Taking the pulse of an emerging sector
Outsourcing and shared services strategies are no longer the preserve of US- and Europe- based multinationals. In a new pulse survey commissioned by KPMG China, 80 percent of Asia-based executives said they now employed a strategy involving outsourcing, shared services, or a combination of the two. These executives viewed China as the preferred destination for their shared services centres, although many employed a strategy involving locations in two or more separate jurisdictions around the region.
Forty-two percent of the respondents said their companies have set up one of their shared services centres in China, while Singapore stands second as a popular location (29 percent), followed by India (25 percent), Hong Kong (22 percent) and Malaysia (20 percent).
As Edge Zarrella, Advisory partner, explains: "China continues to have huge potential in the outsourcing arena, as the vendor footprint expands. But right now it is growing even faster in the shared services space. Though at the moment the country has not reached the level of maturity seen in India, the growth of China's outsourcing and services market is significant. Many western companies may still see India as their location of choice, but for executives within Asia Pacific the message is clear - China is now leading the way."
"The speed with which China has emerged as a shared services destination will undoubtedly surprise some people," adds Ning Wright, Partner in Charge, China Outsourcing Advisory, KPMG China. "Shared services are growing across the board in China - IT, Business Process and Knowledge Process work are occurring simultaneously. It is different from the way that things evolved in other markets in Asia Pacific. Accounting already ranks higher than IT as a function provided by shared services centres, which shows that BPO is already overtaking ITO as a key function."
Large multinational corporations, which have long been in China to manufacture and sell their goods abroad, are expanding in the domestic market. This also has implications as they are increasingly setting up shared services and outsourcing services. This is evident in the explosion in the number of R&D centres across the mainland. Microsoft's R&D centre in Hangzhou, for example, is expected to become the company's biggest R&D centre after Bangalore.
The pulse survey confirmed low labour costs as one of the reasons for contracting outsourcing providers (51 percent of respondents choose low labour costs as the top factor), although it is clear that this is far from the only factor. When asked about choice of location for their shared services centre, respondents once again cited low labour costs, as well as language capabilities (53 percent each).
Click here to read our pulse survey on outsourcing and shared services.
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