Offshoring: Separate roles for India, China

By agencies   |   Thursday, 28 July 2005, 07:00 Hrs
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NEW DELHI: According to a report by Forrester Research, China would play a larger role supporting other Asian geographies than as an offshore destination for U.S. operations.

The report claims that China will match India as the top offshore destination in the next 3 to 4 years.

"The bulk of activity in China will come from three areas - as a Centre for BPO to support customers' Asian operations; as an application development hub for companies with large operations or headquarters in Japan, Hong Kong, or Korea; and as a global risk diversification play beyond India for multinationals," the report said.

During the past two years, China's visibility as an offshore destination increased dramatically as vendors moved beyond simple offshoring to a full global delivery model (GDM), it said.

"Multinational suppliers like Accenture and Capgemini as well as Indian players like Satyam and TCS are taking the next step in building out their GDMs with investments in China. Moreover, sophisticated clients look to limit their exposure to geopolitical risk."

With its huge population and perceived low costs, China is at the top of the list of non-Indian options, it added.

"Given the Government focus and the level of investment going into China, the country offers a real set of offshore benefits, including a high volume of technology University education programmes, Government focus on IT and offshore, a mix of language skills in Japanese and Korean, and strong infrastructure."

Despite this, issues such as fragmentation in local market are hindering China's development as the premier offshore destination. The largest export player in China is Neusoft, with 1,000 employees doing offshore work.

There are 8,000 firms providing IT services, but three-quarters of these have fewer than 50 employees, and 90 percent are focused on the local market.

"China lacks the large top-tier companies to provide recent graduates with the training that bridges academia and the actual business environment. It also means that local providers lack the bench depth to take on larger projects or provide dedicated offshore development centers for large clients."

Further, workers with the combination of experience and good English language skills are hard to find and are therefore priced at a premium (10-20 percent higher than India).

Forrester said that while China will play an important role on the GDM and offshore stage, the notion that it will directly challenge India in the near term was a gross oversimplification.
"China will lead the second-tier of larger offshore destinations ahead of Russia and Brazil."

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