Stop the press! Yes, it’s true that China is emerging as the economic miracle at the end of the 20th century, and it’s expected to surpass the United States in less than 20 to 30 years. However, that is if—and only if—China can sustain the economic growth that it has shown in the last 10 years. But what does all this have to do with the Offshore Outsourcing industry?
Paul Morrison, from sourcingfocus.com, recently raised the question of whether or not China would be the world’s new back-office. In his post he mentions that until recently, the IT services in China has been mainly based on the local market, but lately, some global service delivery companies started servicing US and European customers. He states, “BPO and IT outsourcing are being carried out in China for global operations, and that means China is finally becoming an option in the global services marketplace.” But the question that arises here is, isn’t this too late for China?
The answer is fairly simple: If this growth continues, China won’t be on the outsourcing playfield as a provider of IT offshore services. Instead, China will be playing the role that first world economies are at this moment, consuming outsourcing services from India, Eastern Europe, Latin America, and—who knows—maybe even from the United States.
After spending more than 3 years (yeah, no huge amount of time, but undoubtedly a terrific experience) trying to understand the IT market in the middle kingdom, I realized that even with the impressive support of the IT Outsourcing industry from the government, where it has spent millions of dollars promoting China as “the new India,” multinational and local IT companies with already established operations in China have another point of view on the matter.
They are more interested in developing the currently booming local market because they has figured out that if the economy keeps growing, the RMB keeps appreciating, and inflation keeps pushing salaries up, China won’t fit on the offshore outsourcing model due to the lack of economical attractiveness as compared to India, Latin America and Eastern Europe. If on top of that, you add that the English level is generally lower than the other countries, a strong IP protection regulation is still a work in progress, and the immense cultural gap between the West and the East, the offshore-to-China business plan doesn’t have enough stamina for the long run.
Companies need to start thinking about the world going through a dramatic change, and in less than we think-let’s say, one generation. China will be where a big chunk of the IT business will be happening, along with the US. The difference, however, will be that the US won’t be seen as the most decadent candy in the store anymore.
All this raises questions like, How can companies provide offshore services into China if they don’t speak Chinese? Would this mean that the onsite component will need to be local employees or the offshore team will need to be able to speak, read and write Chinese?
Certainly, I can see that a corporate strategy change needs to happen if they want to compete in the toughest and, at the same time—largest –potential market in the world.
Stay tuned for more on this and other topics related to the IT Services industry of the middle kingdom.