China has unveiled a series of policy measures, including offers of financial support, to help Chinese companies take on Indian leaders in outsourcing services. Earlier this week, China’s commerce ministry also signed a memorandum with 22 leading multinational corporations — including Coca-Cola, Sony and Kodak — to speed up their outsourcing to China and “promote the development of China’s outsourcing service industry”. The ministry is hoping to get 200 big-name MNCs in the Fortune 500 list to outsource to China by 2013.
The policy initiatives come amidst signs that China’s growth model of the past 30 years — manufacturing and exporting to consumers in developed economies — may be broken, requiring China to re-engineer its economy with a greater focus on domestic consumption and explore new growth avenues, such as outsourcing of software and back-office services.
“The government has adopted a strategy of introducing a host of preferential policies to encourage development of service outsourcing since the start of this year,” says Lin Zheying, deputy chief of the foreign investment department at China’s commerce ministry.
As part of these “preferential policies”, the government pledged support from financial institutions — in the form of equity and debt financing — to Chinese outsourcing service providers. Banks have been directed to devise innovative credit products “tailored to the outsourcing business”, especially for those companies in 20 “pilot cities”, including Beijing, Shanghai, Tianjin and Chongqing.
Service providers who qualify have also been promised support in getting themselves listed on domestic and overseas stock exchanges. The regulators of the banking and insurance sectors also issued guidelines inviting social funds, venture capitalists and equity funds to help develop outsourcing service businesses with credit and equity investments.
“Although China lags India in outsourcing, it has great potential to surpass India,” according to Wu Jinglian, a researcher at the Development Research Centre of the State Council. The Global Outsourcing Report, which ranks countries based on their opportunities, costs, and risks in relation to IT offshoring, predicts that by 2015, China, currently placed second, will have taken over the No. 1 spot from India.
As of June, China had over 6,600 outsourcing service providers, employing over 1.2 millioin people. The government wants the sector to grow to $30 billion by 2013, and Lin believes that that target could well be met on the strength of the government’s stimulus initiatives. The government is also considering tax incentives, employment subsidies and a labour management system to help service providers.
China’s outsourcing ambitions are backed by a healthy dose of central planning. Under its current Five-Year Plan, China aims to foster 1,000 large- and medium-sized service outsourcing enterprises.
