Outsourcing: Is China the world's new back-office?

There's growing evidence of China's outsourcing muscle…

It's hard to escape the hype that China attracts. Nevertheless, the underlying factors are in place for the country to become a force in outsourcing, says Paul Morrison.

A rising China may be the business story of the decade, but in global outsourcing terms the Middle Kingdom is something of a non-entity. The fact is, in IT and back-office processing, Eastern Europe and, above all, India, command the lion's share of offshoring for UK and European clients. But it is time to think again. The Chinese are coming.

I was recently in China to attend the launch of Capgemini's brand-new business process outsourcing (BPO) delivery centre in Nanhai, on the edge of South China's staggering megacity, Guangzhou - population: 16 million.

Skyline of Guangzhou in southern China

The skills and infrastructure in cities such as Guangzhou in South China may not be enough of a pull to tempt Western firms
(Image credit: Paul Morrison/Alsbridge)

I was there to see whether this outsourcing location had anything to offer businesses in the West, or if it was more of a regional play for Chinese firms and Western firms operating in China.

Chinese education and comms
The theoretical attractions of outsourcing to China are obvious: a large population of capable graduates, excellent communications and transport infrastructure, and a supportive government keen to promote foreign investment. But are those factors enough in the increasingly congested offshoring marketplace?

To date, global firms have tapped into Chinese outsourcing by focusing on regional demand. For example, Capgemini's foundation client for its Guangzhou operations a decade ago was Dairy Farm, the Hong Kong-based, pan-Asian retailer that operates through brands such as Ikea and 7-Eleven.

To this type of operation were added global firms with extensive activities in Asia, such as Unilever and Syngenta, plus a number of large Chinese firms - but the picture has remained fundamentally regional.

The pattern applies equally to other global outsourcers such as Accenture, Genpact, or Infosys, as well as China-centric organisations such as Bleum, and M&Y Global Services. In all cases the strategy has been one of targeting Chinese or global organisations looking for...