China closing on 30% market share in global services outsourcing

According to latest statistics released by Ministry of Commerce, China, its service outsourcing market is growing fast. The report by the Chinese authorities claims that China is the second most popular service outsourcing destination after India.

As per the report, the value of international service outsourcing contracts undertaken by the Chinese outsourcing companies is $22.35 billion from January to July this year. The growth rate of services exports is estimated to be 40.1% which is higher compared to goods exported. The growth rate of exports market is estimated only to be around 7.8% for the same period.

China gains in outsourcing. Image source

Chinese services outsourcing market accounts for 28.7 % of the global market. According to industry experts, the market will grow this year to acquire 30% of the global services outsourcing market. The government of China is leaving no tables unturned to promote the industry in the global outsourcing market. The authorities are investing largely in the industry to tap the opportunities in the international outsourcing market.

According to the Chinese Service Outsourcing Development Report 2012, published by the Ministry of Commerce, the demand for Chinese ITO in next five years will increase by 38% yoy basis, with an annual value of $8 billion. Many Chinese based manufacturing companies including Huawei Technologies and Lenovo Group Ltd are largely investing in the country’s service outsourcing market eyeing the growing demand for IT outsourcing.

Currently, China’s services outsourcing market is dominated by IT outsourcing which accounts for 60% of the total service outsourcing market.  It is forecasted that knowledge process outsourcing, industrial engineering and design services will get a boost in China. Recently, country’s largest state owned engineering and design services, China Architecture Design and Research Group was awarded with the contract to design Algeria’s new sports stadium. This shows the credibility, the country has gained in the outsourcing market.

It is said that in future, the Chinese outsourcing companies will continue to undertake contracts from North America, Western Europe and Japan and will face fierce competition from emerging economies like India, Russia and Philippines.  However, the domestic demand for ITO is offering huge growth potential for Chinese outsourcing companies. The report claims that the domestic demand offers four times growth potential for the services industry than the offshore market.

However, the report also warns the outsourcing companies for not taking effort to grow and not investing in R&D. This is because if the companies do not invest in R&D activities, they will continue to receive only low volume outsourcing contracts which can stop them from growing to new heights. Analysts are of the opinion that if outsourcing companies in China wants to grow; they need to develop more international links.

Overall the development of services outsourcing market will help China to increase their GDP growth and build new pillars for its future economic growth.

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