Abstract
Outsourcing is an innovative industry that emerged during the service industry’s moving towards the high end of value chain. The Thousand-Hundred-Ten Project has facilitated the advancement of outsourcing industry in China, and the twenty model cities are exploring their different development paths. By discussing the ten relations, this article aims to find out the objective laws of service market development proceeding from real case scenario and China’s actual conditions, and to discuss how different regions should develop tailored development plans based on their economic and human resources characteristics in an effort to provide economic development friendly atmosphere, promote both onshore and offshore outsourcing, actively foster talents, and facilitate the development of outsourcing service providers.
Since the implementation of the Thousand-Hundred-Ten Project in 2006, the Chinese government has been endeavouring to promote the development of outsourcing industry in some qualified cities, and the achievements are quite impressive: the 20 outsourcing model cities have experienced change of concepts, and are now exploring their own development paths. Transnational corporations and large-sized outsourcing clients are keeping sharp eyes on China’s emerging industrial storm, showing great interest in choosing China as the new outsourcing delivery destination. Thousands of small and medium-sized outsourcing service providers in China are committed to developing in both size and strength by continuously opening up new markets, restructuring, conducting M & A, and seeking cooperation.
On one hand, many cities have accumulated precious experiences in investment attraction and manufacturing outsourcing in the past 30 years. On the other hand, they are still a little overwhelmed by the arrival of the outsourcing industry that is still growing worldwide. Now less than 20 years old, the global outsourcing industry features novel abstract forms and rich contents. In service outsourcing, service is the foundation and the root while outsourcing is merely the form. Service has the following characteristics: A) Rich in contents. It is needed by numerous industries. B) Abstract. Unlike manufacturing, service is an invisible economic activity with the aim to satisfy high levels of psychological and spiritual demands. C) Demanding. The delivery of services demands the application of new technologies, especially innovative information technology, and requires people to use comprehensive scientific knowledge, skills and competencies to innovate. D) Changeable. Customer demands are continuously updating, while thoughtful services should be tailored and unique. To offer customer-need oriented services, outsourcing providers should deploy the most suitable and qualified experts to deliver some services. Therefore, only if outsourcing service providers continuously track the development and application of latest technologies as well as upgrade their management modes can there emerge a win-win situation among terminal customers, service clients, service providers, employees and the community as a whole. Outsourcing model cities without doubt can learn from China’s successful experiences in attracting foreign investment and advancing the manufacturing industry. Nevertheless, considering the unique nature of outsourcing industry and the trends of domestic and international economic development, we should advance with the times and consistently be aware of new issues emerging, study rules and methodologies of service economy, build up a harmonious society, and then boost China’s economy and improve people’s living standards. In the following part, the author will have a look into the ten relations that emerge during outsourcing model cities’ development of outsourcing industry in hope of sparking in-depth discussions and researches.
I. Relation between the Central and Local Governments
1. Both central and local initiatives should be brought into play.
The measures China adopts to develop an outsourcing industry with its own characteristics should be differentiated from those applied by India. In the past 30 years, the mighty Chinese Government has amassed tremendous experiences in advancing the export oriented manufacturing and trading industries, among which to bring both central and local initiatives into full play is the most valuable. Granting local governments finance autonomy in particular may induce good performance from them in foreign investment attraction, market atmosphere creation and market order regulation. In addition, the central government should play a directing role in policy making and industry development, enabling model cities to avail themselves of available resources, and to consequently achieve economic restructuring through developing outsourcing industry. Vast in territory and unbalanced in economic growth, China should avail itself of the human resource cost gap between the costal developed region and inland underdeveloped region. Outsourcing model cites should start from their own actual situations to realize ladder-shaped development in client base, skills, and task difficulty level. Under the premise of resources optimization, the governments ought to facilitate inter-region cooperation among outsourcing service providers so as to realize comprehensive, scientific and rational allocation of resources and bring service providers’ advantages into real play. Thus, the central government should provide model cities with guidance on mapping out tailored development strategies and help them avoid homogenized operations as well as cut-throat competition in attracting foreign investment, quoting prices, and lowering human resources cost.
2. The central government should set goals for local governments to work on
In 2006, the central government determined the overall development direction and basic strategy for China’s service industry, and in 2007 the State Council put forward the primary goals for the industry: by the year of 2010, the proportion of service industry’s added value in GDP and the proportion of service-related employees in the employment scale of the whole country should increase 3 and 4 per cent respectively and service trade should reach a total value of USD400 billion; by the year of 2020, the service industry should account for a proportion of more than 50 per cent in the whole economy. Meanwhile, the central and local governments have initiated promulgating policies regarding industry orientation, taxation, talents training, intellectual property protection, labour, market entry and agency organizations. Nevertheless, the policies formulated by the central government are principled and broad in nature, which gives plenty space for local governments to work out practical and detailed measures. Therefore, outsourcing model cities should take an active role in policies innovation rather than waiting for the central government’s decision. For instance, model cities such as Jinan and Hangzhou have issued local laws and regulations to protect outsourcing service providers’ intellectual property. They are contributing precious experiences to the formulation of national laws and regulations on intellectual property protection in future.
3. Efforts should be made to promote the “ChinaSourcing” brand and regulate operations in the market.
In view of the experience and lessons China acquires from the development of manufacturing industry, model cities should make efforts to guide the sound development of their outsourcing industries and construct a fair, just, competitive and transparent market. The central government should restrict irrational market promotion activities of different cities, regions and enterprises. To create a national brand is the key to promoting China’s outsourcing industry. Under the unified guidance of the central government, all local governments should work together to promote the brand of “ChinaSourcing” instead of operating in a dispersed manner. China’s outsourcing industry is in need of the special public brand “ChinaSourcing” to help outsourcing service providers better cope with competition from overseas large-sized outsourcing enterprises.. Only if China’s outsourcing service providers unit to compete with overseas counterparts with “unified voice, unified force and unified price” can there be improvement in the core competency of the country’s outsourcing industry. “ChinaSourcing” should be a public brand constructed on the nation’s public service platforms. The central and local governments’ mission is to make “ChinaSourcing” the name card for the nation’s outsourcing industry and help China’s outsourcing service providers build their own brands. To publicize China with the public national brand of “ChinaSourcing” will reduce model cities’ and outsourcing enterprises’ costs for self-publicizing, restrain cut-throat competition and guide them to unite for development so as to enhance the industry’s and enterprises’ ability to guard against risks and strengthen their competitiveness in the international community.
II. Relation between the Manufacturing Industry and Outsourcing Industry
1. Manufacturing industry is the foundation of productive industry.
China hosts a massive manufacturing industry, which makes up 51.7 per cent of the country’s total material products, and its added value accounts for 39.2 per cent of GDP in the same period. It is the main industry that caters to employment, hosting 11.3 per cent of China’s employment force. What’s more, the rapid development of the industry has also spurred China’s progress of urbanization, which is the ground for outsourcing demand. The development and structure formation of service economy are closed linked with urbanization progress. It is capable of consistently supporting the fast development of the outsourcing industry only when production elements and population achieve certain sizes, and consequently generate strong demand for productive and consumer services. Manufacturing industry also can generate superlative driving effect compared with other industries. It is impossible for any single machinery, electronic product or equipment to be produced without research and development, design, and testing. It is impossible to constitute an effective business pattern with absence of market data collection, analysis, and application. It is impossible for one modern industrial product not having after-sales services. Productive services refer to services provided in order to boost technology advancement, industrial upgrade, and productivity, and to ensure the consistency of goods and services production process. One extension of manufacturing industry composes a part of service industry. Both forward and backward extensions of manufacturing industry fall into the productive service industry. In sum, the solid foundation of China’s manufacturing industry has provided substantial ground for the development of outsourcing, a productive service industry.
2. Outsourcing is a productive service industry with specialized division of labor.
Due to the limitation in resource, labour, and demand, China’s economic growth is still dependent on the extensive pattern featuring massive investment and high resource consumption, which poses potential risks and inconsistency, and as a result, it is necessary to speed up economic pattern restructuring and adjustment. Effectively promoting offshore outsourcing with help of foreign investment is a typical example of developing productive service industry and is of great strategic importance to the restructuring and development of China’s economy. Whether it is ITO such as infrastructure construction outsourcing, IT application outsourcing, software design and application outsourcing or BPO such as animation production outsourcing, call centre outsourcing, data center outsourcing, financial insurance outsourcing or KPO like pharmaceutical R & D outsourcing, technical products development and testing outsourcing, security analysis outsourcing, etc., they are productive service activities that emerge during the whole national economy’s upgrading to the tertiary-industry. As these activities are related to the application of advanced technologies, they can generate higher profit and productivity. It is indicated that the average profit margin of banking and information transportation industries is over 10 per cent, while that of manufacturing industry is lower than 4 per cent.
3. The outsourcing industry and the manufacturing industry can help each other forward.
China’s manufacturing industry suffers very low service level. 97.8 per cent enterprises in China are solely manufacturing driven rather than service oriented, which leads to their homogeneity in products, reduced profit and increasingly demanding customers. The industry has long been sitting at the lowest end of industrial chain, suffering drawbacks such as lack of innovation, low level repetition, and cheap labour. The well-known economist Lang Xianping divided the international industrial chain into “6+1”segments. China is currently occupying the most inferior “1”segment—product manufacturing, while showing weak competencies in the other “6”segments—product design and development, purchasing, storage, orders processing, wholesale, and retail. It is clear that developed countries are dominating the high-ends of the chain, gaining rich profit from international labour division and trade. The “6”segments of the chain constitute the so-called productive service industry, and are the main contents of international service outsourcing. So the old theory of putting outsourcing industry and manufacturing industry in opposites is undeniably incorrect.
The essence of the concept of advancing China’s manufacturing industry by developing outsourcing industry is to shift the competition pattern from solely relying on labour force to exploiting the comprehensive advantages of human resources and cultivating talents capital and to move upwards the industrial chain as well as increase the added-value of products/services for export and non-price competitive edge for more profit. Even though the majority of China’s outsourcing model cites are still in the middle stage of industrialization, with their focus still on the manufacturing industry, they must come to understand the developing trend of the manufacturing industry in the world, namely productive service industry is normally used by developed countries to boost their manufacturing industries. In other words, China’s outsourcing service providers should endeavour to explore new markets, create demand, strengthen their market control ability and improve their competency in differentiated competition by means of upgrading marketing services, such as speeding up product renewal rate, market research, market expansion, branding, after-sales services, creative planning, and exhibition promotion. In so doing, they can boost technological progress and innovation and thereby facilitate the transition of China from “Made in China” to “Innovated in China”.
III. Relation between Offshore Outsourcing and Onshore Outsourcing
1. Offshore outsourcing helps improve Chinese economy’s soft competency.
Offshore outsourcing is a product of economic globalization. Not only is it related to the globalization of technology, it is also the global trend of services and the inevitable result of production globalization. Economic globalization is not a matter of choice to the world but a reality to accept. The strong foundation of manufacturing industry has provided infrastructure and reliable resources for China to conduct offshore outsourcing. Apparently, offshore outsourcing could raise foreign currency revenue, transform growth pattern of trade, and coordinate the developments of service trade and goods trade. Nevertheless, advanced measures for China to maintain and coordinate the current rapid social and economic growth are to change the development patterns of economy and society. During the past thirty years, expansion of material infrastructure and manufacturing were driving forces of China’s economic growth while India relied on entrepreneur spirit and infrastructural innovation brought by the development of outsourcing industry. Without doubt, by conducting offshore outsourcing in eligible model cities, China could effectively upgrade the social economy’s soft competency of and help Chinese outsourcing enterprises directly enter global competition. Through winning BPO business from developed countries, outsourcing service providers can not only master new technologies, but more importantly learn soft skills in corporate organization, management, operation and corporate culture formation, etc. Secondly, offshore outsourcing could also foster a large quantity of internationally qualified operation and management talents with a clear knowledge of standards and criteria of national business processes.
2. Onshore outsourcing should be promoted.
Some of the economic advanced regions, such as Beijing, Shanghai, Guangdong, Zhejiang and Jiangsu, have entered the post-industrialised era, when people are valuing spiritual and emotional satisfactions rather than merely material demand. The modern service industry including such contents as E-commerce, express public transport, TV shows and animation, health care, education services, scientific research, information services and government services is profoundly mushrooming. The wide application of computers and the Internet has created a huge potential market, enabling businesses to perceive up-to-date customer demand and provide speedy responses accordingly. How to make breakthroughs in onshore outsourcing is a great challenge facing model cities.
As a resourceful and reliable national management organization, the Chinese government should be able to play a more active and dedicated role in promoting the outsourcing industry than it did in developing the manufacturing industry. Beside extensive reform over political system and encouragement of developing outsourcing industry from economic structure, the government should abandon its outdated and obsolete conventions and practices in management style. Model cities could initiate outsourcing in the industries that are related with people’s livelihood and rely on taxpayers. Standing neutral, third party outsourcing organizations can prevent injustice and corruption from occurring by virtue of mechanisms. With the aid of fair and transparent bidding processes and regulations on commercial contracts, they can ensure economical, efficient and satisfactory services. For instance, the National Medical Care Insurance Project implemented nationwide currently should be outsourced to a third party.
More importantly, governments of model cities should outsource non-core businesses to promote the onshore outsourcing industry. Some government agents should progressively be isolated from the main body to become non-profit government outsourcing organizations. Governments at all levels should take the lead in outsourcing non-core and non-confidential business to professional outsourcing organizations. Outsourcing could reduce administrative expenditure, and improve governments’ efficiency and people’s satisfaction. Organizations for policy enquiry and research, information research and collection, statistical administration, quality supervision, human resource management, non-sequential documents management, etc. can all adopt the third-party management method to resolve the long-standing abuse of high administrative expenditure and personnel redundancy.
3. Onshore outsourcing and offshore outsourcing should be developed simultaneously.
There should be equal emphasis on offshore outsourcing and onshore outsourcing, and offshore outsourcing could facilitate and promote its onshore counterpart. Outsourcing is a brand-new management and production model in the service industry. The pre-condition of conducting outsourcing activities is the establishment of a sound and complete information process. Analysis and management, restructuring and split on business process is a must before conducting outsourcing. It has been shown that business split is a pre-condition for a highly divided and fractionalised modern service industry. Under the pressure of increasingly fierce international competition, transnational corporations took the lead in adopting outsourcing for manufacturing industry development, and then the service industry followed suite in an effort to improve efficiency, reduce costs, prioritize core businesses, and polish competitive edge. Through conducting offshore outsourcing, enterprises could directly learn from developed countries’ exceptional business management process, which can not only improve their management skills but provide a solid knowledge and human resources foundation for the upcoming service industry transition and eventually polish domestic enterprises’ competitiveness. As a result, the development of offshore outsourcing could facilitate the advancement of its onshore counterpart. Currently, many domestic organizations are using IT tools to improve their own operation modes, which lays a good material foundation for the implementation of onshore outsourcing. Since most enterprises have realized business process informatization, they are witnessing great improvement in working efficiency and more difficult tasks, but they have been qualified to conduct ITO, BPO and KPO business. Now it is urgent to establish many consulting service groups that are capable of setting up, studying, analysing, restructuring, and splitting business processes in various industries. They should be equipped with outstanding wisdom, and enriched experiences.
Those model cities that are still not qualified to conduct offshore outsourcing should not copy others’ practices without differentiation. The suggested path is to start from onshore outsourcing, which can be initiated from some production and service businesses, such as banking, telecommunication, and manufacturing. They could hire professional outsourcing consulting firms to deign and optimise customers’ business processes. Based on this, they can establish departments that take full responsibility for own profits and losses to undertake outsourcing contracts. After gaining some strength in undertaking onshore outsourcing contracts, they can tap into offshore outsourcing business.
IV. Relation between Infrastructure and Urban Environment
China’s outsourcing model cities should thoroughly understand that service industry has higher requirement on a city’s infrastructure and environment. Offshore outsourcing, in particular, not only necessitates well-developed hardware infrastructure but also requires sound soft environment. Infrastructure broadly refers to the basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function, such as transportation, post and telecommunucations, public utilities, commercial services, scientific research, forestation, environmental protection, education and public health. China has achieved undeniable accomplishment in infrastructure construction. It is superior to Japan and India in transportation, energy, communication and education facilities.
However, the transition to service economy has generated higher requirements on model cities. The improvement of urban environment cannot be accomplished overnight and it not only necessitates capital but also needs advancement in concept and conduct, which are more often addressed with the construction and design of soft environment such as facilities platform, public service system, friendly business environment and ecological environment. Beijing, one of the 20 model cities, only has a broadband coverage of 55%, which is far lower than the over 80% with London, New York and Tokyo, so it is not difficult to picture the status quo in China’s tire-2 and tire-3 cities. Model cities are severely lacking investment in public service sector, suffering over complicated bureaucracy, low efficiency, inferior data and process management, and lack of information-based services. The inherent Oriental culture determines the lack of advanced concepts of services, disapproval of the value of services from third parties, absence of honesty and almost non-existence of service standards. Living environment in fact is of significant importance in outsourcing industry development because service industry is human-based and it requires liveable environment including housing, education and health care, and other guarantees including personal security, social security, commercial environment and everyday living facilities. However, many model cities are still unable to satisfy these requirements.
V. Relation between Higher Education Institutions and Human Resources
1. Serious misalignment between talents supply and demand
Lack of qualified talents is the main obstruction preventing China’s onshore and offshore outsourcing industries from developing rapidly. There is a serious misalignment between supply of college graduates and enterprises’ demand for talents. Currently, higher education institutions are still following the traditional pattern formed in the planned economy era. Courses offered is independent from market development and change, especially neglecting ongoing talents demand from IT related sunshine industries, and causing serious misalignment between talents supply and demand. As a consequence, China is now incapable of producing the following three types of talents: 1) Business leaders with competencies in market exploration and operation management and entrepreneur spirit. This is the most important type of talents that should be equipped with rich overseas experience, sufficient business resources and great foresight for the future. 2) Middle-level management personnel, who are the pillar of enterprises. Many offshore outsourcing service providers are now aware of fostering such talents, and the sharply increasing demand can be satisfied by providing some training programs in manufacturing outsourcing companies. 3) But it is of significant urgency to foster programmers and business process technicians with the ability to conduct outsourcing business. They should have basic foreign language competency, up-to-date IT expertise and basic professional codes of conduct and be aware of process management regulations, and of course, they still need to take “the last mile”— training.
2. Short-term training is merely a supplementary method
Due to the limited scale and content of offshore outsourcing, the Chinese government and enterprises are only able to concentrate on fostering the third type of talents. Thanks to the vigorous assistance from the governments of model cities, outsourcing training organizations are filling the gap between talents supply and demand. However, as training institutions only concentrate on short-term training programs, they can just meet the human resources training requirements of some temporary projects such as foreign languages learning, profession adjustment, and short vocational trainings. Apparently, training institutions by themselves cannot cater to the ongoing increasing demand for all kinds of qualified talents. The cultivation of such qualities as leadership, market exploration ability, management ability, language proficiency, service awareness, and professional expertise cannot be accomplished overnight. Besides, training institutions are profit-driven, and they are unable to foster long-term, all-round, and innovative outsourcing training models given the reserve of teachers they have, the knowledge and experience they have accumulated and resources they have integrated. It is undeniable that training institutions have served as first-aid force for the development of outsourcing industry, nevertheless, they is far from adequate to be qualified as a key component of outsourcing talents development strategy.
3. Talents supply requires reforms on higher-education institutions
The fundamental measure to secure consistent talents supply is to encourage universities to reform their education system according to industrial and economic development. Model cities including Nanchang, Wuxi, Suzhou, Wuhan, Xi’an, Tianjin, Chongqing, and Chengdu are actively trialling an outsourcing-oriented education reform, jointly exploring the new path with outsourcing providers in the areas of training pattern positioning, teaching resources selecting, and materials assembling. The newly established Hangzhou Institute of Service Engineering is a typical example. It aims to foster practical talents for China’s modern service industry, tightly focusing on enterprises’ demand, conducting cooperation with intentionally renowned enterprises like IBM, Microsoft, Capgemini, Sisco, Renasas, etc. and famous domestic firms such as Seiosoft and Totyusoft to trial and innovate training plan and curricula, featuring on improving foreign language proficiency to satisfy the daily communication requirement on enterprises in conducting offshore outsourcing business, It strives to offer strict professional expertise training, simulating business environment and practical field-related knowledge and techniques. The formation of the teaching force is in the “3-3” mode, which means one third of the teaching force are overseas graduates and foreign teachers, one third are part-timers from enterprises, and one third are full-time senior trainers, to guarantee the accomplishment of an international and practical training model. The Institute is exploring a new path. It has set up the major of financial services to supply highly sought-after talents. Two fifth of the courses are related with financial knowledge, two fifth with information technology, and one fifth with service management. It also conducts seamless cooperation with international enterprises in an effort to provide urgently needed talents. The Institute has received active support from Ma Xiuhong, Vice-Minister of Commerce, Director Li Zhiqun, and Mayor Cai Qi. However, the efforts to develop a suitable education system for the outsourcing industry are facing tremendous challenges in terms of system and concept, which cannot be overcome by one single city or university. However, market, industry, and student demand urgency is urging quick reforms on higher-education institutions.
VI. Relation between Technical Innovation and Business Mode Innovation
The outsourcing industry, or the productive service industry, is evidently different from the traditional manufacturing industry in that it is not capital-intensive or an industry more dependent on technical devices than human force. Instead, it is a new economic pattern that relies more on human force than devices. Technical innovation and business mode innovation are in fact included in the five types of innovation discussed by J. A. Schumpeter in his innovation theory: 1) introduction of a new good; 2) introduction of a new method of production; 3) opening of a new market; 4) conquest of a new source of supply; 5) implementation of a new form of organization. Management Guru Peter F. Drucker points out that the nowadays competition is about business modes rather than products. Business modes, whose essence is profit mode innovation, are consistently present through all kinds of industrial chains. Various products and diverse profit modes lead to many different types of business mode innovation, which occupies a more important and prominent position in outsourcing industry. Technical innovation in ITO, BPO, and KPO is mainly manifested in the creative application of information technology such as offering unprecedented services and adopting creative service methods. Business mode innovation is more intensive in outsourcing industry: increased demand due to new market exploration, and outsourcing resources from Japanese and European markets. To give employees complete discretion in delivering tailored services is a brand-new organizational format of outsourcing providers (process training, act of conduct, and flexible working-hours system). As a representative of their employer, every employee is obligated to deliver interactive services. In simple terms, the outsourcing industry is in greater need for business mode innovation, and under the driving force of advanced technologies, there will be new service contents, formats and organizational management modes created thanks to constant innovation.
VII. Relation between High-end and Low-end Services
Without exception, every single model city is whole-heartedly pursuing the development of its high-end outsourcing industry. Let’s start by discussing what the so-called high-end and low-end services are. The outsourcing enterprise accreditation criteria from Ministry of Commerce seem to explain the official view on the definition of high-end services—services offered by service enterprises with advanced technologies. It is regrettable that such a definition does not acknowledge enterprises with innovative profit modes, even if the nowadays competition is about business modes rather than products. Almost all offshore outsourcing providers are engaging in high-end services, however, it does not necessarily suggest advanced technologies, high profit and outstanding talents. Granted that the definition is accurate and complete, the status quo is that some model cities are unable to form industrial clustering or upgrade the bright spots for economic development. Another fact is that China has a tremendous service market. China by all means should become one of the largest service production and consumption nations in the world. Nevertheless, the manufacturing industry still wanders in the inferior rank, and “ChinaSourcing”, which is following right behind “Made in China”, is incapable of opening up a broad high-end service market. Most consumer service industries in China such as retail, catering and accomodation, tourism, and entertainment have very low industrial clustering degrees and small sizes even though they have gone through profound market-oriented reforms. The process of using information technology to transform traditional service industry is prolonged, featuring low technical competency, old production modes, and low efficiency services. Advanced technology services, productive services, and professional services are all possible to be the contents of high-end outsourcing industry. However, due to complicated interest conflicts and weak internal driving force, some highly-monopolized industries such as telecommunications, banking, electricity, petroleum, and chemical engineering. are not that likely to adopt outsourcing which requires resources and power dispersing. This will be a breakthrough very hard to be achieved for outsourcing model cities that want to develop high-end outsourcing services. E-commerce on the other hand is an exception. As a new and market-oriented industry, the industry should rely on continuous innovation of technologies and business modes to stand out in increasingly fierce competition. Outsourcing, which is highly specialized, should be the sharpest competitive edge for the E-commence industry.
VIII. Relation between Foreign and Local Enterprises
As the financial crisis is fading away, transnational corporations are expressing increasing interest in setting up outsourcing centres in China, which on the one hand is their positive response to Chinese government’s “Thousand-Hundred-Ten Project” and on the other hand shows their resolution to enter China’s outsourcing market. Under these circumstances, model cities should avoid being too eager for quick success and instant benefits and uncritically seeking foreign investment while neglecting the development of Chinese enterprises. The growth of domestic businesses is the key and driving force of domestic market development. The following are some issues and phenomena worth considering for model cities while making local preferential policies to support local outsourcing service providers.
IX. Relation between Governments and Outsourcing Aassociations
The key to determining whether the “Thousand-Hundred-Ten Project” is successful or not is whether it can cultivate thousands of high-quality outsourcing service providers. The ChinaSourcing brand in essence is represented by several large and strong outsourcing service providers. In order to build up the brand, governments should encourage and support the establishment of outsourcing associations. The function of the governments is to maintain just and fair market orders, serve enterprises and achieve economic prosperity. Enterprises are the principal force for economic development and so they should be allowed to form independent, autonomous, and non-profit organisations for co-development. The organizations should pursue self-encouragement, self-innovation, and self–regulation to promote the ordered development of China’s outsourcing industry. Governments should act as cheering squads rather than big brothers who love bossing around or cynical observers. They should pursue an equal partnership rather than a hieratical relationship with enterprises. Therefore, dominant governments had better delegate powers and encourage the emergence of independent and autonomous outsourcing associations in China.
The responsibilities of outsourcing associations are to facilitate enterprises to explore overseas markets, helping them immerse into globalization and the process of international labour division. The detailed obligations include to organise domestic enterprises and governments to invite and attract investment from foreign countries, to host long-term outsourcing trade fairs in model cities, to encourage foreign outsourcing clients and service providers to have direct meetings with their Chinese counterparts, to hold periodical international forums to discuss and study issues facing China’s outsourcing industry. By offering platforms to enterprises in communicating and exchanging information with each other, outsourcing associations function as capital supplier for enterprises, and are able to support leading enterprises in developing rapidly via purchasing, restructuring, and merging. They can also put special emphasis on boosting IT-BPO providers and help with the formation of China’s patent outsourcing brand and the establishment of several giant outsourcing service providers.
X. Relation between Systems and Innovation
Outsourcing is an innovative industry that emerged during the service industry’s moving towards the high end of value chain. Model cities should by all means vigorously promote the development of the productive service industry (manufacturing industry’s outsourcing mode) and recognize the industry’s development laws from a strategic height.
In order to adapt to the trends of industrialisation, marketization and internationalisation, model cities should actively promote reforms and inject vitality and motivation to the industry. The first priority is to accelerate the development of the outsourcing industry through system and scheme reforms. They should eliminate monopoly, lower entry standards, reform state-owned enterprises in the competitive areas to make them the main market body and stimulate enterprises’ motivation for outsourcing. They should also facilitate government authorities’ informationalised process and encourage them to outsource their non-core business. Some public institutions should progressively be isolated from the main body to become non-profit and non-governmental outsourcing organisations. Model cities should vigorously conduct reforms and formulate policies regarding taxation, credit, land and prices. They should also carry out trial standardization in light of their own conditions and encourage innovation in outsourcing enterprises through the use of policies concerning intellectual property and brands construction. Outsourcing talents of all types are the key factor for the development of service economy. As a result, in addition to the establishment of a number of high-quality vocational training institutions, model cities should also pay special attention to reforms and innovation in higher-education institutions. They should support higher-education institutions in constructing courses about service science, management and engineering and encourage universities, enterprises and governments to unit in formulating development planning for their local outsourcing industries and exploring a market and employment-oriented path of talents training.
(The author is Vice-President of Hangzhou Institute of Service Engineering)
(Reproduced from "ChinaSourcing" magazine)
