Can China challenge India as a BPO powerhouse?

Lisa Ross is a long-time respected analyst in the BPO world and runs her own research organization, aptly-named “FAO Research, Inc” which has taken the industry by storm over the last couple of years. Lisa has spent a lot of time talking with the advisor, supplier and end-user communities to understand the role China can potentially play in BPO – and most notably Finance & Accounting Outsourcing, which has some a heavy offshore component… In advance of the G8 Summit, take it away Lisa:

A sentiment we hear often from buyers, suppliers and advisors in the outsourcing space is that China is fast becoming the next India – but is this really an accurate statement for the Finance & Accounting Outsourcing (FAO) space?

Let’s first look at the glass half empty:

• China’s physical infrastructure, although improving, is light years behind technology centers in India.

• Same with human resources – workers are available and growing in number, yet their proficiency in foreign languages and cultures and process expertise is lacking. For voice-based BPO services, only Japanese businesses are being serviced currently from cities like Dalian which has a high Japanese-literacy rate; however, most Japanese businesses do not like the Japanese being spoken with a Chinese accent, so few of them actually use China-based services.

• There are roughly 220 million middle-class Chinese many of whom are learning English compared to 350 million Indians (more than the US and UK combined). Moreover, Indian pop culture – most notably movies – adds new elements to the Indian English language, which China seems to lack.

• Privacy laws are a mess, causing great security concerns, specifically around F&A issues.

• Financial development has yet to keep pace with the country’s growth, as the Asian Development Bank (ADB) also struggles to reinvent itself.

• Knowledge management – a key ingredient to foster business and process innovation – has yet to be proven in large scale.

And now for the glass half full:

• China is moving from mass poverty as a whole to middle-income living, so the need for overall economic reform is tremendous – the need for FINANCE reform even greater. Enter FAO.

• China has LOTS of money to spend – aside from being a massive exporter of capital, it’s currently a magnet for private capital inflows. And with Chavez angling to unseat the U.S. as Venezuela’s partner in the oil business, etc.

• Many F&A processes require minimal customer contact and are data-centric. With many of the Indian-based sourcing models encompassing 10% of delivery onshore for voice-work and 90% operating offshore, there is every reason why the Chinese can replicate this model.

All-in-all, it seems that China will prosper in the short term with its engineering, manufacturing and technical acumen, but is still someway off becoming a major force in BPO services – namely Finance and Accounting and contact center . Once the middle class populous develops stronger language skills and supplier resources become more sophisticated – which will happen eventually – we can expect to see them compete more prominently in the BPO arena.