LOCATION,LOCATION: STRATEGIC SHORING CONSIDERATIONSChina as a strategic shoring destination Philip Hadcroft PhD Managing Director Practical Logic Pty Ltd Sydney, Australia
UNDERSTANDING THE SCALE OF CHINAThe People’s Republic of China comprises22 provinces,5 autonomous regions,4 directly administered municipalities2 special administrative regions1.34 billion people656 cities8 cities have over 10 million people93 cities have over 5 million peopleChina is 1¼ x the area of AustraliaIt has 100 cities bigger than Sydney / Melbourne.
UNDERSTANDING THE WEALTH OF CHINA % of 2011 GDP USA 1980 GDP 2010 GDP CAGR 2011 GDP Growth % of USA 100 USA US2,788.15 billion US$ 14,657.8 billion 5.7% US$15,087.7 billion 1.6% 100 6.54% India US$ 182.472 billion US$1,537.97 billion 7.4% US$1,729 billion 6.9% 11.46% 7.26% China US$202.458 billion US$5,878.26 billion 11.9% US$7,492.48 billion 9.2% 52.64% http://www.economywatch.com/economic-statistics/year/Since 1980: • In 30 years, China’s per capita GDP has risen from US$205 to US$4,382 (up 8,563%) • 500 million people have been lifted out of poverty. (equivalent to almost half of India) • China’s urban population has risen by 446 million people ( 20x the Australian population)In 2010 • Only 15 nations on earth had a national GDP exceeding US$1 trillion. • Australia attained this level only 3 years agoBut by 2020 • China will have six provinces with an annual GDP of more than US$1 trillion • That’s equal to six economies the size of Russia , Spain or Canada.
UNDERSTANDING THE WEALTH OF CHINA1412 11.1 11.4 10.4 10.0 9.6 9.4 9.3 9.7 9.510 8.6 8.6 8.9 9.1 8.9 8.3 7.9 7.4 7.5 7.3 7.7 8 6.3 6.1 5.8 6.1 6 5 3.7 4 2.6 3.1 2.8 1.6 1.7 1.8 2 0.7 1.1 0.6 0.4 0.4 0.5 0.4 0.1 0 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 -0.7 -0.2 -0.5 -0.2-2 -2 -2.4-4-6 -4.9-8 -6.8 UK USA India China The UK, Europe and USA are still struggling with the global financial crisis, characterised by: • low GDP growth • excess liquidity and • high volatility in finance markets, and • a crisis in European sovereign debt. China’s economy has been affected far less.
TRANSFORMING THE MANUFACTURING ECONOMYSince 1980, China has succeeded as the world’s strong outsourced manufacturingbase, providing high volume, high quality, low cost outsourced manufacturing .Most of this has been along the eastern and southern coastal regions. Much of it isseen as old-tech, high energy consuming and ecologically unsustainable.So China is moving it. Entire industries are going West and North. Newmanufacturing plants are being established using hi-tech, green production systems,lowering China’s carbon footprint, and lowering the cost per unit of output.China’s western and outlying provinces, with their abundant populations of lowercost labour are sharing in China’s growing wealth and revitalising China’s flaggingglobal competitiveness.Eastern sites are embracing new-age manufacturing, hi-tech electronics, optics,pharmaceuticals and new-age materials.Transportation, ultra high speed trains, inland waterways, logistics infrastructure,power generation plants – are all being ramped up at a breakneck pace.
CHINA’S DRIVE TOWARDS A SERVICES-BASED ECONOMY The Eastern seaboard has accepted the challenge of transforming China’s cost- driven manufacturing economy into a value-creating service-based economy. China’s Ministry of Commerce has invested trillions of RMB into 21 model cities, to transform them from their traditional manufacturing bases to strong service outsourcing economies. Cities, provinces and companies are competing intensely to attract foreign and government investment – and to win, they need to be attractive, dynamic and thriving modern locations where Gen Y people want to live.
NEW ATTRACTIVE LOCATIONS THAT MAY SURPRISE YOU Rank City No. Top 131 Model City? • CCIIP – a section of China’s Companies Ministry of Commerce, 1 Shanghai 64 Yes commissions Gartner, IDC and 2 Beijing 62 Yes others to conduct an annual 3 Nanjing 32 Yes survey, using 6 criteria. 4 Chengdu 31 Yes 5 Dalian 30 Yes • 131 companies were ranked as 5 Guangzhou 30 Yes China’s leading services 7 Hangzhou 28 Yes outsourcers in 2011. 8 Shenzhen 27 Yes 9 Wuhan 23 Yes • Those companies have located 9 Xi An 23 Yes 710 branches in 94 cities across 11 Jinan 20 Yes China 12 Chongqing 18 Yes 12 Hong Kong 18 Yes • If you’re thinking of sourcing 12 Suzhou 18 Yes services from China, these are the 15 Changsha 15 Yes cities in which China’s top 15 Taipei 15 Yes services outsourcing companies 15 Tianjin 15 Yes are located. 18 Wuxi 12 Yes 19 Shenyang 11 No To see the names of all 94 cities, go here: 20 Fuzhou 10 No http://www.bigredbookofoutsourcing.com/wp- 20 Hefei 10 Yes content/uploads/2011/10/Services-Outsourcing- Cities-of-China-2011-Synopsis.pdf 20 Kunming 10 No 20 Qingdao 10 No 20 Xiamen 10 Yes
BUILDING CAPABILITY – LEARNING HOW TO COMPETEThe early stages of China’s service economy (2000 -2010) focused on offshoring • leveraging low cost labour in China • building a broad range of outsourced service applications • attracting BPO and ITO work from USA, UK, Europe and Australia to be undertaken in China.Chinese students in western universities (UK, USA, Australia, NZ) have returned toChina to build companies that bring digitised BPO applications from foreign customers.China’s 11th 5-year plan, published in 2006, included the 10: 100: 1000 plan. 1. Establish 10 major cities dedicated to services outsourcing 2. Attract 100 multinational outsourcers to establish bases in China 3. Take 1,000 Chinese SMEs and help them to attain international service standards (ISO, CMM)They overshot the goal and established 21 major services outsourcing cities.
GO LONG – HOW CHINA IS BUILDING ITS SOURCING LOCATIONSFrom 2001 to 2010Chinese BPO service providers have • built their scale, • matured their business models, • refined their operating platforms, • attained ISO and CMMI accreditations, and become world class.China has built the world’s second largest outsourcing industry, equipped it with hi-tech environments, well-trained personnel, internationally-educated management,and accredited ISO and CMMI systems & processes.By 2010 • China was the world’s third-largest exporter of commercial services worth US$171.2bn. That’s a 32 % increase over 2009.From 2011 to 2016China’s 12th 5 year plan, published in March 2011, re-focuses China’s growth ondomestic transformational change. • drive the 1,000 Chinese service providers to the size of multinational corporations, by assertively outsourcing work from government owned banks and companies in insurance, transportation, logistics, utilities and telecommunications.*
TOP OUTSOURCED SERVICES COMPANY DISTRIBUTION BY PROVINCE 2011
IDENTIFYING THE MAIN DRIVERS IN YOUR SHORING STRATEGY • China’s top 131 outsourced services providers have located their 710 branches in 94 cities, across 29 provinces – so which ones best suit your sourcing needs? • The answer will NOT be in a generic ranking and rating of service providers • Instead, it will be found in a close matching of your corporate strategy with a select set of sourcing providers • Many, in China’s north-east are linguistically and culturally best suited to addressing the Japanese and Korean markets • Beijing locations may suit purchasers looking for suppliers with government endorsement & contracts to serve the domestic market • Cities in Jiangsu, Shandong and Zhejiang provinces have strong experience in delivering back-office BPO solutions to English-speaking clients • Wuhan has an exceptional transportation & logistics advantage that suits hub- and spoke strategies, such as document-centric information management • Geographically remote locations can offer lower labour costs, with high competence levels in specific appliactions • Contact centre work abounds in China – but mainly supports the massive domestic market. Southern locations may also support South East Asia.
OFFSHORE SHARED SERVICES AS A PLATFORM FOR INTERNATIONAL GROWTH • Many multinational service providers have preferred to establish their sourcing centres in countries where the languages and cultures are more familiar to them • USA and Europe have been the primary markets served by sourcing vendors because of the population densities, relative wealth and cultural affinity • As the impacts of the extended financial crisis deepen, formerly lucrative markets are no longer driving growth and shareholder value • There is increasing interest in penetrating markets that are not as easy as their 1st preferences • Many companies have identified that China is not just a location for sourcing services – it is also a massive market into which services can be delivered • As Chinese service vendors are growing quickly, they are in need of strategic partners who can offer them domain expertise, vertical market expertise, applications knowledge and skills in large company leadership that they have not yet experienced. • This brings opportunities for western companies, (buyers, vendors and advisors) to participate in China’s growth In the period 2016 to 2020 • China will offer the world a scope and scale of high-quality, well-priced outsourced services, with value propositions that other geographies will find hard to match.
“Remember, in 1980, Chinas GDP was just 7.3 per cent the size of the US economy.When China will actually overtake the US economy in terms of absolute size is hotly debated.But what isnt in debate is that on current projections,Chinas economy is likely to be the largest in the world before the end of the third decadeof this century.” The Hon. Kevin Rudd. (formerly) Australian Minister for Foreign Affairs. Rudd, K. (2011) Australia-China 2.0: The next stage in our economic partnership. Australian Minister for Foreign Affairs . Guangdong University of Foreign Studies. Guangdong, China. http://www.foreignminister.gov.au/speeches/2011/kr_sp_110522.html THANK YOU www.bigredbookofoutsourcing.com See SSON for preferential rates to this research data PRACTICAL LOGIC PTY LTD TM