Moving up the value chain

China ranks second-most popular destination for service outsourcing

China's place in the global service outsourcing market is growing fast, as companies around the world realize the level of expertise in the world's second-largest economy are among the very best available.

According to the latest statistics from the Ministry of Commerce, from January to July, international service outsourcing contracts undertaken by Chinese companies jumped 47.9 percent year-on-year to $22.35 billion.

The growth rate is 40.1 percentage points higher than that of goods exported, which saw a year-on-year rise of 7.8 percent in the same period.

This massive rise in service outsourcing contracts has now positioned China as the world's second-largest outsourcing provider after India, accounting for 28.7 percent of the global market, and figures suggest that its growth will continue at the unprecedented level of 30 percent a year.

The government is well aware of the huge part that Chinese companies are playing, and will continue to play, in the industry.

Premier Wen Jiabao said at the first China Beijing International Fair for Trade in Services in May that the country will actively invest in, develop, and promote its service outsourcing business, to further tap into international markets to boost the industry's share of foreign trade.

China will further increase the proportion of its service trade within its overall foreign trade mix, encouraging exports of high-quality services, including software, culture and construction, said Wen.

Wang Chao, vice-minister of commerce, said recently that the service outsourcing sector is now perfectly poised to attract business from around the world, suggesting that 95 percent of companies listed in Fortune magazines top 1,000, for instance, have plans to outsource key parts of their business.

By 2020, it is estimated that the global offshore service outsourcing market will be worth between $1.65 trillion and $1.8 trillion.

Experts suggest that more multinational companies will choose to outsource even more parts of their business, and have highlighted various aspects of management, operational functions, business development and finance as the key areas where the most savings can be made.

The biggest global demand is from the high-value, more technical areas of business process outsourcing, which plays very much into the hands of China, which has in recent years gained a growing reputation for just this kind of outsourcing work.

Luo Shaming, deputy to the National People's Congress, China's top legislature, said the country's manufacturing expertise is key to its growing role in global outsourcing.

China should give priority to the development of business process outsouring, including transportation, finance, consulting and architecture construction services, of which the exports can take advantage of China's big volume of goods trade and developed manufacturing, he said.

According to the China Service Outsourcing Development Report 2012, released by the China Outsourcing Institute under the Ministry of Commerce, the country's manufacturing giants, including Huawei Technologies Co Ltd and Lenovo Group Ltd, have also began to invest, realizing the value of targeting the service outsourcing industry, developing strong research and development capabilities, with global presence, to fine-tune their outsourcing services.

China Telecom Corp Ltd is also setting up offices in Sao Paulo in Brazil to provide Internet, data and outsourcing services, it has reported, with an eye firmly on the country's hosting of the FIFA World Cup in 2014, and the Olympic Games two years later.

Knowledge process outsourcing, often competitively important functions or those which form the integral part of a company's value chain, such as performance systems and industrial design, is also set to boom in China.