1. Since the earlier years of this decade, China had been slated to carve increasing market share from India in the BPO sector. How much progress has China made in developing a BPO industry?
When talking about BPO, people first think about India. There is no doubt that India has been and still is the top of mind destination for multinational corporations. The BPO industry in India could date back to the eighties of last century and we have all witnessed the impact it has brought to the economy of India. I think the idea of BPO is a natural product of globalization and information technology revolution, which is what have been happening in China, since it joined the WTO and has been part of the message embedded in the National?s 12th 5 year plan. In our recent research we have noticed the number of BPO companies registered in China has increased 30% in the past two years. However, before saying China is taking the market share from India in the BPO sector, we have to look into the source of business. China?s BPO market is mainly driven by its neighboring regions such as Japan, Korea and Hong Kong, whereas India is most likely to be the outsourcing destination for American and European companies.? In this regard, I?d like to consider India as a knowledge partner for China in the development of the BPO industry. Of course, the financial turbulence centered on Europe in the global economy and the U.S. government?s promise to cut incentives for companies that ship jobs overseas have obviously exerted a direct impact on the shrinkage of the BPO business in India.
2. How have government policies aided the development of China?s BPO industry?
Policy 1: Thousand-Hundred-Ten Project in October 2006
It is actually one of the policies of the eleventh 5-year plan. It chose and supported 10 cities, including Beijing and Shanghai, to primarily develop outsourcing business. It attracts many foreign companies to set up their outsourcing business in these cities as they want to take advantage of the government support there. So, China?s BPO industry began to grow.
Policy 2: The Chinese government implemented Circular 127 which simplified application procedures for foreign investment offshore call center business
Circular 127 states that local governments are given authorization power over the approval of foreign investment outsourcing call centre business. Application procedures become less complex,
Since the implementation of the Thousand-Hundred-Ten Project, China?s BPO industry has been growing very quickly. Simplifying the application procedures is necessary to maintain the efficiency of approving foreign BPO investment.
Policy 3: Exemption of business tax for offshore service outsourcing companies in 21 cities effective from July 1, 2010 till the end of 2013
Cost is one of the major concerns for many companies while operating their business. With the exemption of the business tax, more foreign companies will attempt to invest in China.
3. How does the BPO industry differ from that in India? Eastern Europe? Southeast Asia?
The difference lies in the specialty and the labor cost in each country. In the recent economic climate I expect many companies will have to seek ways to lower their costs and be more effective by shifting their non-core business to BPO service providers. India is the pioneer of BPO and offers a diversity of services from the IT, financial, banking and telecommunication sector, but I?ve heard news about the lack of talent and the increasing labor cost in India in recent years. Philippines is catching up, it has become the largest call center destination in the world. China offers a large scale of labor pool with a relevant low cost, at least for now.
Eastern Europeans are able to speak German, Spanish, Italian and English, which is clearly an advantage compared to other BPO countries.
4. Can you discuss the development of software parks and that impact on BPO in China?
I?m not quite an expert in discussing the development of software parks in China. But I expect the Chinese government will invest more and more resources to support the establishment of software parks in the main BPO cities, which is certainly an infrastructural investment for BPO in China.
5. What are the benefits of setting up BPO structures in China? What infrastructural advantages are available in China?
The obvious benefit is of course you will enjoy a huge pool of labor, especially technicians and engineers. And as I mentioned before, the governmental offers tax preferential treatment to technologically advanced service companies.? As for the infrastructural advantages, we all know that the government is increasing its investment every year on the construction of infrastructures such as transportation and communication.
6. Which industries have been expanding into BPO in China?
Customers care such as call center. I heard that over 70 % of the outsourcing jobs income comes from the call center business.
7. What are the particular disadvantages to setting up BPO in China for foreign firms?
China is still at its early stage of developing a BPO market. First of all, China lacks of human talent with skills that is up to the international standard. English deficiency is one of the challenges, which affects the quality of services. Without the English skill, it is almost impossible for a person to obtain international exposure and knowledge in business processes, management and customer service.
Another disadvantage is that China has just implemented rules on security and intellectual property rights, they are assumed to have a relatively weak protection and this causes problems when dealing with products / services outsourced to China.Hence the foreign companies need to obtain an understanding of the Chinese law and government policies associated with the foreign business activities before deciding to outsource their products to China. But I?d suggest, and it is the way many foreign companies are doing, that they should consider hiring a local business advisory firm that help them to understand the local market, rules and regulations.
CWCC has 26 years of experience in this regard.
8. How can foreign firms (MNCs and SMEs) located in China take advantage of BPO in China to maximize their productivity and cut costs?
China offers a large scale of human labor. BPO for manufacturing process has been a hot topic. But China is gradually shifting away from its low-wage and labor-intensive industry. Companies who provide high-value-added services are highly encouraged. China is aiming at producing human talents with professional skills, at a much larger scale.
For foreign companies who wish to target the Chinese market, outsourcing part of its non-core business such as HR management, accounting and customer service to a local firm is certainly an efficient approach in both economic terms and cultural terms. Take our firm as an example, in CWCC I manage a business unit called ?Latin Desk? which is currently assisting Latin American and Spanish companies to set up operations in China and support them in performing bookkeeping, preparing audit report, payroll and payment services. In fact, many of our clients are located in Shanghai and we provide them with our expertise to allow them solely concentrating on their core business. Not only is this efficient and effective, outsourcing business to a local company may help foreign companies to control the risk due to the lack of understanding of the Chinese culture and regulations, which seems forever changing.
9. Will China?s BPO industry become increasingly important to domestically located companies seeking to streamline operations and cut costs?
Skeptical. China?s labor cost is still relevantly low. There is not much obvious advantage perceived by the domestic companies between hiring a BPO service provider and hiring staff to do the work in-house.
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