China's dawn as an outsourcing giant

Over the past few years, there has been a significant increase in multinationals outsourcing IT and other support functions. In 2002, only 10 percent of multinationals outsourced IT work offshore, but by 2008 this figure had surged to 70 percent. By 2012, the worldwide IT market, the largest segment within the outsourcing industry as a whole, is expected to top USD 1 trillion.¹

The global economic downturn has directed even more attention to the role that outsourcing can play. In many markets, there is growing political pressure to safeguard domestic jobs, but equally many organisations are also looking for new ways to reduce operational costs and improve efficiency through outsourcing.

The downturn has also hit China's manufacturing sectors and in turn, this has hastened the government's efforts to promote service industries. The result is that China is now emerging as a major centre for outsourced services, with a number of locations vying for investment and developing strengths in particular services and markets.

"Companies have started to partner with service providers across a wider range of geographical locations and China is figuring in that mix globally," says Ning Wright, partner in charge of Sourcing Advisory, KPMG China. "Companies are becoming more sophisticated in their sourcing strategies and not thinking solely about cost saving. They are looking to understand the synergies that can be achieved in working with multiple sourcing locations, as well as the risks that they need to manage for new outsourcing arrangements to work."

On 26 April 2009, KPMG China signed a Memorandum of Understanding the Chinese Ministry of Commerce to cooperate in promoting the development of the service outsourcing industry. KPMG is the first and only international accounting firm to have signed such an agreement, as part of the government's Thousand-Hundred-Ten Project（千百十工程）. KPMG has been named one of the world's leading outsourcing advisors by the International Association of Outsourcing Professionals (IAOP).

The Thousand-Hundred-Ten Project is the largest official government outsourcing initiative, and is aimed at promoting the development of the service outsourcing industry, expediting the coordinated development of the regional economy, and improving the international competitiveness of the Chinese economy. This project, together with other more recent initiatives such as tax breaks, financial support, subsidies and intellectual property rights protection from the government, are some of the many schemes to expand the outsourcing industry and to ensure economic growth, industry restructuring and creation of job opportunities, especially for university graduates.

Ning comments, "Through this agreement, KPMG will have direct access to the country's decision makers in the Ministry of Commerce, and we will also be able to position ourselves as one of the leading advisory services providers in sourcing in China."

"This is an outstanding achievement for our China Sourcing Advisory team, this is a key initiative that supports our strong Global Sourcing Advisory practice." adds Egidio Zarrella, Global Partner in charge of IT Advisory, KPMG China. "We have found that many companies globally and in Asia are increasingly turning to China for their outsourcing needs. This, combined with the untapped potential of China's large domestic market, means that China's outsourcing companies are well-placed to weather the current economic turmoil. Many global outsourcing companies are now setting up operations in China to target regional markets, including Japan. China has the depth in its domestic market to create a wide services base and already has a track record serving companies in many other parts of Asia."

Note: ¹ For more information, see A New Dawn: China's Emerging Role in Global Outsourcing, published by KPMG International, April 2009 (downloadable on the right panel)