The Rational Outsourcing Blog

Thursday, May 31, 2007

India vs. China: Forrester right on facts, wrong on conclusions?

Forrester recently published a report entitled China's Diminishing Offshore Role which has been widely quoted by the likes of Computerworld, Times of India, the Hindu Business Line, and China Economic Review. The Computerworld article says:
Forrester Research came out with a report with a rather downbeat assessment of offshoring successes there to date. According to analyst John McCarthy, the market "has not taken off as expected. While there continues to be demand from Japan and multinationals with operations in China, the offshore business from the US and Europe has been slow to materialize. In fact, China’s percentage of GDM resources for the top services firms like Accenture has dropped, while India and the Philippines have seen far greater investment."
The findings in the report , China's Diminishing Offshore Role, were based on interviews with executives at 10 large IT services firms. Reasons cited for disappointing growth included high attrition rates, a lack of English speaking workers, and inadequate intellectual property laws. According to one executive interviewed for the report, offshoring to China "would have to be 20% cheaper than India to be viable." Currently, McCarthy says, the costs are about he same.

Forrester’s facts are 100% right, but their conclusions are almost certainly 100% wrong. The original Forrester report states: "What we found is that while Chinese services firms are supporting a vibrant local IT market, China has not achieved the offshore growth that people expected." I care much less about the absence of a significant offshore market, but the vibrant local market is certainly of interest to me. These Chinese vendors serving local customers do not enjoy a labor cost advantage relative to their customers and thus have to be much more labor efficient than the Indian vendors. Once these Chinese firms figure out how to credibly serve US customers, they will become a credible threat to the Indian vendors unless India can get a lot more labor-efficient. You can see more details on China’s threat to India at this recent article in a leading Indian newspaper [disclaimer: the article quotes me but that is not why I think its good] or at my post on theChinese BPOs’ secret weapon at the Rational Outsourcing Blog.

19 Comments:

  • I find it interesting how analysts seem to focus on "India vs. China" rather than "India and China." Surely the global sourcing pie can help flatten the world further!

    By Anonymous Mohan Babu, at 1:23 PM  

  • Point well taken. The cynical answer is: "vs." leads to more readers than "and" ;-). Jokes aside though, while there is a huge global market big enough for more than just India and China, there is place for only one clear leader. The difference in being number 1 or 2 in the long term can translate into thousands of jobs and significant differences in GDP growth rates.

    By Blogger Apu, at 1:31 PM  

  • Fact: It is China vs. India. It's often a dyadic choice. In ESO, China will kick India's butt. In ITO, especially for apps integration, India will continue to kick China's butt. For software testing and localization, China will gain some ground. For software development (for ISVs), China will VERY SLOWLY gain some ground.

    Apu, you're a tourist in China. You don't know what really goes on here. Your observations border on the absurd. I've been insider (still am, actually) -- and at VP+ levels.

    And, like you, I was an analyst (META), Director, E-Business at Oracle, Director, Strategic Planning at Samsung, Manager, New Markets at Microsoft. Over three years living in China focused entirely on the ITO space. Have met with over 100 firms in 20+ cities. And, like I said, VP in the two largest China-based, U.S.-focused ITO firms. My point: We both have good credentials.

    You mention BPO, but this is a total joke unless you're referring to BPO for the Japanese and Korean markets. For English-speaking countries, forget it. No way. Somebody with adequacy in English can get a better job than just about anything in the BPO sector. If you're looking at high-end, you didn't mention this. But even here, are we talking about legal work? I don't think so.

    A little knowledge is a dangerous thing ... and you've got a little knowledge about China. Sorry to be so harsh, but I'm stating the facts.

    By Anonymous David Scott Lewis, at 9:54 PM  

  • Dear Mr. Lewis:

    Please feel free to be harsh. I have no problem with harsh statements as long as I can learn from them. I look forward to continuing this discussion offline and learning from your experiences in China. Would you mind emailing me your contact information at asengupta @ beyondcore.com?

    That said, let me try to address some of your points:
    * As regards Forrester: all I am saying is that if China has a ‘vibrant’ local market, then in the absence of a labor cost advantage they are likely to be more labor-efficient while serving the local market. This conclusion is also borne out by conversations I have had with several Chinese entrepreneurs. I also see that Chinese BPO companies are being more aggressive in adopting new technologies (perhaps because they have access to easy loans from the government or don’t have the in-house capabilities that Indian BPOs have built up over the years) and this will also likely make them more efficient over time. Now, if they figure out how to serve the US market they will be a credible threat. Perhaps my argument is not exactly in conflict with what you are saying after all? I am not saying China is a credible threat today, only that they could become one in the future and we should not dismiss this out of hand.
    * As regards Chinese BPO being a total joke for English speaking countries: I have seen several process innovations in Chinese companies that are likely to alleviate this problem for very low-end data-entry. Unfortunately I can’t share the details of the process innovations except to say they use symbol identification and transcription skills (which most Chinese are experts in) to make up for the lack of English skills. I am not talking about high-end BPO as that would require actual understanding of English and Western culture. Until I heard of these process innovations that currently only apply to low-end data-entry I would have completely agreed with you on these points.
    * Finally, as regards being a tourist in China: guilty as charged. However, I have spoken with many Chinese entrepreneurs and currently have a team of Stanford students (mostly from China and Singapore) researching the China market for me. I also rely on the expertise of two people whose opinions on China I hold in high regard. First is one of my mentors who is a very senior professor at the Harvard Business School. He has done a lot of research on China and is very optimistic about China’s future. When we speak, I will tell you his name, but I don’t feel comfortable publicly sharing his opinions without his permission. Second is my COO Benny who used to be the COO of Midori Linux (spun out from Transmeta, created by Linus Torvalds) and has done a lot of business in China which is his homeland. However, I agree that I still have a lot to learn regarding China and I look forward to our discussion.

    Thank you,
    Apu

    By Blogger Apu, at 12:44 AM  

  • David:
    I see that you have strong opinions when you state “It is China vs. India. It's often a dyadic choice.”

    I can also see where your opinions come from; being on the ground, trying to ‘sell China’ is perhaps the first step to selling the services of YOUR firm. :-) … And I am guessing that you also face repeated comparisons on “China vs. India” while facing western clients. Where I was coming from was a slightly different angle: if you had a choice of offering clients services from China and India, that debate would be moot; right? … and then you could focus on selling/positioning/offering specific services to clients and ensure successful
    Offshoring IT Services

    Well, a blog’s comment section is an odd place for us to debate this; let us see if we can pick another place to continue our conversation.

    By Anonymous Mohan Babu, at 8:11 AM  

  • i cant understand why would someone compare china and india in different areas its like asking which is better a helicopter or an airplane if both the economies were aiming for success on every sector then it makes sense china makes good hardware and india makes good software china is good at manufacturing india is good at genuine innovation in the longterm both nations would need each other to ensure their success and power u cant make hardware and expect it to work on nothin the same way u cant make software and expect it to work without the hardware

    By Anonymous Anonymous, at 4:14 AM  

  • This is a rare Good post with excellent comments on India Vs. China Outsourcing. But the most I like the last comment...very well said "In the long-term both nations would need each other to ensure their success and power".

    By Anonymous BPO Dept. 24/7 Customer, at 3:31 AM  

  • It seems interesting issue india vs. china outsourcing.Its my opinion that both nations are different at both places.China is good with its hardware side & india is good in software side.In outsourcing also i don't think it will affect in any sense.


    Regards,
    Shreya
    www.theoutsourcingblog.com

    By Blogger Shreya, at 10:32 PM  

  • I like this post very much. As u told "In the long-term both nations would need each other to ensure their success and power" because both nation has their own pros & cons.
    visit: www.theoutsourcingblog.com

    By Anonymous shreya, at 12:52 AM  

  • Setting up an offshore company is very crucial, I suggest we really need to find a good one who can help us.

    By Anonymous jonna, at 6:02 AM  

  • Hi, Your article is very interesting and impressive. I liked our blog. Thanks for sharing it and keep the good work coming. Bye.

    By Anonymous Outsourced Software Testing, at 3:22 AM  

  • This is an interesting issue. By the way thanks for bringing it to the light.

    By Anonymous Outsource Software Testing, at 10:39 PM  

  • This article points out one think which is also visible in Indian market as well: trapping vibrant domestic market. Even companies like Genpact, which is India's largest BPO, is trying to get into Indian market due to uncertain world market. Also, many software testing service providers also looking inwards to sustain their growth.

    By Blogger Tania, at 5:38 AM  

  • Looks like accuracy and precision in outsourcing results seems to be a bit bleak, though the global market in Asia has grown exponentially and outsourcing is a likely cause. Jobs offshore as stated is high for both nations so end term results will probably vary so there is not much of substance in the conclusions given.

    By Anonymous legal process outsourcing philippines, at 5:18 AM  

  • Hi this is Ana, i read the whole topic,its really very interesting,i want some more infi regarding this topic.can you please send me more info.
    ===================
    top bpo companies in india

    By Blogger anab01, at 10:19 PM  

  • Both China and India and all of the catering outsourcing firms in different countries are cost-efficient in terms of offshore outsourcing to cut costs. Allow extensive research and bare in mind the expertise, skills, technology and advancements used of each country to outsource suitable projects to them. For software development and IT outsourcing services, rather go for India. They are the best so far and for massive production of units, go with China. Every outsourcing country has its own field of expertise.

    By Anonymous IT Outsourcing, at 12:29 AM  

  • Really a great effort to compare India and China. I am also agree with the last comment that both the countries should work together for a long term success.

    By Anonymous Outsourcing Company, at 5:11 AM  

  • I had never had such a influencing written material. Really appreciate able. I found so many interesting stuff in your blog, especially its discussion.

    By Anonymous Oracle Outsourcing, at 10:31 PM  

  • Awesome site. Thanks for sharing.

    By Anonymous corporate security management, at 9:30 PM  

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