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China's push to become an alternate offshoring hub for MNCs tackling soaring wages and high attrition rate in India remains a distant dream as its market is developing slower than expected, a study says.
Despite massive government support and huge visibility on the global arena, China's offshore market has not taken off as expected and still has a long way to become a potential alternative to India, technology research firm Forrester said in a report released today.
Multinational firms, considering China as a "quick-fix" solution to deal with rising costs and high attrition in other offshore locations like India, would be sorely disappointed by the country's slowing offshore momentum, the report said.
"When we first looked at china's offshore and it services Global Delivery Model (GDM) nearly two years ago, the country was widely viewed as the key challenger to India for offshore supremacy. However, the market has not taken off as expected," Forrester's vice-president John Mccarthy said.
He said while Japanese firms were more aware about China's potential, those from the US and Europe have been slow to respond. "In fact, China's percentage of GDM resources for top services firm like accenture has dropped, while India and the Philippines have seen far greater investment," he said.
Mccarthy, who had predicted in 2002 that over three million BPO jobs in the US would go offshore, added that firms with large bases in India should consider other geographies when addressing the risk mitigation issue.
Even countries like the Philippines, Mexico and Brazil could prove to be better alternatives than China for diversifying offshore exposure in terms of skills, language and convenience, he added.
Forrester also said like India, China also faces similar problems of attrition,[link widoczny dla zalogowanych], increasing wages and lack of experienced manages and technical leads. In addition, the appreciation of the Yuan against the dollar was hurting margins of companies outsourcing their work to China,[link widoczny dla zalogowanych], it said.
"The consensus among interviewees was that China still has not overcome clients' concern about limited English skills,[link widoczny dla zalogowanych], attrition and weak intellectual property protection. One executive went so far as to say that China had to be 20 per cent cheaper than India to be viable," the study said.
Noting that china's percentage of overall offshore resources has dropped and other countries were growing at a faster pace, Forrester said the country needs to refocus its offshore efforts.
Instead of trying to compete in areas like application development and management, where India dominates, China should encourage local firms to focus on other areas like testing,[link widoczny dla zalogowanych], data management and product development services.
For other countries vying for the lucrative offshoring pie, Forrester suggested economic development agencies in Thailand,[link widoczny dla zalogowanych], Malaysia, Egypt and Morocco that they need to do more than just re-labelling the pool of engineering graduates as being ready to export their services.
"Their education programmes ought to focus on advanced skills like project management and advanced architecture skills, while at the same time, respective governments should invest significant funds to market the country as an alternative to the offshore incumbent - India," Mccarthy said.