Moving up the value chain
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.
China Architecture Design and Research Group, the country's largest State-owned engineering design and service company, was contracted to design Algeria's largest new sports stadium, currently under construction in the coastal city of Oran.
China's service outsourcing sector is dominated by information technology outsourcing, which accounts for 60 percent of the total.
Much of the offshore service outsourcing demand is coming from the United States, Europe and Japan, say experts.
Figures suggest that within the next five years, China's ITO demand will increase by 38 percent year-on-year, with a annual value of more than $8 billion.
However, experts also warn that too many of China's service outsourcing providers are still too small, and as a result can target only low value projects, because of a lack of R&D investment.
Li Tinghui, a researcher at Chinese Service Outsourcing Center, said that for the industry to continue growing, Chinese outsourcing providers should work on developing more international links.
Global service outsourcing will experience the greatest demand from ITO and BPO, and that's certainly to the advantage of Chinese companies, he said.
At the end of July, 18,977 service outsourcing companies were registered in China, employing 3.72 million people, according to the Chinese service outsourcing development report.
It said that in the future, the biggest service outsourcing demand will still come from North America, Western Europe and Japan, and emerging economies, including China, India, Russia and the Philippines, will remain the major providers, among which competition will remain fierce.
But China's domestic service outsourcing market also offers huge business opportunities for local providers.
According to the Chinese service outsourcing center, potential local outsourcing market demand could be as much as four times that of the offshore market.
China's huge domestic service outsourcing market is ready to be developed, said Wang Lianpo, deputy director of the Service and Trade Bureau at the Ministry of Commerce.
As China's State-owned enterprises work on further overseas expansion, there will be huge demand for consulting, legal and financial services, and the State-owned Assets Supervision and Administration Commission said earlier this year that it will be working to cooperate with service providers on these kind of contracts in the future.
According to the 12th Five-Year Plan (2011-15), the country plans to increase the service industry's proportion of GDP from 43 percent to 47 percent.
The development of the service outsourcing industry will help with the country's overall industrial upgrade, developing modern, high-end services, and strategic industries - these will be the pillars of China's economic growth in the future, said Commerce Minister Chen Deming.