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On the curve of added-value in outsourcing business maintenance services, technical and administrative skillsets lie on the bottom, while consultation, software development and systematic solution planning are perched on the pinnacle. Decades after the world’s workshop moved to China, Chinese factories have failed to demonstrate enough innovation to win a slot on the upper level of the manufacturing chain, and have consequently struggled with meager profit margins. Zhu Xiaoming, president of China Europe International Business School, warns that service providers in China will be elbowed to the understratum and get stuck there if they are content with using designs provided for outsourcing like their manufacturing peers.

Statistics from the Ministry of Commerce show that of the total value of outsourcing contracts implemented in China in 2009, information technology outsourcing (ITO) accounts for 62.5 percent, business process outsourcing (BPO) for 26.6 percent and knowledge process outsourcing (KPO), a step ahead of ITO and BPO, for only 10.9 percent.

“When we adapt other’s designs, we must press for innovations,” said Zhu Xiaoming. “In this regard we can learn three lessons from India: new technology, new business procedure and new resolution planning.” India also had a humble start in the outsourcing sector, but gradually edged up the ladder of added-value and is building a dominant position in the world.

Guo Xin, president of IDC (International Data Corporation) China operations, has 30 years’ experience in management consulting, and has worked on more than 200 related projects. He has noticed a mounting demand worldwide for the knowledge- and information-intensive KPO service. “In the past international clients approached us to cut costs, now they look forward to us becoming their new profit generator,” Guo said.

From Proficiency to Profit

IsoftStone, a Beijing-based provider of outsourced IT services, gets half its business from abroad. In its early years it saw nothing wrong in automatically meeting the primary needs of its clients, which were, first of all, to lower their costs and better their efficiency.

“In this approach the top priority is being cheap, being fast is second, and being good the last,” said Peng Qiang, the company’s vice president. As outsourced operations are designed for different divisions or departments of an organization (the chief technical officer or CTO, the chief information officer or CIO, and the chief financial officer or CFO, for example), they have disparate requirements. Understandably, cost effectiveness can be best achieved, or so the reasoning goes, if one outsourcing provider focuses on one service. That’s why outsourcing assignments need to be distributed across specialized teams dedicated to respective domains who don’t necessarily communicate or collaborate with each other. “That’s how we still operate,” said Peng Qiang. “But we know we cannot do this forever. A shift is imperative, and preparations for it have to start now.”

IsoftStone looks up to Accenture, a global management consulting, technology services and outsourcing company, for visions of its future. With a staff of 180,000, Accenture amasses an annual revenue of RMB 23 billion; that sum requires one million or more employees on the ground in China and about half million in India, given their companies’ efficiency at present.

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VOL.59 NO.12 December 2010 Advertise on Site Contact Us