Tuesday, October 16, 2007

China vs. India – The Battle of the Outsourcers

Source : outsourcenews.com

Outsourcing is going great guns, and how! According to a study by Forrester, over the next 15 years, 3.3 million American services industry jobs and $136 billion in wages will be headed for outsourcing countries. The flurry of activity and dynamic equations in the world of call centers and BPOs mean flux every second, and the result – a fierce number game among all the rival countries involved in outsourcing. It is therefore only natural that a hot topic of debate in the outsourcing industry today is who deserves the mantle of top outsourcing destination – India or China. These Asian countries have been leading the outsourcing pack so far and are home to some of the biggest overseas operations of American companies. Of the two, India is No. 1 right now but the excitement over whether China will catch up is quite palpable. So what are the things rooting for each of these strong outsourcers and who will have the final word?


The land of the expat engineers and doctors suddenly faced a turnaround with some of its elite NRI professionals channelizing work and dollars the Indian way. Outsourcing arrived in India, and did so with a bang. A large labor pool, and that too of highly educated, English speaking professionals, is what began it all for India. And today a combination of factors like improved infrastructure, technical prowess and widened bandwidth to pick up projects has made India the soundest, if not the best, outsourcing destination. The maturity of the outsourcing market in India, the assured experience of Indian vendors and the political and economic stability in the country make it a top choice among clients.
The service oriented projects have generally been India’s niche, but with more concentrated experience, India is moving up the hierarchy. However, the service maturity of the industry, market saturation and even the booming Indian economy are triggering increased wages and restructured pricing. Will this blunt India’s competitiveness? Not likely, according to studies that point out that India is still the best available bargain the outsourcing industry. In fact, the trend is more towards the possibility of India taking on the more complex outsourcing tasks while back-office jobs move to the more raw players.

From basic Business Process Outsourcing (BPO) and call center services, India has moved on to specialized services. Knowledge Process Outsourcing (KPO), Engineering Process Outsourcing (EPO), Human Resource Outsourcing (HRO), Research Process Outsourcing (RPO) and Education Process Outsourcing (EPO) are just a few of the new ramifications of outsourcing in India, signaling how much outsourcing is still bound to grow in the coming years.


India’s closest contender, China has the attitude and the processes in place to exploit the outsourcing markets. A vast labor pool and consequently cheap labor form the foundation of China’s outsourcing goals. An entry-level programmer in China draws 30% to 50% less than one in Chicago. Add to this other favorable trends like the liberalization of government regulations, the presence of a growing middle class, large-scale investments in technical education and a vibrant economy, and China’s prospects look very promising.

So what’s holding the country back? China needs to build up capabilities in terms of the efficiency of its work force, articulation skills in English (a major dampener in China’s flight) and do away with a lot of the red tape surrounding its stringent government regulations. But these limitations are being recognized – the Chinese government is slowly working towards rectifying them, striving to bring in investors and widen its revenue from the IT sector, in the process promoting a transformation that it has dubbed the 'changing face of China.

To tackle mounting competition from other outsourcing vendors like Philippines or Ukraine, China is leveraging itself as a cheaper alternative and also appealing to clients eager to explore the huge local market. China’s proximity to fertile markets such as Japan and South Korea, where there is an advantage of both geography and language, is also a factor running in its favor.

China is also gradually moving beyond merely being a traditional hub of manufacturing to wider pastures. According to a report by the United Nations Conference on Trade and Development, China scores over India when it comes to innovation. China’s investment in R&D investment is 1.5% of its gross domestic product, twice that of India. Companies such as Motorola, P&G, IBM and many others have identified this facet and are expanding R&D operations in China. And ironically enough, many Indian firms are also setting up operations in China, recognizing the prospects that the country holds in outsourcing. Indian investment in China is nearly $ 50 million, with around 18 Indian companies operating in China. And expansion of operations and work force are on the cards for these companies.
So what is the final verdict? Who wins – India or China? The answer seems to be… Both! China still has a long way to go – gaining expertise in handling projects, improving infrastructure and work force proficiency, and achieving economies of scale – before it can get into the same league as India in the global outsourcing market. But once it irons out these issues, China can be a formidable player in the outsourcing arena. India, on the other hand, is heading for upgradation of services and is moving away from offering basic services. It will attract a specialized, niche market, and will gain an exclusive advantage in this area. The future is indeed rosy for both countries!