{"id":4551,"date":"2008-01-02T14:24:00","date_gmt":"2008-01-02T14:24:00","guid":{"rendered":"http:\/\/localhost\/projects\/horsesforsources\/china-and-bpo-dont-bet-your-mortgage-on-it\/"},"modified":"2008-01-02T14:24:00","modified_gmt":"2008-01-02T14:24:00","slug":"china-and-bpo-dont-bet-your-mortgage-on-it","status":"publish","type":"post","link":"https:\/\/www.horsesforsources.com\/china-and-bpo-dont-bet-your-mortgage-on-it\/","title":{"rendered":"China and BPO?  Don&#8217;t bet your mortgage on it"},"content":{"rendered":"<p><span style=\"color: #0000ff;\">There has been a considerable amount of hype around the China&#8217;s potential as a BPO power-house, typified by this <a href=\"http:\/\/www.globalservicesmedia.com\/Content\/processes-bpo-trends200712293508.asp\"><span style=\"color: #0033cc;\">recent <\/span><\/a><a href=\"http:\/\/www.globalservicesmedia.com\/Content\/processes-bpo-trends200712293508.asp\"><span style=\"color: #0000ff;\">article<\/span><\/a><\/span><span style=\"color: #0000ff;\"> <\/span><span style=\"color: #0000ff;\">by Sridhar Ved<a href=\"http:\/\/www.horsesforsources.com\/images\/2008\/01\/11\/china_2.jpg\"><\/a>ala and Vibhash Ranjan of sourcing advisor <\/span><span style=\"color: #0000ff;\"><a href=\"http:\/\/www.equaterra.com\/\"><span style=\"color: #0000ff;\">Equaterra<\/span><\/a><\/span><span style=\"color: #0000ff;\">, which claims the China BPO market reached $1.3 billion last year.\u00a0 <img loading=\"lazy\" decoding=\"async\" class=\"alignleft size-full wp-image-3719\" title=\"China BPO\" src=\"http:\/\/www.horsesforsources.com\/wp-content\/uploads\/2008\/01\/China-BPO.jpg\" alt=\"\" width=\"288\" height=\"152\" \/>The definition of BPO is somewhat vague, so I will refrain from commenting on this figure, but am sure the economic climate out there is capable of commanding this level of BPO work.\u00a0 The article has some excellent points regarding the advantages and potential of China as a BPO destination, namely:<\/span><\/p>\n<ul>\n<li><span style=\"color: #0000ff;\">China&#8217;s BPO market will be driven by (1) companies from Japan, Korea and Hong Kong outsourcing low-end services; (2) foreign investors that have thousands of employees in China (i.e. Danone and Fuji);\u00a0 and (3) domestic companies that outsourcing within China.\u00a0 American and European firms are &#8220;rarely sourcing&#8221; BPO services from China.<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Global BPO firms, such as IBM and Genpact, are developing a presence in China (even thought IBM is the only firm that has surpassed 1000 employees for BPO services);<\/span><\/li>\n<li><span style=\"color: #0000ff;\">New BPO locations, such as Chengdu and Tianjin, are 30% cheaper that the mainstays of Beijing and Shanghai, and their attrition is only running at 5%, as opposed to 30% in the big cities (this really fills me with confidence);<\/span><\/li>\n<li><span style=\"color: #0000ff;\">&#8220;China offers multi-region support to the surrounding customer markets, which sets it apart&#8221;.\u00a0 I am assuming these are for regions that require Chinese dialects, such as Jin, Wu, Hui and Pinghua, in addition to Taiwanese, Japanese and other Asian languages.<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Multinationals are shifting their Asia\/Pacific regional HQs to China and establishing shared services centers or outsourcing local firms.<\/span><\/li>\n<li><span style=\"color: #0000ff;\">De-regulation of the Chinese banking sector.\u00a0 It is now much easier for foreign investors to offer retail banking services in China &#8211; a real drive for BPO.<\/span><\/li>\n<\/ul>\n<p><!-- pagebreak --><\/p>\n<p><strong>Look beyond the hype&#8230;.here&#8217;s my take on China and BPO:<\/strong><\/p>\n<p>The Asia\/Pacific region has been crying out for more comprehensive shared services and outsourcing structures for years.\u00a0 Singapore and Hong Kong have traditionally assumed the role of &#8220;regional hubs&#8221; for most multi-nationals over the last 20+ years, but are now far too costly for running shared services, or outsourced operations.\u00a0 China is offering potential, not too dissimilar to India 5 years&#8217; ago, for multi-nationals to invest in servicing their Asia\/Pacific regional businesses.\u00a0 Many Pan-Asian businesses, or regional hubs of global multi-nationals, have shied away from shared services or outsourced models as they didn&#8217;t really have low-cost options available, and the Asian business culture has traditionally centered on inhouse models for its administrative support functions like HR, finance and procurement.<\/p>\n<p>So while there is an obvious opportunity for a BPO industry to develop in China, I have several reservations that it will develop into anything more than a local hub for supporting Chinese-speaking business and a handful of multinationals:<\/p>\n<p>1) <strong>China is in a time-crunch.<\/strong>\u00a0 China is already touting it&#8217;s <em>Tier 2<\/em> cities, such as Xi&#8217;an and Chengdu, as it&#8217;s mainstays of Beijing and Shanghai are already suffering from chronic job attrition (30%) and wage inflation.\u00a0 At least in India, and other offshore locales such as Philippines and Eastern Europe, they enjoyed a stable period of a few years to develop their BPO infrastructures before these issues crept <span style=\"color: #000000;\">in. With China, it is moving into BPO with little breathing space to establish its infrastructure and build critical mass.\u00a0 It is easier for BPO firms to combat attrition and wage inflation once there is critical mass of staff and <\/span>infrastructure available (see this <a href=\"http:\/\/www.horsesforsources.com\/2007\/06\/how-to-keep-a-2.html\">post<\/a> from earlier last year that contrasts the typical approach being taken by the leading Indian outsourcing providers).<\/p>\n<p>2) <strong>Wages are already high.<\/strong> Wages in China are not much lower than in India, which has more experience in BPO and much better English language skills.\u00a0 <em>As a side note, you can actually get cheaper accounts payable done cheaper in Mexico that China&#8230;<\/em><\/p>\n<p>3) <strong>The India experience all over again.<\/strong>\u00a0 With all the initial teething problems firms had sending out BPO services to India, why would they want to go through all this again with China?<\/p>\n<p>4) <strong>China&#8217;s core competency is engineering.<\/strong> China is more of a manufacturing \/ industrial powerhouse&#8230; I cannot see it being so adept at doing back office work, with the exception of Dalian, which can service Japanese and Korean-speaking businesses.\u00a0 Engineering services are in the Chinese DNA, rather than BPO services&#8230; this is the direction I see China taking, for example industrial design work, contract manufacturing, biotech services etc.<\/p>\n<p>5) <strong>Movement away from mere labor arbitrage.<\/strong>\u00a0 BPO is moving away from the &#8220;body shopping&#8221; game, and more towards value-services and innovative offerings. Moving more work to China seems like a regressive step for many multi-nationals.\u00a0 Having said that, experienced BPO firms can claim to have learned from past mistakes and seek to rectify then in a Chinese delivery model.<\/p>\n<p>6) <strong>China&#8217;s English-competency is a major minus for BPO.<\/strong>\u00a0 Whereby Singapore and Hong Kong adopted English as their mother tongue many years&#8217; ago, China is still a good decade away from being able to boast good English-speaking competency.\u00a0 \u00a0Beyond the Chinese-speaking languages, and some surrounding Asian languages such as Japanese and Taiwanese, it is difficult to see China becoming more than a local hub for it&#8217;s domestic economy and some of the Asian-speaking countries.\u00a0 \u00a0To run truly pan Asia\/pacific services, not having a strong English-speaking competency is a major issue with BPO.\u00a0 When running the vast majority of BPO services, there needs to be elements of close interaction between the outsourcer, or offshore worker, and the mother company outsourcing the services.\u00a0<\/p>\n<p><em><span style=\"color: #0000cc;\">So all-in-all, China has potential to develop a compelling BPO industry, but there are many obstacles the country needs to combat, in order to develop this beyond an industry that is merely serving a sub-region.\u00a0 Moreover, it is tempting for people to get over-excited at anything &#8220;China-related&#8221; these days&#8230; it is important to look beneath the surface to get a dose of reality.<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>There has been a considerable amount of hype around the China&#8217;s potential as a BPO power-house, typified by this recent&#8230;<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[835,79,836,95],"tags":[],"organization":[],"ppma_author":[19],"class_list":["post-4551","post","type-post","status-publish","format-standard","hentry","category-f-a","category-hr-outsourcing","category-procurement-engineering-supply-chain-outsourcing","category-sourcing-locations"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>China and BPO? 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