The Rational Outsourcing Blog

Tuesday, March 20, 2007

Interesting perspective on the Chinese BPO industry

William Dodson has a very interesting post entitled The Buddha and China Business Process Outsourcing on his “This Is China! Weblog.” Here are a few select quotes, but I would recommend you read the complete post.
The VC’s remote research had lead them to conclude there were still no pack leaders in the BPO market, no companies breaking away from the others and distinguishing themselves; especially for the North American and European marketplaces. They knew the Indians were coming to China, and that the Chinese government was promoting cities in China to become IT/BPO centers of excellence. They were confident and vested in the development of the China BPO market; but how long would it take to see an industry grow up that was as formidable as India’s?

China has no Y2K to finance or to educate its armies of fresh-eyed programmers in the hard-as-nails realities of Western business practices and operational processes. It does not have the troops of English-speaking, customer-focused go-getters that India does to kick-start an industry into the stars. Instead, China is going to have to boot-strap itself to become a world-beater in both the IT/BPO realms.

Certainly, the Chinese government has its heart in the right place and its intentions firmly set. Newly fielded economic development zones throughout China are flush with cash, already investing in platoons of engineers and hi-tech infra-structures. One partner in a venture to work with a local government to build its IT/BPO service base told me the governments are using the same approach they had in developing their manufacturing prowess: if you build it, they – the foreign companies - will come.

Problem is, the Chinese have no credibility when it comes to understanding and articulating the kinds of back-office applications that matter to knowledge-driven Western companies. Most Chinese IT companies cater to domestic customers; the vast majority support Japanese and Korean companies with relatively unsophiscticated programming that has been passed to them through highly detailed specifications; and the few BPO resources there are have made it this far performing rote activities that do not require much in the way of analysis or creativity: insurance claims processing, data entry and the like.

This is all not to say the Chinese will not develop a successful BPO industry, for I firmly believe they will, I told the VC on the conference call. And the VC, for their part, reiterated their long-term commitment to developing the BPO industry in China. However, we all agreed, it’s just going to take years longer than we would all prefer. And the industry will likely go through many incarnations before it makes as large an impact on the world scene as the Indian model has. But it would happen in this lifetime, we were confident.

I agree with several of the points raised by Mr. Dodson. I have previously expressed my concerns about China’s “build it and they will come” attitude in my China planning its way into Business Process Outsourcing? post. However, I have had similar concerns in the past, and have been proven wrong. When I first visited Shanghai, the Pudong area was full of beautiful new buildings, most of which were empty. The wide roads to the airport had so few cars that I was struck by the infrastructure overcapacity. China was clearly building ahead of demand and I felt it was a very risky gamble. However, today the buildings in Pudong are full and the roads are crammed. The gamble paid off for China. Will the BPO gamble pay off? Only time will tell.

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