environment and the cultural differences."

He says that there are isolated pockets where companies provide specific outsourcing services, which have often been set up by the customers. But he says China will struggle to match India because there are no Chinese entrepreneurs investing in this industry, only the government.

He adds that the communications infrastructure and language barrier pose major problems for China's development as an offshore services destination.

China needs an industry body to support outsourced service providers in the mould of Nasscom in India if it is to overcome this problem.

BRIC Business - Offshore Services