China commits to raising outsourcing profile

India may still be the dominant country when it comes to offshore outsourcing, but that situation could change in the coming years as China makes a bid to challenge its rival. Earlier this year, the government chose 20 cities as outsourcing hubs to attract more international investment and provided them with tax breaks, labor hours systems and employment subsidies.

Now, the country has announced further policies designed to boost the sector. On Wednesday, the Chinese government said it would increase the financial incentives given to companies working within the outsourcing industry, particularly within the 20 hub cities.

In a statement posted by the government on the website of the People’s Bank of China, financial institutions were asked to create preferential products and policies specifically tailored to outsourcing companies, while insurance companies were requested to do the same.

Even China’s own banks were asked to increase their use of domestic outsourcing providers for services such as answering phones at call centers. Additionally, outsourcing providers were encouraged to raise funds by being listed in equity markets both in China and overseas.

The statement – issued by the central bank, the Ministry of Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, the China Insurance Regulatory Commission and the State Administration of Foreign Exchange – is part of the country’s strategy to compete with countries such as India, Russia and Philippines for a larger share of the global outsourcing pie.

The latest AT Kearney’s Global Services Location Index ranked China as the second-most-attractive offshoring destination – and it has held that spot since the list began in 2004. Meanwhile, India has been ranked number one for the past five years.

In June, Wang Chao, the assistant minister of commerce, said that China was seeing success in boosting outsourcing revenue due to its low labor costs, plentiful college graduates and support for the sector from the government, China Daily reported.

However, according to research by oDesk, the average wage paid to a freelance worker from China is $15.19, which makes it more expensive than India, whose average wage is $10.75.

So, how can China overtake India? A recent research report from CCID Consulting made some recommendations about how the country could improve its competitiveness within the IT and financial services outsourcing sector.

First of all, the report suggested that providers should focus on improving workers’ language skills. Although there is currently a high level of Japanese and Korean spoken by professionals, English was judged to be lacking.

Second, outsourcing companies were advised to improve their communication channels, making it easier for clients to have a direct line of communication.

Two of the consultancy’s recommendations related to China’s worldwide perception. For one thing, it is seen as a high-risk country because of weak data protection policies, while there are also concerns about intellectual property protection, the report states.

One other suggestion proposed that Chinese workers receive specialized training that would help make their skills more attractive – for example, focusing on large-scale computer operations.

Meanwhile, China continues to look for ways to increase overseas interest in its offshoring industry. According to ChinaStakes.com, there are more than 70 Fortune 500 firms that have preliminary agreements with China to increase their rate of outsourcing to the country. Meanwhile, the Ministry of Commerce is also courting 200 top multinationals to bring more business to China by 2013.