Offshoring Language and IT Services to China
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1 Offshoring Language and IT Services to China Best Practices for Choosing an Outsourcing Partner in the P.R.C. By Donald A. DePalma
2 Offshoring Language and IT Services to China By Donald A. DePalma Copyright 2007 by Common Sense Advisory, Inc., Lowell, Massachusetts, United States of America. Published by: Common Sense Advisory, Inc. 100 Merrimack Street Suite 301 Lowell, MA USA No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Permission requests should be addressed to the Permissions Department, Common Sense Advisory, Inc., Suite 301, 100 Merrimack Street, Lowell, MA , , info@commonsenseadvisory.com. See for usage guidelines. Trademarks: Common Sense Advisory, Global Watchtower, Global DataSet, DataPoint, Globa Vista, Orange Book, Quick Take, and Technical Take are trademarks of Common Sense Advisory, Inc. All other trademarks are the property of their respective owners. Information is based on the best available resources at the time of analysis. Opinions reflect the best judgment of Common Sense Advisory s analysts at the time, and are subject to change.
3 Offshoring Language and IT Services to China i Table of Contents Topic... 1 Who Should Read This Report?... 2 Analysis... 3 Who Outsources Services to China?... 3 Development for Home Market Consumes Large Dollops of Services... 3 Foreign Companies Seek Access to Labor and Growing Markets... 4 Who Are These Chinese Outsourcers?... 5 Chinese BPO-ITO-LSP Firms Offer a Full Range of Services... 8 Sounds Great, But Where Do Chinese Outsourcers Need to Improve?... 8 Looking Out Five Years Crossing the Chasm How to Engage with Chinese Companies Appendix Cities by Region, Province, and Tier Information Technology Outsourcing Firms in the P.R.C Language Service Providers in the P.R.C Business Process Outsourcers in the P.R.C Distribution of H1B Visas in the United States About Common Sense Advisory Future Research Figures Figure 1: Where in China the Outsourcers Operate Tables Table 1: Services Offered by Chinese Outsourcing Firms by Increasing Value... 7 Table 2: Worksheet of Factors to Consider When Offshoring Table 3: Chinese Cities by Region, Province, and Tier Table 4: A Sampling of Chinese Information Technology Outsourcers (ITO) Table 5: A Sampling of Chinese Language Service Providers (LSP) Table 6: A Sampling of Chinese Business Process Outsourcers (BPO) Table 7: Top 10 Recipients of U.S. H1B Visas in Copyright 2007 by Common Sense Advisory, Inc.
4 ii Offshoring Language and IT Services to China Copyright 2007 by Common Sense Advisory, Inc.
5 Offshoring Language and IT Services to China 1 Topic Unless you have been on an extended vacation to Alpha Centauri, you know that many companies in North America and Western Europe are considering, planning, or already outsourcing their information technology, business process, or language service to providers in lower wage countries. At the top of their shortlists will be India and the People s Republic of China (hereafter, the P.R.C. or China ). Not far behind will be eastern and central Europe, other countries in Asia and Southeast Asia, and South America. Some companies we have met with recently tell us that their quest for lower prices has even taken them to Kenya and other African nations. Price isn t the only consideration many global enterprises are looking for labor they can t find at home or want to enter these growing markets. This report is about offshoring IT and language-centric service to China. However, while it addresses the specifics of engaging with outsourcers in the P.R.C., it also discusses the more general aspects of outsourcing and offshoring that you will face wherever you go risk tolerance, dealing with cultural differences, managing the difficulty of distance and time zones, and protecting intellectual property. The specifics will be different for each country, but the macro issues will be very much the same regardless of where you offshore. Finally, westerners who have been working in China for years will say that if you re not already in China, then you re too late. We disagree. For many firms, they will be able to derive value from outsourcing to China for a long time to come. The challenge will be to figure out when and where. This report provides practical advice on what to do rather than tell you why you should outsource. For most of us who have grown up not as old China hands, the P.R.C. will be like Churchill s riddle wrapped in a mystery inside an enigma. Lower than low wages and legions of knowledge workers are the price of accepting different standards of human rights, government officials being executed, tainted pet food, and a massive imbalance in trade. These issues will be on the minds of buyers from North America and Europe as they visit China in search of shareholder value and the 2008 Olympics. Copyright 2007 by Common Sense Advisory, Inc.
6 2 Offshoring Language and IT Services to China Who Should Read This Report? Earlier this year we met with a wide range of Chinese business process outsourcers (BPO), application development and maintenance (ADM) firms, language service providers (LSP), and the Chinese and multinational companies (MNC) that employ their services. We discussed the value they offer to North Atlantic firms, the state of the Chinese outsourcing market, the inevitable comparisons with India, and areas for improvement. Then we came back and conducted more primary and secondary research on these questions. The resulting report should prove useful to: Buyers of language, IT, and business process services. Anyone who is considering an engagement with Chinese IT, business process, or translation outsourcers needs to understand what he is getting into. They must review the market dynamics, the available outsourcing and offshoring models, and the best way to engage with Chinese services firms. These buyers will consider alternate locations in Central and Eastern Europe, South America, Canada, and even back home in Rust Belt regions in the process of deindustrializing (this last approach has been called rural and urban sourcing). Suppliers in the North Atlantic region. Service providers in North America and Western Europe need to understand the new competitive dynamics of their Chinese competitors. Many will see the opportunity to offshore their own production to regions with lower costs than they would find at home or in traditional offshoring locations such as Ireland. Offshore providers. Anyone who s in the business of providing offshored outsourcing services, including companies in China, should be interested in how they are perceived in the markets they have targeted. This report provides some of that perspective. The Appendix in this report lists a sampling of Chinese business process outsourcers, information technology outsourcers, and language service providers that we have interviewed or encountered in client engagements. It is by no means a complete list of all available resources, but we present it as a starting point for anyone interested in offshoring or competing in these markets (see Tables 4, 5, and 6). Copyright 2007 by Common Sense Advisory, Inc.
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