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Fuzhou， a bustling city along the Taiwan Straits in Fujian Province， is witnessing rapid growth in its service outsourcing sector， which covers software development， animation and online gaming as well as telecommunication services and logistics.
The Newland Group is a private hi-tech company that offers all-round IT solutions to clients. Based in Fuzhou， capital of southeast China’s Fujian Province， and boasting total net assets of over 700 million yuan （$114.31 million）， Newland made its name as an IT outsourcing service provider.
Newland is only one of the Chinese companies that are looking to get in on the lucrative and booming market. Service outsourcing is on the rise in China as the country seeks to abandon its global image as a producer of low-end manufactured goods. The Chinese mainland has become the world’s second largest service outsourcing provider after India.
Chinese companies took serviceoutsourcing orders of $11.7 billion in the first quarter， up 43.6 percent year on year， according to the Ministry of Commerce（MOFCOM）. As of March， China’s service outsourcing industry had 4.46 million employees. Orders of offshore service outsourcing increased to $33.6 billion in 2012， compared with $4.69 billion in 2008， a global market share of 27.7 percent， up from 7.7 percent in 2008.
Service outsourcing covers a widerange of company needs from call centers， IT solutions， information storage and cloud computing. Previously， only companies were involved in service outsourcing， but now governments and financial institutions are willing to outsource service jobs as well.
“Fuzhou has many advantages to develop into a service outsourcing hub，” said Chen Ye， Vice Mayor of the city， at the China Fuzhou International Outsourcing Forum， a sideline of the Cross-Straits Fair for Economy and Trade held on May 18. “The most important advantage would be its geographic proximity to Taiwan. As the closest provincial capital to Taiwan， Fuzhou has the most preferential policies for mainland-Taiwan cooperation.”
In recent years， Fuzhou’s service outsourcing industry enjoyed two-digit growth. At the end of 2012， the city had a total of 585 service outsourcing companies， which took offshore outsourcing orders worth $506 million， surging 45 percent over the previous year， and onshore outsourcing orders worth 38.6 billion yuan （$6.2 billion）， up 33 percent year on year， according to a statement from the Fuzhou Municipal Government. Fuzhou is hoping Taiwan will play a crucial role in the city’s outsourcing development， given the island’s advanced hi-tech expertise and head start in service outsourcing. Companies based in the city are hoping Taiwanese companies can help service providers attract global contracts.
“The city boasts a significant number of rapidly growing software companies， strong infrastructure and a vast potential market， while Taiwan has solid experience in the international sphere and mature business processes and commercial models. The two highly complementary regions should have deeper cooperation in the service outsourcing industry and together explore the international market.”
Wan Lianpo， Deputy Director of the Department of Trade in Services and Commercial Services， echoed Chen’s viewpoint， adding that cultural similarities between Taiwan and Fujian make it easier for the two to cooperate. “Fuzhou has a good natural environment and abundant human resources， making the city a promising one in developing the service outsourcing industry，” Wan said.
Taiwan has a very advanced service industry， which accounts for 70 percent of its GDP， and also has global brand influence in the IT industry. If two regions can enhance cooperation to complement each other， it will be greatly beneficial for both sides， Wan said.
In a bid to fully tap Taiwanese resources， Newland acquired 58 percent of a Taiwanbased IT company in 2009， becoming the first Chinese mainland company to invest in Taiwan. Hu Gang， Board Chairman of Newland， said that the investment had four aims： developing in the Taiwan market， tapping the international market through Taiwan， enhancing product design， and learning from Taiwan to improve Newland’s production capacity.
“Newland has achieved all these goals by investing in Taiwan. The company’s market share is expanding， with products sold in many foreign countries. Newland’s Taiwan branch is making profits，” said Hu. “We were also given two extra benefits. First， we have been introduced to Taiwan’s more advanced management in intellectual property. Second， we have a stable channel to recruit Taiwanese talent to service outsourcing companies on the mainland.”
Wang Jing， President of Newland， told Beijing Review that Taiwan serves as a foothold for the company to get into the Southeast Asian market and even the global market. “For Newland， a thorny issue is the fear of breaking international rules in terms of laws， standard practices and intellectual property. Taiwan has had a head start and they are more familiar with international rules and how to better comply with them. We really should learn from them，” Wang said.
Challenges ahead
Fuzhou’s service outsourcing industry is still at the low end of the industrial chain， yielding low profits. Information technology outsourcing（ITO）， business process outsourcing （BPO） and knowledge process outsourcing （KPO） are what Fuzhou is hoping to one day excel at. The majority of Fuzhou’s service outsourcing industry is in ITO， accounting for 70.42 percent of total revenue in 2012， while the proportion for higher value-added BPO and KPO is 20.19 percent and 9.39 percent respectively.
Fuzhou faces fierce competition from other Chinese cities like Chengdu， Nanjing， Hefei and Suzhou， as well as its longtime rival India， which “has sharp competitiveness in terms of English language skill， lower costs， talent pool and familiarity with international rules，” said Zhu Xiaoming， President of the China Europe International Business School based in Shanghai.
“I think China also has many advantages. First， China is at the same starting line for the third industrial revolution—the digital revolution—as other developed countries. Second， as the world’s most populous country， China is a huge and attractive consumption market for outsourcers. Finally， the country has the most university graduates in the world，” he said. “Facing severe competition， product and service innovation is the only way out.”
Fuzhou invested heavily in its service outsourcing industry at a time when the city is transforming its growth model away from the manufacturing sector. In 2012， Fuzhou earmarked 5.87 million yuan （$958，600） to support the development of service outsourcing. In 2013， the city will increase the subsidy to 6.5 million yuan （$1.06 million） to sponsor talent training and brand construction， according to a report from the China Outsourcing Institute.
“It’s the right direction. The Fuzhou Municipal Government should give serviceoutsourcing providers more guidance and policy support. Also， the government should better integrate resources in the industry by organizing them to go out as a group to attract outsourcers.”
Jiang Zhenpeng， Vice President of ISG China， an outsourcing advisory company， said that the government should understand what exactly is needed to lure outsourcers to Fuzhou and China in general. “From 2006 to 2009， the selection of outsourcing destinations was based on the cost. From 2009 to 2012， it was based on talent pool. In 2013， it’s based on local market demand for the outsourced products or services，” said Jiang.
“If Fuzhou wants to develop its service outsourcing industry， it should encourage local conglomerates， such as SOEs， to outsource their businesses to private companies. Also， the government itself should outsource its e-government business to private companies，” said Jiang.
Peng Qiang， Vice President of Softstone Co. Ltd.， China’s leading IT solution provider， thinks China is still too focused on manufacturing.
“The business environment and its respective policies are geared toward the manufacturing sector， not to the services sector. This is a vital bottleneck for the development of services in China，” he said.
The Newland Group is a private hi-tech company that offers all-round IT solutions to clients. Based in Fuzhou， capital of southeast China’s Fujian Province， and boasting total net assets of over 700 million yuan （$114.31 million）， Newland made its name as an IT outsourcing service provider.
Newland is only one of the Chinese companies that are looking to get in on the lucrative and booming market. Service outsourcing is on the rise in China as the country seeks to abandon its global image as a producer of low-end manufactured goods. The Chinese mainland has become the world’s second largest service outsourcing provider after India.
Chinese companies took serviceoutsourcing orders of $11.7 billion in the first quarter， up 43.6 percent year on year， according to the Ministry of Commerce（MOFCOM）. As of March， China’s service outsourcing industry had 4.46 million employees. Orders of offshore service outsourcing increased to $33.6 billion in 2012， compared with $4.69 billion in 2008， a global market share of 27.7 percent， up from 7.7 percent in 2008.
Service outsourcing covers a widerange of company needs from call centers， IT solutions， information storage and cloud computing. Previously， only companies were involved in service outsourcing， but now governments and financial institutions are willing to outsource service jobs as well.
“Fuzhou has many advantages to develop into a service outsourcing hub，” said Chen Ye， Vice Mayor of the city， at the China Fuzhou International Outsourcing Forum， a sideline of the Cross-Straits Fair for Economy and Trade held on May 18. “The most important advantage would be its geographic proximity to Taiwan. As the closest provincial capital to Taiwan， Fuzhou has the most preferential policies for mainland-Taiwan cooperation.”
In recent years， Fuzhou’s service outsourcing industry enjoyed two-digit growth. At the end of 2012， the city had a total of 585 service outsourcing companies， which took offshore outsourcing orders worth $506 million， surging 45 percent over the previous year， and onshore outsourcing orders worth 38.6 billion yuan （$6.2 billion）， up 33 percent year on year， according to a statement from the Fuzhou Municipal Government. Fuzhou is hoping Taiwan will play a crucial role in the city’s outsourcing development， given the island’s advanced hi-tech expertise and head start in service outsourcing. Companies based in the city are hoping Taiwanese companies can help service providers attract global contracts.
“The city boasts a significant number of rapidly growing software companies， strong infrastructure and a vast potential market， while Taiwan has solid experience in the international sphere and mature business processes and commercial models. The two highly complementary regions should have deeper cooperation in the service outsourcing industry and together explore the international market.”
Wan Lianpo， Deputy Director of the Department of Trade in Services and Commercial Services， echoed Chen’s viewpoint， adding that cultural similarities between Taiwan and Fujian make it easier for the two to cooperate. “Fuzhou has a good natural environment and abundant human resources， making the city a promising one in developing the service outsourcing industry，” Wan said.
Taiwan has a very advanced service industry， which accounts for 70 percent of its GDP， and also has global brand influence in the IT industry. If two regions can enhance cooperation to complement each other， it will be greatly beneficial for both sides， Wan said.
In a bid to fully tap Taiwanese resources， Newland acquired 58 percent of a Taiwanbased IT company in 2009， becoming the first Chinese mainland company to invest in Taiwan. Hu Gang， Board Chairman of Newland， said that the investment had four aims： developing in the Taiwan market， tapping the international market through Taiwan， enhancing product design， and learning from Taiwan to improve Newland’s production capacity.
“Newland has achieved all these goals by investing in Taiwan. The company’s market share is expanding， with products sold in many foreign countries. Newland’s Taiwan branch is making profits，” said Hu. “We were also given two extra benefits. First， we have been introduced to Taiwan’s more advanced management in intellectual property. Second， we have a stable channel to recruit Taiwanese talent to service outsourcing companies on the mainland.”
Wang Jing， President of Newland， told Beijing Review that Taiwan serves as a foothold for the company to get into the Southeast Asian market and even the global market. “For Newland， a thorny issue is the fear of breaking international rules in terms of laws， standard practices and intellectual property. Taiwan has had a head start and they are more familiar with international rules and how to better comply with them. We really should learn from them，” Wang said.
Challenges ahead
Fuzhou’s service outsourcing industry is still at the low end of the industrial chain， yielding low profits. Information technology outsourcing（ITO）， business process outsourcing （BPO） and knowledge process outsourcing （KPO） are what Fuzhou is hoping to one day excel at. The majority of Fuzhou’s service outsourcing industry is in ITO， accounting for 70.42 percent of total revenue in 2012， while the proportion for higher value-added BPO and KPO is 20.19 percent and 9.39 percent respectively.
Fuzhou faces fierce competition from other Chinese cities like Chengdu， Nanjing， Hefei and Suzhou， as well as its longtime rival India， which “has sharp competitiveness in terms of English language skill， lower costs， talent pool and familiarity with international rules，” said Zhu Xiaoming， President of the China Europe International Business School based in Shanghai.
“I think China also has many advantages. First， China is at the same starting line for the third industrial revolution—the digital revolution—as other developed countries. Second， as the world’s most populous country， China is a huge and attractive consumption market for outsourcers. Finally， the country has the most university graduates in the world，” he said. “Facing severe competition， product and service innovation is the only way out.”
Fuzhou invested heavily in its service outsourcing industry at a time when the city is transforming its growth model away from the manufacturing sector. In 2012， Fuzhou earmarked 5.87 million yuan （$958，600） to support the development of service outsourcing. In 2013， the city will increase the subsidy to 6.5 million yuan （$1.06 million） to sponsor talent training and brand construction， according to a report from the China Outsourcing Institute.
“It’s the right direction. The Fuzhou Municipal Government should give serviceoutsourcing providers more guidance and policy support. Also， the government should better integrate resources in the industry by organizing them to go out as a group to attract outsourcers.”
Jiang Zhenpeng， Vice President of ISG China， an outsourcing advisory company， said that the government should understand what exactly is needed to lure outsourcers to Fuzhou and China in general. “From 2006 to 2009， the selection of outsourcing destinations was based on the cost. From 2009 to 2012， it was based on talent pool. In 2013， it’s based on local market demand for the outsourced products or services，” said Jiang.
“If Fuzhou wants to develop its service outsourcing industry， it should encourage local conglomerates， such as SOEs， to outsource their businesses to private companies. Also， the government itself should outsource its e-government business to private companies，” said Jiang.
Peng Qiang， Vice President of Softstone Co. Ltd.， China’s leading IT solution provider， thinks China is still too focused on manufacturing.
“The business environment and its respective policies are geared toward the manufacturing sector， not to the services sector. This is a vital bottleneck for the development of services in China，” he said.