Outsourcing industry serves up growth

Sector expands 44% in Q1, with 34,540 contracts signed, worth $15.8b

The fast-growing Chinese service outsourcing industry is poised to add new energy to the nation's service trade, boosting growth and creating new jobs.

"Green industries related to technology are very helpful in optimizing the country's economic structure, shedding its image as a cheap manufacturing base and pursuing sustainable development," said Zhou Ming, executive vice-president and secretary-general of the China Council for International Investment Promotion.

China's service outsourcing business expanded 43.9 percent year-on-year in the first quarter, when 34,540 service outsourcing contracts were signed. These deals were valued at more than $15.76 billion.

The value of contracts from international markets reached $11.27 billion, up 52.1 percent. The United States, European Union and Japan ranked as the top employers, according to the Ministry of Commerce.

The growth of the foreign segment of service outsourcing has overtaken that of the service sector as a whole. China's first-quarter services trade grew 14.4 percent year-on-year.

The service outsourcing industry, which began in China in the mid-1990s, features mostly scattered small businesses. "There are more than 20,000 companies working on it around the country currently," said Zhou.

Zhou added the emergence of some major suppliers will lead to the development of the industry.

"Most of the contracts we receive are short-term ones, not as long as five or 10 years as in the US. The average price for contracts signed with China is also much lower compared with India and the US," added Zhou.

Still, the prospects are positive.

Reuters Technology (China) Ltd, one of the strategic operations centers of New York-based Thomson Reuters, started its cooperation with some Chinese outsourcing companies in 2011.

"The major advantage of Chinese outsourcing companies is their language capabilities, especially in the Chinese, Korean and Japanese markets," said Justin Gao, vice-president, location head of the Beijing operations center of Thomson Reuters.

"But for Chinese outsourcing companies, we're seeing less cost benefit, and the number of very sophisticated employees is quite limited," said Gao.

Gao said it is challenging for Chinese companies at the moment when developed countries are cutting jobs overseas to boost their own domestic economies, and some developing countries can offer far lower cost structures.

"Chinese outsourcing companies need to fight hard in terms of improving talent quality to maintain their competitive advantage and market share," Gao said.

The number of outsourcing model cities in China has grown to 21 as a result of government support.

"We have to improve the service, expand the value chain and cultivate top talent," Gao said.

The 5th ChinaSourcing Summit, which plays a role in pooling outsourcing resources in both China and foreign countries and promoting the national brand of "ChinaSourcing", will be held in Hangzhou, Zhejiang province from July 3 to 5.

"More than half of the registered buyers come from overseas," Zhou said.