Global Sourcing is not Olympics
by Stephen Lane, Group Manager, Infosys Technologies
The question as to whether or not China will someday supersede India as a sourcing destination is a debate in search of an issue. It overlooks changes in the global sourcing market as well as characteristics that different countries – and the service providers that operate from them -- possess that would make them attractive in a flattening world.
Look at the current sourcing market in China. There companies have elected to outsource IT functions and business processes and/or established captive centers there primarily for the following reasons.
- Support operations in China that require local knowledge as well as IT or business process skills;
- Serve Asia/Pacific markets that are culturally, linguistically, and economically linked to China;
- And, Avoid over-dependence on other low-cost sourcing locations such as India or the Philippines.
Responding to, and in some cases anticipating these market forces foreign services companies such as Infosys and others have established development and delivery centers in China, and not simply because of the country’s low cost skilled labor.
For example, Japanese companies are the largest foreign consumers of China’s IT skills, responsible for nearly 60% of the outsourcing and captive center activity, followed by Taiwanese and Korean companies. Multinational service providers also use the country as a base to serve markets in the Asia/Pacific region as well as existing clients operating in China.
Global service providers are also attracted by the country’s potentially huge domestic demand for IT services. Although Chinese service providers have adopted global delivery models, they too tend to concentrate on China’s domestic market. The result a services industry that is quite different from that of India or that of any other global sourcing location.
Country specifics aside, the problem with the view of the global sourcing market as some sort of Olympics is that it looks backwards at a model where companies select sourcing locations primarily for their ability to provide skilled low-cost labor. Although it is true that cost management remains an important objective, mature global sourcing practitioners have adopted much more strategic approaches in which decisions about where – as well as what, how, and to whom – to source are based on multiple criteria.
Finally, the China versus India debate assumes that the Chinese government and services industry can or are even looking to replicate the combination of market conditions, business drivers, government policies, entrepreneurialism, cultural factors, and luck that enabled India to achieve its current position. History doesn’t repeat itself.
Ultimately the future of global sourcing will not be about country versus country. Just as China is emerging as a sourcing location the picture in India is changing, as it is in other countries. China may indeed become a leading sourcing location someday but it will be in a market that is significantly different from the one that exists today.
Comments
Hi,
Has the threat from China in IT services space reached the critical mass merriting the debate?
What about the increasingly english speaking tech sauuvy population of Latin Countries lik Brazil,Mexico, Eastern european countries like Poland, Romania
Posted by: aravind_bantwala | September 1, 2006 05:17 AM
Given that China is the nearest potential rival to India in terms of scale in IT/BPO, is it wise for Indian companies like NIIT and Aptech to take IT education to China? How about the setting up of ODC by Infosys, TCS and other Indian companies in China?
Posted by: Arun Natarajan | September 3, 2006 02:58 PM
I don't think I understand the concept of a "flat" world. Are you simply saying that the world is shrinking? Now that's been said for several years so what's new in what you are saying?
The world is changing for sure in that the countries that dominated the world economy in the last few decades may not be the dominant economies in the next few decades, and we will have countries like China, India and others come to the fore. But there is a historic trend to that. A peek into world history will tell you that every super power has their time in history, the Roman empire, the greek empire,the British domination, the Portugese colonies and even countries like Mongolia dominated once with rulers like Changez Khan. At this time, it is the US that's dominating the world economy but that is likely to change. That in my view is what we are seeing in the world today. The catalysts for this change have been some of the factors that you've mentioned, viz. young educated population in China and India, ageing population in developed countries, adoption of technology, outsourcing etc.
Posted by: Saurabh Atre | September 6, 2006 07:16 PM
An interesting topic; but very early to draw conclusions. I agree with what Stephen Lane says: “China may indeed become a leading sourcing location someday but it will be in a market that is significantly different from the one that exists today.” Very true. Having worked in the China’s IT industry for a while, here’s what I observed:
• Overall China’s IT/outsourcing industry is where India was circa 2000 (in terms of scale, maturity, revenue)
• It develops solutions for consumption within China or neighboring regions
• As for skill goes, China scores high on India in terms of raw-coding power, domain skills (especially telecom, networking, embedded)
• What China badly lacks are the Customer Interaction, Project Management, and Delivery skills that Indians are so good at.
@ Arun Natarajan:
I also keep pondering over this issue: whether India should go ahead and share the knowledge with China or be more cautious in order to ensure India remains the hot-spot of talent (especially in areas like Project Management).
Posted by: O'Desi | September 7, 2006 06:35 AM
China has been referred to as "the new frontier" when it comes to global outsourcing. That opportunity has not gone unnoticed by alumni from the Simon Graduate School of Business (University of Rochester). Many of them are seizing the
opportunities in China--which they call "boundless." Simon School Associate Professor of Accounting Joanna Shuang Wu, a native of China, says the business opportunities there "hold the promise of magnificent rewards, but also represent significant risk." For more on this topic, visit the Simon Graduate School of Business Web site at www.simon.rochester.edu/pdf/simonbusiness/sb_2004_05.pdf and check out our new Simon School Communications blog at http://simonschool.typepad.com/communicationsblog/
Posted by: Charla Kucko | September 8, 2006 05:43 PM
A gartner report on Ten Converging Forces Will Change your work force, by Diane Morello (Feb 2002) ties into the flat world concept from the stand point of learning and development.
Along with business focus I would assume that employee needs from the flat world (flat thinking perspective) will change drastically and we need to gear up for that too.
Posted by: Chitra | September 15, 2006 11:20 AM
Stephen,
No doubt, India and China are historical competitors and will continue to remain so. But to say that someday China will supercede India as an outsourcing hub is controversial.
If china is good in hardware business, India has proven records in software. Indians have fared better in outsourcing business since its inception.
People generally tend to forget that outsourcing business in India is currently based in just few metros and surrounding areas. Vast areas are largely untouched. We do know that infrastructure is a major bottleneck in growth. But we are sure that within few years infrastructure will improve. It's the cumpulsion of the time. Signs of development are already visible in most parts of the country, metros apart.
If China is making grand progress, India is not far behind.
I think most people don't bother about the ways till the business activities are prospering. Indian democracy and Chinese communism are two differnet philosophy. Business based on these different philosophies will obviously lead to different end result.
The China-India issue will always remain debatable unnecessarily. Citizens of both the countries have the right to pursue their dreams. Whoever succeeds will be the winner. Till then we can work hard to take our nation to glory
Posted by: pravir kumar | September 15, 2006 06:39 PM
Its NOT China or India. It is China & India.....be it IT, Economic growth or future potential.
so its CHINDIA!!
Posted by: RahulSenGupta | October 11, 2006 06:59 PM