China’s Service Outsourcing Emerging Amidst Economic Recession By Ms. Li CHEN At http://www.businesswire.com/news/home/20090414005551/en/China’s-Service-Outsourcing-Emerging-Economic-Recession#.U9nUZrLdgZs 1. With China ’smanufacturing sector being hit hard due to less demands on exports, thegovernment is turning attention to boosting the service industry further up thevalue chain. Amongst others, according to a recent report by Z. H. Studio, theservice outsourcing industry has increasingly become a hotspot -- for itsability to unlock the potential of a willing workforce and a huge, untappeddomestic market. 2. “Cutting staff isn’t the only option in coping with recessions ” 3. Already, China's Vice Premier Wang Qishan has made promises to developthe industry by offering outsourcing business perks in the form of taxbreaks , financial support, subsidies and intellectual propertyrights protection. The program is set to take place in 20 pilot citiesincluding Beijing, Shanghai, Xian, Suzhou and Hangzhou. 4. According to a report by Zero2IPO Group, a leading deal-flow source forChina’s venture capital and private equity industry, whilstopportunities in ITO’s growth become relatively slimmer for China, it’s the BPO field that will attract more investment. Venture capitalists are particularlylooking at higher-end categories, especially in fields like research anddevelopment (R&D), design, financial services, human resources , logistics and customer service outsourcing. 5. Historically, when it comes to outsourcing in China, people would tendto think of low-cost labor in offshore outsourcing projects. But in fact, dueto the surge of domestic market, more noteworthy is the trend towards“in-country” outsourcing. Huge potential frominward markets 6. Dr. Charlie Liu, China CEO of VXI, a major US based CRM outsourcingcompany that deals with mainly Fortune 1000 multi-national corporations ,says that they’ve been successful by looking at China’s potential as a hugedomestic market. 7. Headquartered in Shanghai, VXI China hasexpanded operations in Shanghai, Guangzhou and Chengdu,with a total capacity of more than 2000 seats. The company’s services includetelemarketing, customer care, database management, CRM applicationdevelopment and technical support. 8. “China’s call center services are growing at a double-digit rateas domestic market continues to boom and a customer-centric culture prevails,”says Dr. Liu. “Like what happened in United States and other developedcountries, CRM outsourcing will evolve into a major service sector.” 9. In 2008, the call center market in China exceeded one million seats, ofwhich less than 2% has been outsourced. Dr. Liu notes that, over the years, VXIhas grown its business together with the MNC clients in China; now it seems agolden time to explore the “home base,” especially as the country looks moreinward for future sustainable growth. 10. Mr. Zhu Ning, Marketing Director of Randstad China, agrees.Headquartered in the Netherlands, Randstad is the second largest HR serviceprovider in the world, offering a full range of solutions that cover almostevery aspect of HR services from HR administration to executive search. InChina, Randstad works with an ever-growing cohort of both multinational andlocal corporate clients. 11. “When a multinational company enters China market, or even when aChinese company expands business in different provinces, they need a long timeto localize and become a market leader,” says Mr. Zhu. “ Talent issues are different from other functions and strongly impacted by government law andregulations – which, in themselves, may vary from one [province] to another.” 12. Compliance has become increasingly important especially with theimplementation of new Labor Contract Law , which came into effect onJanuary 2008. The law ensures tighter regulations by asking employers toprovide more social insurance benefits, and also gives employees more power toseek justice in case of employers’ malpractices. 13. That’s exactly where many HRO companies step in: by offering a“one-stop-solution” for all needs from staffing to payrolling ,professional HR service providers can help minimize legal risks and increasethe work efficiency for clients. 14. China Merchant Bank (CMB) is one client that Randstad China has beenhelping over the past six years. Upon the launch of CMB’s credit-card business,Randstad has not only supported the recruitment , but also handled thepayrolling, physical examination, business insurance and social security issuesfor thousands of sales-force members at CMB’s branches scattered around thecountry. “Sales-force in this industry has an average turnover rate of20% per month...while supplying the client with HR solutions impossible toachieve in-house, we managed to expand our service operations nationwide aswell,” says Mr. Zhu. “Therefore it’s truly a win-win result.” 15. HR outsourcing is definitely on the rise in China, with expectationsto expand by at least 25% at the end of 2009. According to Philip Beck, COO ofmeijob.com, one of China’s largest job search engines, China doesn’t lack awilling workforce, but much needed are specialized service providers that areable to help candidates’ career as well as meet constantly changing needs fromthe employer side. Smart-sourcing: morethan just ‘cheap labor’ 16. It’s not just the administrative outsourcing areas in which China is attracting, but it’s also gaining more status in the creative stakes. 17. “In the USA, lots of game companies have downsized and studiosclosed,” says Mr. Lan Haiwen, CEO of UltiZen Games, a game developer andoutsourcing vendor for many of the most respected games companies around theworld. “But in China, the gaming industry is increasing all the time evenduring the downtime.” 18. A Ubi Soft veteran, Lan Haiwen founded UltiZen Games in 2005. Sincethen, the company has quickly progressed -- from having started out with only27 staff members to now about 350 staff members and offices in Beijing,Shanghai, Suzhou, Kyoto, Los Angeles and London. The UltiZen team has worked onsuch titles as Fast and the Furious, Pimp My Ride and TokyoDrift, and in 2008 won the Red Herring Global 100 Award, an annual award thatlists the most innovative private technology companies around the world. 19. Mr. Lan cites China ’shigh internet penetration and gaming culture as one of the reasons why foreignbusinesses choose China over India for games outsourcing. In 2009, China's online gaming market is set to reachUS$1.3 billion, according to market researcher IDC. 20. But another more effective reason has been the “smart sourcing”approach to dealing with foreign companies. As Mr. Lan explains, “You’ve got tounderstand your clients very well and not just position yourself outside ofthem. You need to know how to arrange the process and pipeline, control qualityand save money. You need to be close to their core team and provide suggestionsand solutions.” 21. On the creative side, foreign companies are looking for inspirationfrom Chinese designers too. “Even though the Western clients are good at art ordesign, their imagination may be limited,” says Mr. Lan. “They want newperspectives and wonder whether Chinese designers can design something cool anddifferent. So it’s not just simple outsourcing work they want from you, butcreativity as well.” Economic recession:maybe an opportunity? 22. In line with the Chinese government’s approach to the economic crisis,the UltiZen team seems to act confident and the company continues to besimultaneously engaged in a minimum of 10 projects. 23. VXI China CEO Charlie Liu also sees a silver lining in the recession.“In the short term, the downturn has meant less business opportunities,but it may have posed as a more attractive option to our potential clients asthey look for lower cost, higher productivity, or simply more flexibility.” 24. That could be true -- particularly when the vendor is willing torelocate the services to 2nd or 3rd tier cities. Currently VXI Chinais building up a mega center in Chengdu, an attractive inland city thatmaintains much lowers labor cost and yet produces more than 150,000well-educated college graduates each year. “In doing so, we provide additionaloption to our clients,” notes Charlie Liu. “Should cost saving become a keyissue, we shall be able to migrate out clients’ services from 1st tiercities to our call center in Chengdu right away.” 25. For Zhu Ning of Randstad, top priority during the economic crisiswould be to innovate and adjust to the fast-changing business landscape. Nowwith many companies looking at cutting staff, or being reluctant to hire newstaff, China’s HRO industries have to deal with an influx of job applicants aswell as convince clients to use their services. 26. Fortunately, Randstad’s decades of global experience would be of bighelp. The company is advocating the “flexible staffing” concept in China,calling for firms to take this tried-and-true path in the West to better copewith the recession. Randstad China now boasts a 30,000-strong skilled talentpool across the nation - who are well-trained and able to migrate anytime amongdifferent provinces - so that should manufacturing demand increase in oneregion than another, there’ll always be a reliable workforce. 27. “Cutting staff isn’t the only option in coping with recessions,” Mr.Zhu notes. “When companies employ innovatively, it helps unlock the potentialof China’s population dividend and bring a better employment rate.” Thetemporary staffing business has been soaring in recent 2 years with a 30%year-on-year growth rate, with its prospect looking even greater due to theeconomic situation. 28. There is no lack of historical evidence that power shift might takeplace against external factors on global stage. About 5 to 6 years ago, theborder disputes between India and Pakistan made the biggest outsourcingcustomers in the world – e.g. GE Capital, American Express -- start to move outof India, according t