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Outsourced services: China plans big

business Updated: Feb 07, 2009 10:17 IST
Reshma Patil
Reshma Patil
Hindustan Times

The ancient Chinese city of Xi'an is still better known for terracotta warriors than its call-centres. But India's competitor in outsourced services sector is spending millions to catch up.

China approved a slew of tax breaks and incentives to promote the industry in 20 pilot cities. The government will offer companies a 4,500 yuan (about Rs 31,500) subsidy for every graduate hired for at least one year, to reach a target of one million new jobs for graduates by 2013.

But analysts say that China's big budgets and six million new graduates per year are not enough to outpace India, whose outsourced services market value is nine times ahead of China.

IT decision-makers at multinationals believe that China is still better suited as a manufacturing centre than as a destination for outsourced services, said a McKinsey report, Destination: China, released in January.

The report cited a concern about the 'perceived lack of adequate protection of intellectual property' in China, and the reluctance of even domestic companies to outsource services within China.

“China has not clearly articulated its value position to the world,” said Alex Peng, a partner at the McKinsey & Company. “A key bottleneck is the lack of suitable talent, lack of project managers and people who can develop global business.”

Four of China's top offshoring providers grew by 15-20 per cent annually over the last five years, while India's top four grew twice as fast. "India continues to widen the gap and capture more global market share and mindshare,'' the report said.

China has less than 10 per cent of the global market for offshoring and outsourcing of services and spends half as much as India on IT services as a percentage of GDP.