Building of model outsourcing centres on course
Consolidation looms for the mainland's offshore outsourcing service sector, as government development plans prompt major domestic and international players to build specialist operations in selected cities.
The ambitious industry realignment is expected to strengthen the mainland's ability to deliver more focused information technology and business process outsourcing services to core markets such as Japan, the United States, Hong Kong, Taiwan and Germany.
'China's outsourcing service industry today is highly fragmented,' Egidio Zarrella, the global head of information technology advisory at consulting firm KPMG, said.
There were more than 9,000 outsourcing service providers scattered across the country as of January, according to estimates by KPMG Advisory (China). Zarrella predicted that number to be reduced through attrition, merger or acquisition over the next few years in line with government efforts to establish model outsourcing centres in 21 cities.
He noted that major domestic outsourcing service providers, including iSoftStone Holdings, CDC Software, hiSoft Technology International and Neusoft Corp, were already leading the way in acquiring small specialist firms and partnering with international players to increase the scale of their offshore outsourcing activities.
The State Council last year designated the 21 cities based on the amount of offshore outsourcing contracts executed in their geographic locations. Many of these cities, which are divided into four clusters, also have a strong domestic outsourcing market due to their rapid economic development and active foreign investments.
According to the Ministry of Commerce, the number of service outsourcing contracts on the mainland last year grew 142.6 per cent year on year to 60,247. An estimated 22 per cent of those deals were offshore outsourcing projects, which Zarrella said represented a 'greater room for expansion' by domestic players against the larger service providers from the US or India that are operating on the mainland.
Offshore deals account for about 64 per cent of India's entire outsourcing service industry.
The mainland cities with the biggest share of offshore outsourcing contracts last year were in the Pearl River Delta region, which accounted for 40.1 per cent of those projects. These include Guangzhou, Shenzhen and Xiamen.
Other model outsourcing cities include Beijing, Shanghai, Nanjing, Hangzhou, Suzhou, Dalian, Wuxi, Chongqing, Harbin, Xian, Nanchang, Tianjin, Jinan, Changsha, Chengdu, Wuhan, Hefei and Daqing.
'While these cities may have similar advantages in terms of industrial policies and infrastructure, focus and potential may vary from one city to another,' Zarrella said.
Shenzhen and Guangzhou, for example, have benefited from their strong export manufacturing base and proximity to Hong Kong and Southeast Asian countries to develop expertise in outsourced industrial design, supply chain management, and software and information system projects.
