Why KPMG is wrong – China’s outsourcing industry isn’t bigger than India’s
July 15, 2010

A KPMG report entitled Pulse Survey: Shared Services and Outsourcing in China released recently pips China’s outsourcing industry ahead of India’s. According to the survey, 42 percent of the respondents said their companies have set up one of their shared services centers in China. With regard to outsourcing, 41 percent said they have a third-party outsourcing provider in China. The survey also shows that China’s outsourcing market is growing by leaps and bounds –  in 2007, China’s onshore and offshore outsourcing market stood at only US$7.5 billion. That amount nearly tripled to US$20 billion last year, according to the Ministry of Commerce. By 2014, KPMG predicts that China’s total outsourcing market will stand at US$43.9 billion.

What KPMG fails to realise is that a majority of the 280 senior company executives polled for the survey are from within China and Hong Kong, the rest are from neighboring South East Asian nations such as Singapore, the Philipines and Malaysia. It is natural, due to proximity and lower cost concerns that executives from these regions will choose China over India. Business executives across financial services, transportation and electronics / software / technology which were polled and are from within the China region, will naturally prefer China as outsourcing IN China is being given an immense push by Beijing. Comparatively, even with the billions that China has spent to develop world-class infrastructure and train its billions in English, outsourcing TO China as compared to India is still minimal.

According to a Pricewaterhouse Report released earlier this year – Although India remains the outsourcing market leader, other emerging economies are seeking to expand into the sector. Among those efforts, the Chinese government has designated 20 cities as outsourcing hubs in an effort to attract more international investment, while the Philippine government has declared outsourcing a priority industry. However, only 16 per cent of Indian service providers see competitors from other emerging economies as a threat.

Moreover, outsourcing is yet an alien concept for most Chinese companies where costs are already low. While the drive to develop China’s outsourcing industry has received massive fillip due to government incentives, Chinese outsourcing companies remain small in comparison to Indian outsources. According to experts in China, most of the large, multinational firms present in China yet don’t outsource within China, business mostly comes from growing Chinese companies that are government-owned and want to support the national governments outsourcing market. For instance, Neosoft, the biggest IT service firm in China, has just 15000 staff.  For now, public services such as hospitals, financial services and manufacturing are the major drivers of the Chinese outsourcing industry.


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