Devott Perspectives: The Positive Competition of China’s Outsourcing is not only in Asia
Source: View: 215 Date: 2015-10-19

China’s service outsourcing has gone an unusual road. At the beginning, China always wanted to go a usual way to develop service outsourcing—“to copy successful cases from other countries”; however from mode of “Made in China” to mode of Indian outsourcing, they didn’t work. We also can’t understand the reason of loss. Currently we are standing unusually that not only have differences between external expectation & evaluation and internal competency & propaganda, but also have misunderstandings.

Indian outsourcing was a target for China’s outsourcing to catch up with in 1990’s, while less people say that. Currently, the positive competitors of China’s outsourcing are not only India and even in Asia. In the past, although Latin America had abundant resources and developed agriculture, we still didn’t see it as positive competitor of China’s outsourcing; however, currently, it is not only positive competitor for us, we may not have enough advantages to win. The main reason is that Latin America has formed six big advantages that can’t be ignored by any outsourcing undertaking places:

1.         Latin America has many similarities with European and American countries in aspects of culture, history, traditions and business habits (currently used to say “Culture Affinity” in international market), and also has relatively low cost and management difficulties; therefore, it has become a location for USA, EU and other buyers to transfer risks of outsourcing projects. For India, Russia and partly South Asian countries, their professional competency and industrial experiences of outsourcing can make up losing brought by culture affinity; however, for China, lack of culture affinity, professional competency and industrial experiences have become obvious obstacles to effect offshore outsourcing development of China.

2.         Latin America has some unique and natural advantages obviously different from other locations, such as language and jet lag. Most of young people achieved basic education from university or professional education in Latin American countries can speak English and Spanish;  some of them also can speak French, for example young people in Haiti that is one of the poorest countries all over the world. This is different from Asia and Africa that natural language ability can’t need any additional investment or labor cost. In the market of outsourcing buyers, English, Spanish, and French account for more than 90% of offshore business. This language advantage not only transfers to communication advantages in ITO business, but also forms cost advantages that is difficult to go beyond in BPO business with higher profit efficiency. Jet lag originally is a main profit driving point of outsourcing, but with development of outsourcing mode, improvement of technology and change of market requirement, the advantages of jet lag most reflects on traditional outsourcing businesses with relatively low level and old model; the proportion of capital also become less and less. Based on new kind of outsourcing model of industrial solution, relative uniform of jet lag on the contrary become advantage to reduce cost and increase efficiency. With rapid improvement of artificial intelligence and robot technology, and less pure ITO business, according to calculation from Devott, advantages of language and jet lag can increase cost advantages relative to 10%-20% in other offshore implementation locations for Latin America.

3.         Because of each reason from politics and economics, the outsourcing fixed costs in some outsourcing undertaking places has increased, especially in China and India. In recent years, the economic growth in Latin America has slowly increased; the whole cost growth settled by USD also has not obviously increased even in some important countries are still decreasing. It provides more cost leverage advantages for local outsourcing, and also produces more serious threat for China that still see cost as main consider element.

4.         Per capita income of main countries in Latin America is higher than in China, for example of recent report from Wiki, per capita income in Brazil is 9390 USD, in Argentina is 8620 USD, in Mexico is 8890 USD, in Venezuela is 11590 USD, in Uruguay is 10590 USD; while in China only is 5720 USD, in India is only 1420 USD. That means that high-price products and services from global main science & technology countries will enter into these locations more and quicker. It is far different from China and India. Just said by Esteban Herera, the analysts of ISG, the newest mode of global outsourcing industry, the most creative technology and process management with lowest cost will be implemented in Latin America earlier than in the world. This also provides less opportunity for China to transcend.

5.         After many years’ consideration, each country of Latin America has formed consensus to make outsourcing at backward status to form international competitiveness. One is that the support of government shall insist on internationalization and professionalization; the other one is to practically learn experiences from other developing countries. Currently, professional associations from each country in Latin America always attend main submits of international outsourcing; the most rapid and newest business of main outsourcing consultant research companies in USA come from Latin America. The mode of China’s science & technology parks has become mature and competitive footholds of international companies in main countries in Latin America. Latin America greatly uses professional marketing from USA and EU via its own advantages of language, culture and human resources to make itself more like local undertaker. This “unusual phenomenon” will provide “unusual” advantages for each country of Latin America in the trend of increasing xenophobia in USA.

6.         Compared with cooperated internal industries. It makes each country of Latin America to quicker form potentials of big undertakers in outsourcing industry. It is difficulty for many countries to do, especially for China. In past ten years, China’s outsourcing industry with serious scattered features has not formed a supply provider with enough competitiveness to challenge India.

Devott provides research and consultant for global customers, at the same time also provides deep, quantitative and comparative researches for main outsourcing undertaking countries all over the world. Currently, Devott not only is bridge for each country of Latin America to understand China’s technology market, but also is main cooperated partner for Latin American Outsourcing Summit, the biggest global outsourcing summit. For the Latin American Outsourcing Summit in 2015 will be held in Mexico, Devott has invited core decision makers from USA, UK, India, Russia and the biggest professional association in China to participate via its own global influence, which has been achieved high evaluation from IDB and Mexican government, the main organizers of this summit. It also improves influences of China’s outsourcing in each country of Latin America, USA, UK and Russia. Leaderships of Devott as special guests will interpret advantages of China’s market for each country in Latin Amercia.

Devott believes that flourishing outsourcing industry of Latin America has formed direct competitiveness. In order to develop new area of China’s outsourcing, we shall deep research and learn from them like they learn from us.

This post is a personal or group view of Research and Advisory members and don't necessarily represent Devott's positions, strategies or opinions.

Devott Publications
The Selection of the TOP Global Outsourcing Destinations – China TOP 15 (TGOD China TOP 15) Ended and Its Rankings and Research Reports are Now Available Worldwide