China’s economic transformation in recent decades has, by and large, benefited its coastal cities and provinces much more than inland ones. But that is changing. My team of China analysts and I looked at the economic performances of all 31 Chinese provinces in 2012, and what was striking was how some of the poorest and most remote provinces have risen up the growth rankings. Guizhou, Gansu, Qinghai and Xinjiang all posted GDP growth rates of 12% or more. Shanghai—emblematic to many of China’s economic rise—came bottom of the list. The shift suggests that the government’s “Go West” policy of promoting inland investment and development is paying off. It also reflects the impact of measures aimed at cooling growth in the rich coastal provinces. 



Robin Bew
 The Economist – www.eiu.com

By Martin Conboy

According to the study T2 market Pulse Survey that while businesses in APAC are optimistic about business growth in 2013, 55 percent of APAC Businesses don’t anticipate increasing their workforce

The majority of APAC businesses predict growth in the next 12 months, however interestingly many do not plan to increase their workforce numbers to support intended growth according to The Talent2 APAC Market Pulse 3 Study.

In the last few years there has been a mandate within Australian corporations to reduce internal operating costs and refocus on core business activities. Many companies are responding to this by outsourcing non-core business processes to third party providers.

The report finds a strong sense of optimism amongst the majority of APAC businesses, with 61% predicting growth for the next 12 months, and only 5 percent predicting decline. In Australia, the research shows that whilst more than half of businesses are forecasting economic growth in the next 12 months, only 40 percent expect to increase employee numbers.

This discrepancy could threaten to place great pressure on some companies and their employees and it is expected that as growth occurs without an increase in human resources, APAC businesses will turn to contractors. Businesses in APAC are however already using some growth strategies such as reducing headcount and investment in mature markets (36 percent) and increasing back-office services through shared service delivery (33 percent).

It is worth noting that Australia does not have a ‘people shortage’ problem, what we have is a ‘skills shortage’ problem. The mining and construction boom, mainly in Western Australia and Queensland, has acted like a giant vacuum cleaner, sucking up all available labour resources to fuel the insatiable demand of this sector. Not only do we have a skills shortage problem but our young people also have an adversity to working in the service industry. So even if there was no mining boom gobbling up available workers, we still cannot get people to work in call centres and local outsourcing shops.

Expansion is both a key driver and a significant benefit. In the Australian BPO study 2012 conducted by the Sauce and supported by IBM and Fuji Xerox, one factor emerged as the clear front-runner and that was global expansion. 40 percent of organisations considered access to skilled manpower as important

One possible explanation for companies looking for growth and reducing headcount is that they may not necessarily be able to identify the particular skills that they need in a fast changing market, and made thus turn to other methods to attract the required skills. These days growth does not always equate with increased FTE headcount.

The T2 research reveals that 66 percent of organisations across APAC currently employ contractors, a figure that is potentially set to grow as unemployment figures rise and job seekers accept contract positions.

Currently in Australia, with an unemployment rate of 5.1 percentage, it’s very hard for companies to find suitable staff to man their customer facing divisions. Consequently, if they want their phones answered, they may move to an outsourced solution, to access skills. This will be a major driver going forward. On the flip side, we have a community that demands that companies meet the highest standards of customer service.

Whilst awareness of the skills and benefits contractors can offer organisations is high, the research finds there are also challenges. 65 per cent of Australian businesses believe contracted workers increase workforce flexibility and scalability to support economic conditions and 37 percent feel contractors offer improved business performance by better matching specialist resources to company projects.

“It may become increasingly necessary for businesses across APAC to consider the flexibility of a contracted workforce in an oscillating economic climate, rather than resorting to cuts to full- time employees as a reactive profitability measure,” said Caleb Baker, Managing Director, RPO & Managed Services Asia Pacific, and Talent2.

“When unemployment rates rise, the demand for contractors also rises as people who were traditionally used to full time roles begin considering part time or contractor roles. It’s clear that whilst businesses are aware of the benefits a contractor workforce can offer, there are perceived barriers to adoption for businesses to overcome in order to consider employing contractors. These barriers can be easily addressed by working with expert providers who can offer ease of management and better visibility of contracted employees,” concluded Baker.

Here there and everywhere

After decades of sending work across the world, companies are rethinking their offshoring strategies, says The Economist’s Tamzin Booth

Early next month local dignitaries will gather for a ribbon-cutting ceremony at a facility in Whitsett, North Carolina, USA. A new production line will start to roll and the seemingly impossible will happen: America will start making personal computers again. Mass-market computer production had been withering away for the past 30 years, and the vast majority of laptops have always been made in Asia. Dell shut two big American factories in 2008 and 2010 in a big shift to China, and HP now makes only a small number of business desktops at home.

The new manufacturing facility is being built not by an American company but by Lenovo, a highly successful Chinese technology group. Founded in 1984 by 11 engineers from the Chinese Academy of Sciences, it bought IBM’s ThinkPad personal-computer business in 2005 and is now by some measures the world’s biggest PC-maker, just ahead of HP, and the fastest growing.

Lenovo’s move marks the latest twist in a globalisation story that has been running since the 1980s. The original idea behind offshoring was that Western firms with high labour costs could make huge savings by sending work to countries where wages were much lower (see article). Offshoring means moving work and jobs outside the country where a company is based. It can also involve outsourcing, which means sending work to outside contractors. These can be either in the home country or abroad, but in offshoring they are based overseas. For several decades that strategy worked, often brilliantly. But now companies are rethinking their global footprints.

The first and most important reason is that the global labour “arbitrage” that sent companies rushing overseas is running out. Wages in China and India have been going up by 10-20% a year for the past decade, whereas manufacturing pay in America and Europe has barely budged. Other countries, including Vietnam, Indonesia and the Philippines, still offer low wages, but not China’s scale, efficiency and supply chains. There are still big gaps between wages in different parts of the world, but other factors such as transport costs increasingly offset them. Lenovo’s labour costs in North Carolina will still be higher than in its factories in China and Mexico, but the gap has narrowed substantially, so it is no longer a clinching reason for manufacturing in emerging markets. With more automation, says David Schmoock, Lenovo’s president for North America, labour’s share of total costs is shrinking anyway.

Second, many American firms now realise that they went too far in sending work abroad and need to bring some of it home again, a process inelegantly termed “reshoring”. Well-known companies such as Google, General Electric, Caterpillar and Ford Motor Company are bringing some of their production back to America or adding new capacity there. In December Apple said it would start making a line of its Mac computers in America later this year.

Choosing the right location for producing a good or a service is an inexact science, and many companies got it wrong. Michael Porter, Harvard Business School’s guru on competitive strategy, says that just as companies pursued many unpromising mergers and acquisitions until painful experience brought greater discipline to the field, a lot of chief executives offshored too quickly and too much. In Europe there was never as much enthusiasm for offshoring as in America in the first place, and the small number of companies that did it are in no rush to return.

Firms are now discovering all the disadvantages of distance. The cost of shipping heavy goods halfway around the world by sea has been rising sharply, and goods spend weeks in transit. They have also found that manufacturing somewhere cheap and far away but keeping research and development at home can have a negative effect on innovation. One answer to this would be to move the R&D too, but that has other drawbacks: the threat of losing valuable intellectual property in far-off places looms ever larger. Also, a succession of wars and natural disasters in the past decade has highlighted the risk that supply chains a long way from home may become disrupted.

Third, firms are rapidly moving away from the model of manufacturing everything in one low-cost place to supply the rest of the world. China is no longer seen as a cheap manufacturing base but as a huge new market. Increasingly, the main reason for multinationals to move production is to be close to customers in big new markets. This is not offshoring in the sense the word has been used for the past three decades; instead, it is being “onshore” in new places. Peter Löscher, the chief executive of Siemens, a German engineering firm, recently commented that the notion of offshoring is in any case an odd one for a truly international company. The “home shore” for Siemens, he said, is now as much China and India as it is Germany or America.

Companies now want to be in, or close to, each of their biggest markets, making customised products and responding quickly to changing local demand. Pierre Beaudoin, chief executive of Bombardier, a Canadian maker of aeroplanes and trains, says the firm used to focus on cost savings made by sending jobs abroad; now Bombardier is in China for the sake of China.

Lenovo, as a Chinese company, has its own factories in China. The reason it is moving some production to America is that it will be able to customise its computers for American customers and respond quickly to them. If it made them in China they would spend six weeks on a ship, says Mr. Schmoock.

Under this logic, America and Europe, with their big domestic markets, should be able to attract plenty of new investment as companies look for a bigger local presence in places around the world. It is not just Western firms bringing some of their production home; there is also a wave of emerging-market champions such as Lenovo, or the Tata Group, which is making Range Rover cars near Liverpool, that are coming to invest in brands, capacity and workers in the West.

Such changes are happening not only in manufacturing, but increasingly in services too. Companies may either outsource IT and back-office work to other companies, which could be in the same country or abroad, or offshore it to their own centres overseas. Software programming, call centres and data centre management were the first tasks to move, followed by more complex ones such as medical diagnoses and analytics for investment banks.

As in manufacturing, the labour-cost arbitrage in services is rapidly eroding, leaving firms with all the drawbacks of distance and ever fewer cost savings to make up for them. There has been widespread disappointment with outsourcing information technology and the routine back-office tasks that used to be done in-house. Some activities that used to be considered peripheral to a company’s profits, such as data management, are now seen as essential, so they are less likely to be entrusted to a third-party supplier thousands of miles away.

Coming full circle

Even General Electric is reversing its course in some important areas of its business. In the 1990s it had pioneered the offshoring of services, setting up one of the very first “captive”, or fully owned, offshore service centres in Gurgaon in 1997. Up until last year around half of GE’s information-technology work was being done outside the company, mostly in India, but the company found that it was losing too much technical expertise and that its IT department was not responding quickly enough to changing technology needs. It is now adding hundreds of IT engineers at a new centre in Van Buren Township in Michigan.

This special report will examine the changing economics of offshoring in the corporate world. It will show that offshoring in its traditional sense, in search of cheaper labour anywhere on the globe, is maturing, tailing off and to some extent being reversed. Multinationals will certainly not become any less global as a result, but they will distribute their activities more evenly and selectively around the world, taking heed of a far broader range of variables than labour costs alone.

That offers a huge opportunity for rich countries and their workers to win back some of the industries and activities they have lost over the past few decades. Paradoxically, the narrowing wage gap increases the pressure on politicians. With labour-cost differentials narrowing rapidly, it is no longer possible to point at rock-bottom wages in emerging markets as the reason why the rich world is losing out. Developed countries will have to compete hard on factors beyond labour costs. The most important of these are world-class skills and training, along with flexibility and motivation of workers, extensive clusters of suppliers and sensible regulation.

As a global leader on China Outsourcing and Market, Devott released its annual forecasts of Top 10 Trends in China Outsourcing via its international informational portal www.chnsourcing.com on December 25, 2012. Based on extensive data from its customers around country and globe, Devott studied the mechanism of the vertical transformation and undisclosed the drivers of the trends along with industry standards and own methodologies. Devott predicts that under the native influence of the shrinking global markets and sluggish recovery in major economic powers, national protectionism as demonstrated in US Presidential Election, China-Japan Island Conflict, reducing growth rate in China, there are numerous challenges and adversities China Outsourcing will face in 2013.

Prediction 1: The market size of onshore and offshore will be contracted slightly; Competitions over prices will be intensified.

It’s a bumpy road to recover the global economy. The unemployment rate keeps going up and the international offshore market will further shrink. As to Chinese outsourcing service enterprises, the European and American market will shrink dramatically with the re-emergence of trade protectionism and insourcing restart. To Japanese market, due to the declining Japanese economy as well as disgusting impact from political factor that the dispute on Diaoyu Island between China and Japan ,Japanese outsourcing market is getting fewer opportunities for China in 2013. Under high expectations, Chinese domestic market is still waiting for breakout because of without enough driving force from the State-owned enterprises and government agencies although domestic market increases fast. The overall recession of the onshore and offshore market directly results in more fierce market competition. Meanwhile, the majority of the companies are on the low end of the industrial chain that resulting from Chinese outsourcing industry’s remaining on primary stage, the price war is going to be intensifying in 2013 both for offshore and onshore market.

Prediction 2: Overseas investment from China based sourcing corporations will get more consensus; More Chinese companies will plan and implement their global strategies onshore in developed countries.

More and more work is called for being shifted back to local caused by American president election, which has become a big feature in the second industrial transfer for global service outsourcing. As the worldwide largest outsourcer, the United States leads the “outsourcing backflow“ trend which will drive the global outsourcing enterprises to reformulate the strategy of development and market. To set up branches and delivery centers locally in the U.S. will become one of the core trends for Chinese outsourcing industry in 2013. Many countries’ outsourcing enterprise will launch fierce rival in the U.S., especially the competition between China and India.

Prediction 3: Growth Drivers of China Outsourcing will be transformed rapidly, depending more on capital and market instead of incentives and low cost talent.

Through the rapid growth of the industry size, the development of the whole Chinese outsourcing industry is evolving from the basic embryonic stage to the upgrade stage, during which every factor coordinates and interacts with each other to establish an ecosystem for service outsourcing. Chinese outsourcing industry’s growth pattern is onto a turning point. “Market + capital” model is going to replace “policy + talents” to facilitate the future industry, so as to lead the industry’s transformation and upgrading.

Forecast 4: M&A activities will be increased considerably; so are hidden risks and negative impact of the Investments.

Under the shrinking domestic market and intensifying competition, as well as being driven by some industry giants such as Pactera, Achievo and The Devott Fund, the trend of investment and acquisition within outsourcing industry will further be continued in 2013. The trend of industrial integration will be intensified. However, due to the great risks of M&A, all kinds’ of problems gradually appeared in the process of M&A at the later stage. Consequently, the number of failing cases will be on an increase accordingly.

Prediction 5: Focus of the growth will be more on innovation than cost reduction.

Due to incapable of affording the innovation and transition for some enterprises after economic crisis such as market survey, trial operation, and risk and opportunity costs, they crave for outsourcing enterprises with professional abilities and practical experience as their intellectual strategic partners to help them improve efficiency and transform their businesses. Therefore, the value of outsourcing service is predicted to shift from cost reduction and core competence enhancement to innovation support to reshape their core competence. Meanwhile, the status of the outsourcing enterprises will be improved as well.

Prediction 6: “Big” is no longer growth objective. Fast deployment, flexible practices and vertical solutions are 2013 Performance Indexes in corporate board rooms.

In 2013, the global service outsourcing buyers will become more cautious on outsourcing strategy decision making and service providers’ choosing. Resources resolutions become very popular in this industry. With the development of the global buyers’ demand, the development of China’s outsourcing service providers will change their direction to “flexible structure, rapid iteration and fast reaction”. Global buyers pay more attention to enterprise solutions and service capacity and request the enterprise develop professionally.

Prediction 7: New Delivery Models and Business Processes Developed by “Cloud Platform” will penetrate deeper of enterprise markets.

Starting from 2013, cloud outsourcing based on the “cloud” platform and “cloud” model increasingly become the mainstream and trend in the development of outsourcing industry. With the core element – CCES (Cloud Computing Enabled Service) model, could sourcing drives the whole industry to achieve the transformation and upgrading and extend to 3.0 eras. The whole industry will be endowed with new connotation. At the same time, crowdsourcing as a new mode will get more and more respected and application by global buyers.

Predictions 8: New Outsourcing Models and Process Management Methodologies will appear widely in Big Data Era.

As data becomes a new hub to promote industrial development and the core element, a new service outsourcing segmentation field appear and rapid development – that is, great data outsourcing. As a new field of KPO, great data outsourcing based on data mining will be got full development in 2013. A large number of great data outsourcing enterprises will appear and gather abundance data outsourcing solutions. At the same time, the development of great data outsourcing will give rise to a new business model and accelerate technological progress.

Prediction 9: The weight of BPO in outsourcing industry will be increased. It’s expected the first public company in BPO vertical emerges in 2013.

In 2013, China’s BPO industry will develop rapidly from the document entry, data processing and other low-end level BPOs to high-end level BPOs which related to the core businesses. At present there is no one real BPO enterprise in 29 local service outsourcing listed companies. Until 2013, the situation will be broken and the industry will appear “competitive advantage gets sustainable” situation, the leaders will enjoy extra income.

Prediction 10: Supports and incentive policies and regulations remain key driving forces to China Outsourcing’s transformation and innovation

In 2013, the public platform construction funds and services tax and other services outsourcing policy are expected to extend. The whole service outsourcing industry will get a further development by personal training of service outsourcing, developing the international market, intellectual property protection and other aspects. At the same time, the state will take new measures on the new features appeared in the development of service outsourcing industry such as support large enterprises mergers and acquisitions and increase the management training subsidy of service outsourcing enterprises.

According to the problems China service outsourcing industry may face in 2013, “Forecasts and Suggestions of Service Outsourcing for China 2013” gives ten core development suggestions from the government and enterprise aspects. For more detailed information and download, please visit: http://www.chnsourcing.com.cn/top/tenforecast/2013/

The rises of China and India as two key emerging markets provide enormous opportunities to both multinational drug companies and professional outsourcing service providers. However, there are significant differences between these two countries, in particular in the areas related to drug R&D. Although multinational companies now could have more choices than ever, China and India each actually play different roles in the long value chain of drug R&D.

We recently conducted an in-depth study and analysis on the drug R&D capability of China and India. This article summarized part of the results found in our study.

Current Service Capabilities

At present the most popular services offered by majority Chinese CROs are early-phase drug discovery research, such as lead generation and optimization, assays and assay method development, etc. Only a handful of them are able to provide advanced discovery research services, such as high-throughput/content screening, computer-aided drug discovery (CADD), and structure-activity relationship (SAR) study. However, more CROs in India than in China are able to provide integrated discovery services besides the routine medicinal chemistry research services that are also offered by the Chinese CROs. A number of Indian CROs also have internal R&D programs. They thus generally have stronger capabilities and richer experiences than their Chinese counterparts in the SAR-based lead optimizations and pharmacological property optimizations.

However, the service features in preclinical development in these two countries seem just opposite. China is currently leading over India in drug testing in large animals such as nonhuman primates, as a large number of Chinese CROs possess good capability in this area. But in the in vitro studies and in small animal in vivo testing, the two countries have almost equal service capabilities.

In clinical development, India currently is a more ideal choice than China in terms of the service capability, experience, and CRO choice. However, if considering the factor of the attraction of the local pharmaceutical market, China seems to be more attractive than India as its current pharmaceutical market is much larger than the Indian market and, more importantly, poised to still grow faster than India.

Besides the professional CROs, a number of Indian major pharma companies are also involved in R&D outsourcing services. In contrast, at present, none of the Chinese major pharma companies have dedicated divisions that provide R&D outsourcing services to multinational companies. As they started R&D earlier than Chinese companies and currently have products in middle-to-late development stages, many Indian drug companies have gained experience in most stages of the drug R&D value chain, whereas the majority of the Chinese drug companies are currently still significantly inexperienced, in particular in terms of their ability of moving a drug from one development stage to the next. However, China currently is becoming one of the most focused countries for global pharmaceutical and biotech companies to look for outlicensing or co-development opportunities for their new products, largely because of the attraction of its pharmaceutical market.

Major Pharma’s Different R&D Strategies

Attracted by the fast growth of the pharmaceutical markets in both China and India, coupled with the fact that the skills and experiences of the scientists in these two countries are fast catching up and have become acceptable, it appears to most major pharma companies that the full-scale drug R&D outsourcing practice in these two countries has now become not only feasible but also meaningful. However, major pharma companies have also been implementing different outsourcing strategies in these two countries.

For example, China has so far been the main place for global drug companies to source focused compound libraries, especially those derived from the natural products isolated and purified from the Chinese herbal medicines. In the past few years almost all major pharma companies have sourced various sizes of compound libraries from China through hiring hundreds of scientists in Chinese CROs. On the other hand, almost at the same time many major pharma companies have also forged long-term, close partnerships with a number of Indian companies including both professional CROs and drug companies for both discovery research and early phase development. Their collaboration even included risk-sharing components.

As the life science research and technologies in China are better advanced than in India, China possesses advantages for conducting drug R&D over India in that it provides ease for major pharma to form a networked partnership with a variety of desired local capabilities while it is still easy for them to establish their own R&D facilities in the country, a similar operating model to what they have been doing in their home countries. This advantage has indeed been attracting more and more major pharma companies, making them willing to be committed to big R&D investment in China. In contrast, in India they more tend to conduct R&D in a model of partnership with local companies. To a large extent, to these major pharma companies, China seems to be aligned better with their long-term growth goals than India.

Future CRO Market Growth Potentials

Figure. Growth trends of Chinese and Indian CRO markets

The last several years have witnessed the fast growth of the CRO markets in both China and India. According to our research, the current market size of the Chinese CRO industry is about $1.58 B. It has been growing in a CAGR of about 31% in the past five years. The current market value of the Indian CRO industry is about $1.3 B. Its CAGR in the past five years was around 21.5%. In the global CRO market, which, according to our research, is about $42 B at present, the Chinese and Indian CRO markets currently account for about 3.8% and 3.1%, respectively, or about 7% if combined together.

As both China and India currently still possesses a number of advantages over other emerging countries, there is almost no doubt that the CRO markets in both countries are expected to still experience healthy growth in the foreseeable future. However, as the Chinese pharmaceutical market is currently larger and still exhibits stronger future growth potential than the Indian market, and as targeting the local market will still be the key motivation of major pharma companies in all emerging markets, it is thus expected that the Chinese CRO market will likely still experience more robust growth in the near future than its Indian counterpart.

We thus forecast that the Chinese CRO market will likely grow in a CAGR of around 16% in the next five years or so and the Indian CRO market will likely grow in a CAGR of around 9% during the same time period. Accordingly, the market value of the Chinese CRO industry will likely reach close to $4 B by 2017 and the Indian CRO market will be likely around $2.2 B by then (Figure). According to our research, by 2017 China and India combined together will likely account for about 10% of the global CRO market.

Source: gen eng news　

XMG Global Releases Mid-Year Review and 2012 Year-end Forecast 
Analyst cites factors impacting global outsourcing and projects year-end revenue forecast

By Anna Juanillo

The outsourcing industry worldwide is celebrating the recent initiative by the U.S. Senate to reject the anti-outsourcing bill. Continued growth is expected, though at a marginally lower rate than the previous year. Revenue increased 13.9% to $425 billion, as compared to last year’s figures, which showed a 14.4% increase from the previous year, to a total of $373 billion.

Growth has been tempered by global economic issues, and the American bill highlighted two concerns for the industry. 

Analyst Opinion: 
The industry needs to be viewed in a positive light (or, at very least, to not be viewed negatively) by the U.S. The defeat of this bill has, for the most part, takes care of that first concern. Looking at American political shape-shifting, it would be best to view this development as a, “for now” solution; meaning the ebb and flow of political will, seems very much a direct factor of which political party is in power. The long-term impact, of this new political dynamic, remains to be seen; but for now, it would suggest a change in U.S. political control and preferences could affect industry growth, every bit as much as recent floods in Manila affected the industry, and its perception in its ability to deliver.

A tangible example of this dynamic is reflected in the growth of China’s share of the global market. Current year growth for China showed the largest growth share, compared to the next two largest players (India and the Philippines). This reflects how political instability in the U.S. has a smaller impact on China, which has actively sought out customers in the Asian market. Industry volume for India and the Philippines has historically focused on gaining share of U.S. outsourcing.

The second concern addresses where the respective players fit into the recipient list of that global outsourcing. For example, the top beneficiaries of outsourcing include: The BRIC (Brazil, Russia, India and China) Countries, Indonesia, and the Philippines; however the lion’s share is clearly dominated by India remaining the pre-eminent power.

XMG Global forecasts the Philippine industry to grow from US$11B to US$12.7B in revenues from 2011 to 2012, respectively. The top rung still belongs to India growing from US$59B in 2011 to US$63.2B in 2012. A close second is China with revenues of US$45.7B in 2011 to US$53.8B in 2012.

To put that in perspective, the last three years (2010 to 2012 projections) have seen growth, in the Philippines, of 25.4%, 23.6%, and 15.7%, respectively (comparing annual change in revenue). This same period saw growth by the other two primary players. India showed 13.2%, 8.6%, and 7.1% during that same period, while China’s numbers were, 43.5%, 63.6%, and 33.0%.

These numbers collectively show a gradual chipping away of India’s stronger historical dominance; though time will tell if it will be significant. 
At this point, China and the Philippines are each showing “real growth”, in terms of total market share, as compared to India’s current dominant position.

In billions of dollars, India’s last three-year growth cycle was, 54.33, 59.0, and 63.2. China’s market share was 35.76, 45.7, and 53.8. In 2010, India’s revenues were $18.6 billion more than China, but by 2012 the difference was down to $9.4; a significant reduction. The Philippines modest contribution rose from $8.9 to 12.7 billion; a not-so-insignificant 43% increase in revenue. That is only slightly lower than China’s 50% revenue increase.

This trend suggests new opportunities for other players to gain market share as well since the growth of the offshoring outsourcing industry will remain relentless.

Bottom-Line:

 The offshoring outsourcing market is positioned to continue to thrive and grow, but the relative positions, of the respective players, are changing. If current trends continue, China is on target to overtake India as the dominant BPO player, potentially within the next two to three years. This shifting paradigm would also indicate room for new players aside from market leader India to gain a share of an industry, which continues to show growth potential.

Anna Juanillo
Research Manager
XMG Global Research and Advisory Company

The expansion of VanceInfo into Victoria was announced by the  Premier, Ted Baillieu, at a recent business breakfast in Beijing as part of a week-long trade mission to China.

Mr Baillieu announced total new Chinese investment in Victoria of up to $200 million, with the creation of 260 manufacturing and ICT jobs, including the 60 jobs to be created by VanceInfo.

The Premier said Anhui Joy Sense Cable, which manufactures aluminum alloy cables used in power distribution networks and urban and industrial construction projects – and already has three factories in China with a value of approximately $4 billion – would create up to 200 jobs and invest up to $200 million to establish a manufacturing base in Victoria.

VanceInfo, founded as Worksoft in 1995, changed its name in 2007 when it listed on the New York Stock Exchange. It ranks first among Chinese offshore software development service providers for the North American and European markets as measured by 2010 revenues.

Mr Baillieu said Victoria already had expertise and skills in a range of areas for which demand would grow in China, “including knowledge-based services, such as information and communication technology. “VanceInfo’s commitment to creating new, highly skilled jobs in Victoria is not only indicative of our strong relationship with China around ICT, but it also reaffirms the strength of our local industry with access to a highly skilled ICT workforce.

“Victoria is an innovative technology hub, with a global reputation for cost-effectiveness and a commitment to delivering world-class products and services. Victoria offers China – our leading trading partner – globally-focused expertise in the development and application of technologies to assist China’s growth.”

The Asia/Pacific (excluding Japan) business process outsourcing (BPO) market is forecast to reach $9.5 billion in 2016, up from $5.9 billion in 2011, according to Gartner, Inc.

In 2012, BPO in Asia/Pacific is on pace to total $6.45 billion.
“The Asia/Pacific BPO market is still relatively underdeveloped and underexploited (with the exception of Australia and New Zealand) when compared with other markets or regions,” said T.J. Singh, research director at Gartner. “This presents opportunities to BPO service providers that are willing to invest in the region.

Key drivers for BPO buyers in Asia/Pacific are scalability, quality, best-of-breed process and technology infusion, and improved service levels. Cost continues to be a consideration in all deals. Asia/Pacific is an immature market for BPO services. No one provider dominates every type of BPO service, and very few BPO providers can successfully demonstrate true regional or Pan- Asia/Pacific BPO capabilities for multiple processes.”

The largest BPO market in Asia/Pacific in 2011 was Australia, with a market size of more than $4.63 billion, over 3.5 times larger than India ($1.26 billion), the second-largest consumer of BPO services.  According to the 2012 Australian BPO report the Australian BPO sector will grow by 20 percent over the next two years , which means that on these numbers there is nearly a billion dollars worth of projects coming down the pipe.

The fastest-growing BPO markets within Asia/Pacific will continue to be led by China and India. By vertical industry, banking and financial services, communications, government (both local and federal), technology, retail, and travel and transportation continue to be the largest consumers of BPO services in the region.

Asia/Pacific continues to present service providers with lucrative high-growth and profitable markets that are still relatively underdeveloped and untapped. Even during these trying economic times — the U.S. and European economic malaise — buyers in Asia/Pacific are still grappling with issues such as revenue growth, market share gains, scalability, quality of service and better cost management. Some negative impacts may surface as BPO grows across the region, including higher wage inflation and attrition, as demand for talent in the domestic market competes with offshore demand from the U.S. and Europe.

The BPO market consists of four segments that break down into many distinct submarkets. These four segments include:

• Customer management (sales, marketing and customer care, CRM)
• Enterprise services (HR, finance and accounting [F&A], operations and payment services)
• Vertical services (vertical-industry-focused processes, such as mortgage services and credit card services for the banking sector, claims processing for insurance, and billing services for telecommunications)
• Supply management services (logistics, procurement and warehousing)

Source: HP.com Blogs

The Chinese information technology (IT) outsourcing market has been forecast to increase at a compound annual growth rate (CAGR) of 15.1% through the years to 2015.

Growth within the Chinese IT outsourcing industry looks set to be driven by a number of factors including the rapid development of IT infrastructure and mobility services, along with the increase amount of investment from a number of multinational corporations.

However, increasing competition from other offshore destinations could pose a challenge to the growth of this market.

In addition to cheap labour, other drivers for the expansion of the Chinese IT outsourcing market include market deregulation, large-scale investment in technical education, better intellectual-property protection, IT core standards and infrastructure development, and the flourishing Chinese economy.

Despite promising growth, however, China still needs to consolidate its workforce capabilities in terms of English-language proficiency, project-management skills, and experience to step up its challenge to the global market.

While Chinese IT companies are increasingly bidding for international outsourcing projects, they are also leveraging their proximity to markets such as Japan and South Korea, where they have an advantage in both geography and language. The Korean electronics firm Samsung outsourced about US$18.5 billion of business to China in an attempt to lower production costs.

The best Chinese IT outsourcers are gradually incorporating more advanced applications, integration and infrastructure services into their offerings. Some are developing strong embedded software capabilities to work with makers of mobile phones and other hardware devices.

Key companies dominating the Chinese IT outsourcing market include Digital China Holdings Ltd., Fujitsu Ltd., Hewlett Packard Co., and IBM Corp.
The Chinese information technology (IT) outsourcing market has been forecast to increase at a compound annual growth rate (CAGR) of 15.1% through the years to 2015.

Growth within the Chinese IT outsourcing industry looks set to be driven by a number of factors including the rapid development of IT infrastructure and mobility services, along with the increase amount of investment from a number of multinational corporations.

However, increasing competition from other offshore destinations could pose a challenge to the growth of this market.

In addition to cheap labour, other drivers for the expansion of the Chinese IT outsourcing market include market deregulation, large-scale investment in technical education, better intellectual-property protection, IT core standards and infrastructure development, and the flourishing Chinese economy.

Despite promising growth, however, China still needs to consolidate its workforce capabilities in terms of English-language proficiency, project-management skills, and experience to step up its challenge to the global market.

Source: The Outsource Blog

By Brian Corrigan (AFR)

Chinese service providers are aiming to snatch contracts from more established Indian rivals as a growing number of mid-size Australian companies move their technology work offshore.

The country’s vast labour pool, government subsidies and the low price of services make China a potentially attractive destination – but those strengths come with some serious caveats.

The services on offer are relatively immature, the poor quality of spoken English can cause communication problems and there are still grave concerns about the security of intellectual property and data privacy.

China’s biggest provider of outsourcing services, HiSoft, entered the Australian market in July after buying local consulting firm BearingPoint for an undisclosed sum. An analyst with technology research company Gartner, Tina Tang, said the deal would help HiSoft target Australian customers, while also providing it with much-needed skills in consulting.

BearingPoint’s biggest customer in Australia is iiNet, which inherited a relationship with the company following its $60 million acquisition of AAPT’s consumer business two years ago. Other clients include British American Tobacco and Goodyear.

In August, HiSoft announced it would merge with VanceInfo, creating China’s largest technology outsource group. The combined company employs 23,000 people and is expected to generate global revenue of $US670 million in 2012.

“This could be one of the most exciting places in the IT services market during the next three or four years,” BearingPoint chief executive Bob Hennessy told The Australian Financial Review. “We’ll continue to see Chinese firms consolidate and go head-to-head with the Indians.”

A director of outsourcing advisory firm Mindfields, Mohit Sharma, said a number of mid-sized Australian companies – including AIA Insurance, Myer and Visy – were now outsourcing technology work after watching others reap the benefits. Project managers from the banks and other big businesses were being brought in to manage the process.

Service providers were now targeting these companies as potential clients because bigger customers had already been divided up between them, he said. But Mr Sharma played down the threat to Indian service providers from Chinese rivals, saying they had very low credibility.

He noted that the Chinese government had given free land to multinational outsourcers including Infosys, Tata Consultancy Services and IBM but that these sites were only used to target the domestic Chinese market.

“Chinese outsourcers might get some application development and testing work but it is very small,” Mr Sharma said. “They don’t do any project management, process engineering or call centre work. It’s a matter of comfort levels.”

BearingPoint’s Mr Hennessy dismissed concerns about information security, describing the Labor government’s decision to ban Chinese telecommunications equipment maker Huawei from the $37.4 billion national broadband network as an example of looking for “reds under the bed”.

Mr Hennessy said an explosion in the amount of work won by Indian outsourcing firms during the past 10 or 12 years had shown that a lot of technology work could be done from anywhere in the world.

He predicted that companies would increasingly use global sourcing models, opening up opportunities for other service providers.

Source: Australian Financial Review

By Martin Conboy

With the economic globalization and international industrial restructuring, the world service trade market has gained momentum and as a result industrial restructuring has gained speed.

As a result, emerging industries such as ITO, BPO, and KPO, have gradually become the mainstream forms of international service trade.

China’s service outsourcing is gradually expanding from basic transactional work to more advanced businesses. The Chinese service outsourcing sector have moved from low-end customer transaction work to biomedical R&D, hi –tech R&D, industrial design and other high-end processes.

In 2011, over 4,200-service outsourcing enterprises were established in China. This is on top of the 17,000 Chines outsourcing companies already in existence. Most of these companies have all of the now standard international certifications, such as CMMI, ISO27001/BS7799, SA70 and SWIFT.

Given the central governments policy to transition China into a service economy, the central government has designated some cities and industrial parks as the pilot locations. One such location is Wuhu City, which we visited late in August. These people are deadly serious about their intent to build world class facilities, what we saw beggars belief, the size and scale of the construction was truly amazing, we saw a city being built in front of our eyes where only months ago there were rice fields. Mark Atterby wrote last week about it. ‘Wuhu is absolutely open for business.”

Some years ago I heard the then Indian Minister for IT, say, “ My job is to turn India from a nation of snake charmers into a nation of mouse clickers.” Similarly China is moving from a ‘Made in China” tag line to a ‘Serviced by China” tag line.

Meanwhile back in comfy old Australia leading Australian business leaders including ANZ Bank head Mike Smith have warned that the country’s workforce is inadequately prepared for the opportunities of the coming Asian Century. This story was reported in the Fairfax media.

A study by the Asia link Taskforce, which includes some of the country’s most senior executives such as Doug Richie of Rio Tinto and Mike Wilkins of Insurance Australia Group, finds one of the biggest impediments for business’ push into Asia is the lack of capabilities among the Australian workforce.

Mr Smith said the taskforce had identified many areas of critical skills underdevelopment in Australia ”that are fast becoming an impediment to fully realising the Asia opportunity”. He called for closer co-operation between business, the education sector and government in developing Asia capability throughout the Australian workforce.

When asked about Australian readiness for Asia, Mr Smith said, ”I think it is quite clear that is something that needs a lot of work. But I think everybody is now beginning to see the opportunities and … that is the most important thing.”

Mr Smith, who is spearheading a super-regional strategy for the bank, said more than 60 per cent of ANZ’s new graduates could speak an Asian language.

The report estimates Australia has the potential to boost its economy by $275 billion (excluding the resources industry) in the coming decade if it has an Asia-capable workforce that is ready to exploit the large and growing Asian market.

Special prime ministerial adviser Ken Henry, who is leading the government’s Asian Century White Paper, said the country needed to improve its ”Asia-relevant capabilities” to lift Australia’s productivity.

He said there was strong interest in the importance of developing an Asia-capable workforce.

”This is clear from the submissions to the white paper team. More than a quarter of these were to do with building Asia-relevant capabilities of the Australian workforce,” Dr Henry said.

While I was in Wuhu I caught up with a ‘China Old Hand’ Jerel Bonne the Founder and Principal Consultant of Sharpen Axes. In his view what was missing was the government incentives to lure business to Wuhu. He said, “Wuhu has a tough road ahead to reach their planned goal of attracting 1000 BPO’s especially without an attractive investment promotion plan. There are two serious conditions that the government must address to meet their goals.”

“The first one is how will any outside organization, Chinese or Foreign find the talent to run the operations. This has nothing to do with work place language skill. It is hard to imagine that the local educational system will produce talent to execute the business functions.” (The Chinese government claims that 70% of the 3 million people currently employed in the outsourcing services sector have a college degree.) “This is leading edge high tech, and you can’t just pull farmers in from the fields to man the stations like a manufacturing plant. Even if the Wuhu government offered great incentive to Chinese employees from Beijing, Shanghai and Shenzhen to relocate to Wuhu, would they really pickup their things and come in droves to fill the critical leadership roles that are required for an aggressive plan as this.”

Bonner went on to say, “The second condition is what is the market opportunity for foreign companies to enter the Chinese BPO market. Can these organizations go it alone and beat State Owned Enterprises (SOE) who already have huge operations, brand awareness, government connections and talent. What would these Foreign companies have to give away when negotiating JV terms to get a footprint in Wuhu? Once they make the leap into Wuhu, will Wuhu have what it takes to attract a senior leadership team and their families to make Wuhu their home? “

Victorian Premier Ted Baillieu,  will next week lead Australia’s largest-ever trade mission to China, the trade mission will involve more than 600 delegates representing 400 Victorian organisations. Mr Baillieu said it would help Victorian businesses capitalise on a shifting pattern of demand in China from resources to quality goods and services linked to the rise of the middle class.
Read more: http://www.theage.com.au/business/we-are-not-ready-for-asia-says-banker-20120906-25h77.html#ixzz25jbPzhSp

By Mark Atterby – Senior Staff Writer

If you ever wondered what was fuelling the resources boom in China look no further than Wuhu City. The shingle is out and they are good to go. Very few in the BPO world will be aware of what’s materialising in the city of Wuhu in China. It’s extremely unlikely that many readers of the Sauce have even heard of Wuhu. But, as China races towards building a service and innovation based economy, regional cities such as Wuhu are at the forefront of the developing outsourcing, technology and services industries in China.

Located in the province of Anhui, Wuhu is a prefecture level city with a population of nearly 4 million people. With a sophisticated economy where the average per capita GDP is RMB 47,000 (US$7,400), Wuhu is the manufacturing home for Conch Cement and Chery car company (two of China’s largest companies).

The government has aggressively got behind the city and let no stone unturned. As one travels around metropolitan Wuhu it’s hard not to be impressed by the level of construction. Its incredible in every sense of the word. The phenomenal skyline is overwhelmed with construction cranes as rows upon rows of massive office and apartment blocks are being built. To fill these buildings Wuhu is looking to attract local and international companies and BPO providers to establish service and hi-tech industries. The over all aim, as stated in the Chinese 12th five year plan announced in 2011, is to take China from being a manufacturing export orientated economy to an service oriented economy built on technology and innovation. These people do not mess around, they are hard at work building an economy that we can only marvel at in the western world.

The Chinese outsourcing industry is not looking to be another India, servicing the needs and requirements of North American and European markets, but to develop and service local in-country industry and markets.  Mr Xi Nanshan, Leader of the Wuhu Hi-tech Development Zone explains, ”In Wuhu we can provide companies looking to establish operations in China, with all the infrastructure, back-end facilities, and human resources to quickly setup their business here.”

The Outsourcing Park in Wuhu’s Hi-Tech Development Zone was originally established in 2009 and was purely geared to attracting Chinese companies. However, since the middle of 2012 it has reached out to international  companies. So far some 70 organisations have come to Wuhu including Lenovo, a major global manufacturer of laptops and PCs, and Biz Plus who have sponsored the development of the outsourcing plaza in Wuhu. They aim to attract over 1,000 businesses to setup in Wuhu over the next year.

Asked why companies should come to Wuhu Mr Xi stated, “In Wuhu we produce 130,000 graduates from our universities and colleges each year, providing a highly skilled and motivated labour force.” There are seven major institutions, including Fudan University, Hefei University of Technology and the University of Science & Technology located in Wuhu.

He went on to say, “Situated on the mother river of China, the Yangtze River, Wuhu is a major transportation hub, which will be re-enforced with the introduction of the Shanghai bullet train service in 2013, (allowing for a commute time of 1 ½ hours),  and the construction of an international airport by  2014. We can provide all the power and water resources organisations may need to operate data centres and other hi-tech facilities.”

To showcase what is happening in Wuhu the latest APOE (Asia Pacific Outsourcing Executives) Conference was held there at the Conch Hotel and Convention Centre, where speakers from China, India, Philippines, The Middle East and Australia  shared information about the latest trends in outsourcing, technology and social media. On the last day of the conference, delegates and guests were taken on a guided tour of Wuhu and saw first hand the remarkable range of facilities being built in the Outsourcing Industry Park.

Wuhu has very big plans for its future. So don’t be surprised if in the near future someone from Wuhu comes knocking on your door. If you had not heard of Wuhu before, I can assure you will definitely hear the name in the future as it will become a global name that will one-day match Silicon valley and Bangalore as magnets for technology innovation.