China is already the world’s largest outsourcing location in the field of manufacturing. But according to a recent study by analyst group IDC, Chinese cities will overtake Indian off shoring data centres such as Bangalore and Mumbai by 2011.
Chinese universities turn out some 400,000 new technical graduates each year in the field of IT alone. What’s more, thanks to the centralised decision making process in China, it has far outpaced India and many Western countries in growing a vast, state-of-the-art IT infrastructure.
China’s scalability versus India
So far India has struggled to extend its outsourcing industry beyond the boundaries of a few major cities. This is partly due to bureaucratic barriers and wrangling between vying interest groups. Disagreements can often delay the laying of a few kilometres of fibre optic network for several years or even prevent it entirely. The result is that operating costs in India have quickly spiralled out of control and new business is being lost to rival locations
In China, by contrast, the extension of an IT backbone into a new region simply calls for the approval of a centralised committee. And once a decision has been made it will be quickly implemented, without opposition.
Hence, it’s easy to see why so many multinationals, including India’s own outsourcing giant Wipro, are setting up big IT operations in China.
In the field of IT, Chinese labour costs are currently 25-40% cheaper than India. But what makes China so attractive as a long term outsourcing location is that, outside the field of manufacturing, the outsourcing industry remains relatively underdeveloped and fragmented. In particular, labour pools in second tier Chinese cities are still largely untapped. And while manufacturing companies must be physically sited within practical distance of a major sea port to remain competitive – IT and Communication intensive industries have no such limitations.
English Language Skills
India had a head start over China in the outsourcing game thanks to the English language legacy bequeathed by the British Empire.
Also China was a relative latecomer to the globalisation race. It did not enter the arena properly until 2001 when it joined the World Trade Organisation. Anxious not to be left behind, it immediately put its weight into a huge program to accelerate English language proficiency throughout the country.
In the same year,it created 135 million new English language students at a single stroke by making English classes compulsory at primary school level. And with the passing of each year since then, the pool of English language talent in China has grown exponentially.
Just a few years later in 2006 and Macmillan publishers were celebrating the sale of 100 million copies of their text book for Chinese primary school Children.
What’s more the drive to learn English has not merely been a government initiative. Ambitious for their Children to gain international qualifications, Chinese parents have been eager to invest in private English tuition. Another success story from 2006, was the floatation of New Oriental, a private English language tuition Chinese company that specialises in training pre-college level students. By Chinese standards, New Oriental’s rates are astronomical, yet just prior to floatation they had 375,000 students on their books.
Make no mistake, the will to learn English is very strong in China. Right now it is still fair to say that English is still not very widely spoken in China. However, in just the same way that a huge pool of skilled IT workers suddenly appeared because of a government decision made years ago, a day will dawn in the not too distant future when English is everywhere.
If you’re thinking of setting up an outsourcing operation in China, now is a good time to start laying long term plans. If you’d like advice on prime locations and how to start sourcing talent contact Red China Business.
