Service Outsourcing – “No.1 Industry” in Multi-City Targets Industrial Upgrading
Source: View: 200 Date: 2015-11-26

After many investigations, Huiying Group undertaking non-core outsourcing business of enterprises recently selected East China Headquarter project with total investment of 3 billion RMB to settle in Jinhua, Zhejiang province.

It is microcosm of service outsourcing industrial gathering efficiency in Jinhua. Since the year of 2008, Jinhua has formed 500 service outsourcing enterprise groups including e-commerce and software information currently; the employees increased to near 35,000 people, which brings production value with 2.3 billion USD.

This emerging industry has faced a gold development period during the period of “12th Five-Year”. According to introduction from Qian Fangli, the director of China’s service outsourcing research center on “2015 Global Service Outsourcing Submit” on November 22nd of 2015, in the first four years of “12th Five-Year”, the implementation value of China’s service outsourcing industry has increased from 19.8 billion USD to 81.34 billion USD with annual growth of 42.6%; and contract amount also has broken one hundred billion USD.

"Service outsourcing will have a better growth during the period of ‘the 13th Five-Year’” said by Li Gang, the director of MOFCOM when he received interview from reporter, from current trend, service trade development speed is faster than speed of good trade; while the speed of service outsourcing is slightly faster than service trade currently that accounts for 1/4 of proportion of whole service trade export.

Rapidly rising service outsourcing industry quickly entered into local development schedule, even has become “No.1 industry” in some cities. For example of Zhengzhou of Henan province – central city, Wang Zhiming, the vice director of Jinshui District, Zhengzhou in “The Third Service Outsourcing Innovative Conference of Zhengzhou” on November 8th threw “gold and silver” olive branch: Zhengzhou will provide near 20 million RMB fund support at one-time for outsourcing service enterprises that establish headquarter or local headquarter in Zhengzhou and undertake offshore outsourcing service businesses.

Honeymoon of Local Policy

Under negative growth layout of export, service trade especially service outsourcing industry becomes new growth point to support foreign trade development in China that leaps to the second biggest service outsourcing country from level of less than 1 billion USD in 2005.

However, in the process of export way transferring from good trade to service trade, province on the east coast was the first batch of locations realizing service outsourcing industrial potentials. For example of Jinhua, since launched service trade industry in 2008, it begun to take shape in 2010; the contract amount reached 1.8 billion USD in 2014 that still kept the first three positions in Zhejiang province.

Shao Guoqiang, the deputy mayor of Jinhua indicated in “2015 Global Service Outsourcing Submit” when he interviewed by reporter, the reason why took service outsourcing as a strategic emerging industry to develop is on one hand, he predicted outsourcing industrial development prospect; on the other hand, based on reversing the original intention of unbalanced development between good trade and service trade for long time, choose service trade that was at early stage to promote as “No.1 industry”.

"No.1 Industry” means the support from policy measurement. In Jinhua, government established professional fund company with more than billion RMB, professional fund of introducing talents with one billion RMB for each year, and provided preferential measurements such as “free rent for three years” and etc.

After eastern region achieved profits at first, under influences of increasing comprehensive cost currently, the middle and western areas will have opportunities of service outsourcing transferring.

One outstanding performance is important attention from local government. Recently, Hefei, Anhui province has promoted a schedule that until the year of 2020, the contract amount of service outsourcing will reach 9 billion USD; Chongqing also puts forward the target of annual growth with 30%.

"Government indeed focuses on this work currently” someone of service outsourcing enterprise attending this submit obviously felt that many places like Qingdao set up professional funds of service outsourcing development and attended relative conferences; what’s more, local many important leaders also made promotion in conferences.

"The China’s Outsourcing Brand Report in 2015” published by MOFCOM indicated that currently, cities developing service outsourcing has increased to 100. Meanwhile, in order to achieve first chance of development, more than ten cities in China are applying “China’s service outsourcing demonstration city”; some of them have submitted their plans such as Jinhua, Zhengzhou and etc.

Talent Is the Biggest Short board

Why local governments focus on service outsourcing industry currently? An analyst who entered into this industry early told reporter that on one hand according with demand of industrial upgrading and innovation, developing service outsourcing can be good at becoming new growth point and can’t cause pollution like manufacturing industry; on the other hand, under current situation of obviously decreasing industry, service industry especially service outsourcing is good at introducing new talent, driving local employment and bring direct and indirect five times of industrial tax income.

According to calculation from Li Gang, China has become big service outsourcing country currently; service outsourcing industry has accounted for 3.24% of GDP and brought 0.63% growth of GDP at the same time. During the period of “the 13th Five-Year”, service outsourcing industry will keep double-digit growth trend.

However, although China has become the second biggest service outsourcing country just behind India, it still has long way to go to be strong. In 2014, the growth speed of service outsourcing industry in China was faster near 10% than India, but considering proportion, China only accounted for 28% of market share that far away from 43% in India.

The most pain point for many service outsourcing enterprises is the short board of talent.

"In the past, we can select employees from many choices, but now it is difficult. If one engineer applies a position, there will be more than ten companies contacting him to make interview” Song Kongyao, the general manager of ZenSar Technologies (Shanghai) Co., Ltd. in China area indicated in “The Third Service Outsourcing Innovative Submit in Zhengzhou”, China’s service outsourcing industry more depends on advantage of population not advantages of talent.

For example of per capita amount, in 2014 near 28,000 small & medium-size enterprises in China’s service outsourcing industry created 55.92 billion USD production value that was near 13,000 USD per capita amount; while in India medium & big-size enterprises were main forces in service outsourcing industry, 16,000 enterprises created near 86 billion USD production value that was near 37,000 USD per capita amount, which was near three times of China’s amount.

For the reason of lacking of talents in China’s service outsourcing industry, Zhang Qiang, the secretary-general of China’s Information Technology and Outsourcing Industry believed that on one hand, it is high turnover rate of talents in service outsourcing industries such as architect, managers, IT personnel and etc.; on the other hand, although China has many IT talents but is difficult to form professional talents via training in short time; they must need exercises in market for long time.

According to introduction from Li Gang, the Ministry of Commerce is making “the 13th Five-Year” schedule of service outsourcing industry in that the most important mission is to improve international competitiveness of China’s service outsourcing industry, and to change middle & low-end layout in global service outsourcing industry.

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