Page 2 of 2 China, India vie for
outsourcing
market By Daniel Allen
budget. Wong said: "Many of China's
'second-tier' cities like Xian, Dalian and Chengdu
are becoming prominent players in the IT
outsourcing market due to lower costs of doing
business and improved infrastructure."
Companies looking to cut costs should bear
in mind that China has nearly 100 cities with a
population of 1 million or more - nearly all of
these are actively trying to attract foreign
investment. Businesses that select second- or
third-tier cities can expect
favorable treatment that can
translate into substantial savings. Xian, a city
of more than 4 million in China's rapidly
developing west, for example, has a "High-Tech
Zone" that offers foreign companies heavily
discounted office space and tax exemptions until
they've attained profitability for two consecutive
years.
Objectiva Software is in the
process of setting up a second office in Xian. Tao
Ye said, "We chose Xian because of cheaper
setting-up and running costs, and the fact that it
has excellent infrastructure and a good enough
supply of well-qualified staff to meet our needs."
In addition to IT and business process
outsourcing, China is also becoming an
increasingly attractive market for international
biotech companies, with low set-up costs for
manufacturing and R&D units, a regular supply
of inexpensive professional personnel, and a
relaxed regulatory environment. At present,
overseas companies generally operate in the
Chinese market by establishing joint ventures with
local firms, by setting up manufacturing bases, or
by outsourcing R&D to domestic companies. At
the end of 2005, China had about 750 R&D
centers supported by foreign capital in the form
of joint ventures.
Wong said: "Many of the
people involved in the biotech fields in China are
expatriates from the United States. Due to the
high level of competency found in China now, many
companies here in the US are looking to outsource
their R&D to China. This work can now be done
at a fraction of the costs without compromising
the quality of work being done."
The
biopharmaceutical industry, underpinned by strong
government support, the machinations of some major
multinationals, and a rising demand for
prescription drugs, is a key driver of the biotech
industry in China. Last year China's
biopharmaceutical industry grew by 15%, with
revenues rising sharply.
As large
enterprises pressed ahead with their globalization
strategies, the R&D outsourcing market, where
small and medium-sized enterprises play a leading
role, experienced remarkable growth. However, the
scope for outsourcing business in the biotech
sector to China is still huge, with global firms
still only outsourcing about 5% of their total
requirements to the country.
Bridge
Pharmaceutical Inc, a US biotech company, opened a
research center in Beijing last year employing 200
people. The company says that even though it
operates along US regulatory guidelines, its
drug-development costs are about 80% lower in
China than in the US; salaries of research
scientists in China are estimated to be one-fifth
to one-tenth those in North America.
Pharmaceutical giants such as Novartis and Pfizer
have also established research facilities in
China, and AstraZeneca is opening a new
"Innovation Center" in Shanghai this year.
Although China's biotech infrastructure is
a work in progress, with a mix of First World and
Third World support, the growing number of
industrial and science parks that are opening
around the country guarantee power, water and
Internet access to high-level specifications.
While many cities offer support and incentives for
biotech firms, the top destinations are still
Beijing and Shanghai, where the intellectual
workforce tends to congregate and where services
are most reliable.
Animal testing is
China's specialty, with virtually non-existent
regulations and severe penalties for animal-rights
activists. If the research process of companies
looking to outsource involves a significant amount
animal testing, especially with primates, then
China is the No 1 choice.
China certainly
has the potential to outpace India and become the
world's top outsourcing destination over the
course of the next decade. There is room for
growth - the McKinsey Global Institute estimates
$18.4 billion in global IT work and $11.4 billion
in business-process services have been outsourced
overseas so far - just one-tenth of the potential
offshore market.
Looking to the future,
Wong said, "With developments in infrastructure,
technology and personnel, China is closing the gap
with the Western world. The country has a huge
hunger for success, and will continue to strive
toward higher goals and to be competitive with
other nations. I have no doubt that it will become
the outsourcing country of choice in many sectors
before too long."
Beijing is drafting a
human-resources training plan for Chinese
outsourcing service providers. The plan outlines
the development of 100 qualified outsourcing
service providers in 10 base cities in the next
five years in an effort to attract about 100
well-known multinationals to outsource to China.
As desirable as building a highly
qualified, English-speaking army of workers may
be, the trend toward offshore outsourcing is a lot
more complex than simply finding language skills
and resources in the lowest-cost locations. Major
drivers in the outsourcing market include quality,
innovation and speed to market, not just cost of
services. To maintain their competitive strengths
as competition intensifies, Chinese outsourcing
service providers need to increase their
attractiveness to users by offering high
standards, demonstrable creativity, and an array
of value-added benefits.
Daniel
Allen is a freelance writer and photographer
from London who has lived in China for the past
three years.
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