Promoting Outsourcing

Outsourcing – services, not manufacturing – is one of the most appealing industries to get into. It doesn’t pollute, and provides white-collar jobs to college graduates.

It’s no surprise that China has been enviously looking at India’s progress in services outsourcing and looking for ways to emulate its success.

Now the government is putting some money behind it. On Sept. 12, the AsiaPulse news service reported that the China Development Bank (CDB) will provide up to 5 billion yuan (US$665 million) in loans to services outsourcing projects. The CDB is one of China’s three policy banks, and has signed an agreement with China’s Ministry of Commerce to this effect.

Late last month, India’s IT trade body, the National Association of Software and Services Companies (NASSCOM), issued a white paper about China’s services outsourcing industry, concluding that China has the potential to develop a large software and business process outsourcing sector.

“The Chinese government is key on promoting this sector,” NASSCOM said. “Rapid progress on the tangible aspects of infrastructure and capacity creation is evident.”

China’s outsourcing industry resembles India’s in the early phases of its evolution. However, NASSCOM pointed out that China also has some systemic weaknesses, and softer aspects remain a challenge.

There is a lot of opportunity for cooperation between India and China, however.

“Underlying this is substantial domestic market potential, a sizeable educated workforce and strong government emphasis on developing the sector,” the organization said.

“China has come a long way in establishing itself as a destination for IT sourcing, with all stakeholders including government, academia and industry working towards improving the regulatory environment, offering incentives to IT companies and increasing the talent pool,” NASSCOM president Kiran Karnik said in a statement.

Today’s story by Li Bin illustrates just this, with a discussion of an agreement between India’s National Institute of Information Technology and the Chongqing Information Technology Bureau to offer IT training to universities in and around Chongqing.

“Each month we host delegations from China which seek to learn from India,” Karnik said.

According to NASSCOM, China’s IT software and services sector accounts for just 0.5 percent of China’s gross domestic product in 2006.

“Given this, the Chinese government and industry have taken a systematic approach towards addressing the above challenges with ICT [information and communication technology] oriented industry policies,” said NASSCOM vice president Ameet Nivsarkar.

To develop China’s capabilities as an outsourcing base for IT software and services, the Ministry of Commerce has launched a ten-hundred-thousand program: to promote ten (now 11) key outsourcing cities, attract 100 multinationals to China, and help 1,000 enterprises develop outsourcing capabilities. The end goals to double service exports by 2010.

As part of this project, the ministry is creating a special fund to train between 300,000 and 400,000 students over the next five years to prepare them for software outsourcing and business process outsourcing jobs.

The ministry will also help the 1000 enterprises obtain international quality certifications.

The plan also includes preferential treatment for cities in central and western China, such as discounted loans.

“China’s approach to developing its IT software and services sector reflects the pattern adopted earlier while developing its hardware sector,” NASSCOM reports. This means trading market access for foreign technology, encouraging joint ventures with foreign firms, and letting them set up production networks in China to support domestic companies.

Will all this make a difference? To the companies and individuals involved – definitely. To the country as a whole? Probably not for a while, as it takes time to create a legal system that effectively projects intellectual property and create a large enough pool of trained professionals and managers.