Cost arbitrage is expected to remain sustainable over the next 13-14 years
DALLAS, November 17, 2011 ─ Global services exports revenue in China is projected to increase to US$9.5-10 billion by 2015 at a CAGR of 20-25 percent from US$3.5 billion in 2010, according to Everest Group, an advisory and research firm on global services.
Global services exports from China increased from about US$1.2 billion in 2007 to US$3.5 billion in 2010, according to Everest Group’s study, Global Locations Compass: China. The study reports IT Outsourcing (ITO) services contribute about 65 percent towards China’s total export revenue, largely driven by the in-country presence of several top-tier global IT providers. Business Process Outsourcing (BPO) work comprises the remaining 35 percent.
“China offers a compelling regional language advantage and cost arbitrage and is thus best leveraged to serve the Asia region, which accounts for about 60 percent of China’s global sourcing revenues,” said Amneet Singh, vice president – Global Sourcing. “While lack of clear cost and English language skills translate to a limited competitive advantage over India and the Philippines for work exported to North America and Europe, these regions still account for about 40 percent of China’s global sourcing exports. China can serve as a risk diversification alternative to serve North America and Europe.”
Last year’s market growth in China prompted its reclassification as a mature offshore destination on Everest Group’s Market Vista Locations Maturity Heatmap. According to Everest Group’s Offshore Locations Survey of buyers earlier this year, China has emerged as a leading destination after India and the Philippines.
- More than 15 delivery centers were established or expanded across Tier-1 and Tier-2 cities during the last 12 months.
- Market growth also has been propelled by several government initiatives, development/promotion organizations and government-backed incentives.
- China offers more than 20 cities for global services delivery, some of which are Tier-2 cities that are emerging as credible alternatives to Tier-1 options.
- Cost arbitrage is expected to remain sustainable over the next 13-14 years.
“Players defining their ‘China Delivery Strategy’ should assess China’s role in their global services delivery models and understand the costs and talent pool available in context of the envisaged role for China. Cities in China offer varying levels of attractiveness across global, regional and local delivery from China,” said H Karthik, vice president – Global Sourcing. “Companies planning to enter or expand in China also need to invest in talent engagement and development, monitor progress of recent data protection guidelines and examine Tier-2 cities to lower delivery costs.”
The report provides an in-depth analysis of China’s global services landscape across captives and third-party service providers for ITO and BPO services to include market characteristics, education system and future outlook. The study also provides detailed data and perspectives on seven key cities – Shanghai, Beijing, Dalian, Guangzhou, Chengdu, Hangzhou, and Suzhou – spanning across labor pool, cost, market activity and risk analysis.
For more information about the report, Global Locations Compass: China, other Global Sourcing and Location Optimization research reports or other research services, please visit research.everestgrp.com, email [email protected] or call +1-214-451-3110.