Introduction

In the last three years, China has witnessed continued interest and activity, with service providers (i.e., captives and third-party suppliers) scaling up operations and buyers starting to experiment with more seriousness. In July 2010, China was reclassified as a “mature location” in the Everest Market Vista Location Heatmap that monitors the maturity of different locations. China’s move puts it in an elite group of three countries – the others being India and the Philippines.

In this research brief, we review key changes in China’s position as a global services destination and provide a perspective on the true maturity of the market in terms of scale, scope, and functions. The document also explores key concerns perceived/ faced by incumbent players. Analysis and insights are supplemented by interviews with leading buyers and providers of offshore services.

Key takeaways:

Buyers

• The business case for leveraging China is attractive only for situations that require supporting local or regional operations. For supporting North American and European projects and services, the business case must factor in lead times for cultural familiarization and challenges with ability to scale operations.
• China’s role in the global location portfolio should be anchored around regional delivery, IT services focus, and targeted opportunities to support engineering services where relevant. China is unlikely to be effective as a scaled global services hub in the near term but has a clear and important role as a regional delivery center for global companies.

Suppliers

• Due to its vast labor pool and low operating costs in the Asia region, China presents a credible option to provide IT and knowledge services/analytics, particularly for serving domestic and regional clients of East and South-east Asia.
• Suppliers may consider selective investments in non-voice BPO and voice processes in terms of scale and scope of operations. Although there are some challenges around China’s ability to support scaled BPO operations at present, this may reap benefits over a long term. Given buyers’ concerns on data security and privacy, suppliers may also consider proactive investments in information security processes and tools to demonstrate their capabilities.

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