China Targets Outsourcing

The Chinese government has earmarked ten cities in the country for development as major outsourcing centers in a bid to capture a greater share of the technology work that Western multinationals have traditionally outsourced to India and other low-cost destinations.

The first base cities would be Shanghai, Dalian, Xi'an, Shenzhen and Chengdu, but a total of ten will be used as a basis for the government’s plans to quadruple China’s outsourcing exports by 2010. China's revenue from such sales stands at about $900 million -- less than the annual sales posted by a number of individual Indian outsourcing companies.

The Assistant Minister of Commerce, Fu Ziying, wants to convince 100 multinationals to outsource to the country and encourage the development of 1,000 large and midsize indigenous outsourcers. Unlike India, which has seen the rise of billion-dollar outsourcing vendors like Infosys and TCS, China's outsourcing industry remains highly fragmented.

Meanwhile, Indian vendors are themselves eyeing the People's Republic as a site for expansion in order to offset rising wages and a tight labor market in India. TCS says it's looking to add about 4,000 to 5,000 tech workers to its fledgling Chinese operations over the next three to five years. The company recently sold a ten-percent stake in the venture to Microsoft.

The global service outsourcing market stands at between $300 billion and $500 billion, depending on source, including CRM and call center outsourcing services. The entire outsourcing market is expected to reach $1 trillion in 2008.

A report by the United Nations Conference on Trade and Development said China was already a favorite choice for multinationals' research and development, and could build on that to provide a range of outsourced services.
 

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