I. Overview of Hefei’s Development in Outsourcing Industry

The global outsourcing industry is still on the rise. The outsourcing market capacity is still rocketing and service areas are continuously expanding, while the competition among outsourcing service providers is becoming increasingly fierce.

A study says that 95 per cent of the global Fortune 1000 have mapped out offshore outsourcing strategies. According to NASSCOM, the global expenditure on technology and related services was around USD1.7 trillion in 2007, reflecting a 7.3 per cent increase over the previous year, among which outsourcing business accounted for USD1.2 trillion, making up more than 71 per cent of the total expense. Gartner predicted the compound growth rate of global IT service market between 2006 and 2009 at 6.1 per cent, with outsourcing (ITO and BPO) contributing half of the increase. A Mckisey report says that the global outsourcing industry was valued at USD46.5 billion in 2005, and it is expected to reach USD60 billion in 2010. Not only developing countries, such as China, Ireland, Russia, and the Philippines, but also developed nations, including Canada, Australia, and Germany have taken part in the competition for outsourcing business.

Data published by Ministry of Commerce reveals that in 2007 the value of executed outsourcing contracts in China was USD20.94 billion, an increase of 118 per cent compared with the year of 2005. China’s outsourcing market is mushrooming, and the positions of the 20 outsourcing model cities are getting boosted. Till the end of December 2008, the number of outsourcing enterprises, the number of employees and the value of executed outsourcing contracts in model cities had respectively made up 78.7 per cent, 85.4 per cent, and 91.5 per cent of the national totals, as are shown in the diagram below.

 The model city program has been implemented for over six months now. From Dalian advertising itself as “outsourcing city” to Wuxi laying down the “One-Two-Three Plan” and allocating RMB12 billion counterpart fund, from Hangzhou promoting financial outsourcing to Xi’an starting the “capital of outsourcing in China” campaign, model cities are in fierce competition for talents and enterprises through advertising their policies and resources with the aim to achieve sustainable development.

II. Outsourcing Industry of Hefei

Ministry of Commerce, Ministry of Industry and Information Technology, and Ministry of Scientific Technology approved Hefei one of China’s outsourcing base cities on December 3, 2007. On February 22 of the following year, the then Vice-premier Wu Yi attended the authorization ceremony, during which the three ministries, Hefei Government and Anhui Government co-signed the Agreement on Jointly Constructing China’s Outsourcing Base City. On January 15, the General Office of the State Council officially approved Hefei one of China’s outsourcing model cities.

1. Geographical Advantage

Hefei, the political, economic, cultural, transport, and trade center of Anhui, lies in between the Yangtze River and the Huaihe River, serving as front line that benefits from well-developed economies and industrial shifts of China’s costal cities, and also the only path through which industries and capitals are transferred from the Eastern coastal region to inland cities. The area with Hefei at the center and a radius of 500 kilometres, which has an area of 102 million square kilometres and a population of 500 million, covering seven provinces and one municipality, is one of most economically advanced and dynamic regions in China.

2. Human Resources

Hefei is home to 59 higher education institutions including University of Science and Technology of China and Hefei University of Technology, more than 200 scientific research institutions including Hefei Institute of Physical Science of Chinese Academy of Sciences, 38th and 43rd research institutes of Ministry of Industry and Information Technology, where there are 31 members of the Chinese Academy of Sciences and the Chinese Academy of Engineering. The city also has 358 technical research and development organizations with more than 300 thousand technical personnel. University graduates make up 6.17 per cent of the city’s resident population, significantly surpassing the 1.5 per cent national average, and standing at the second place nationwide.

Most higher education institutions in Hefei have set up the major of Computer Science. They supply about 2,000 IT talents for the society every year. University of Science and Technology of China, Hefei University of Technology and Anhui University all have software colleges. The one in University of Science and Technology of China is among the first batch of model software colleges approved by Ministry of Education and State Development Planning Commission.

3. Status Quo of Hefei’s Outsourcing Industry

Currently, Hefei has more than 100 outsourcing enterprises with almost 10 thousand employees. In 2008, the outsourcing revenue reached nearly RMB100 million, and the value of signed outsourcing contracts totaled USD20.31 million, in which executed contracts represented a value of USD10.82 million. The main outsourcing services Hefei provides are software development, design and testing, research and development of information technology, data processing, human resource services, call centers, logistics, animation and game design, data storage, and data models.

Having fully taken advantage of its three “model zones” which are Anhui Outsourcing Industrial Park, High-tech Industrial Development Zone, and Hefei Economic and Technical Development Zone, Hefei has focused on developing outsourcing talents training, information technology (ITO) outsourcing, and business process outsourcing (BPO). It has built a diversified and multi-level system for outsourcing enterprises, higher education institutions, vocational education institutions, and social forces to cultivate and train outsourcing talents together. Hefei has explored its own way of fostering outsourcing talents by establishing training centers in partnership with IBM, HP, and Carnegie Mellon University, where talents are trained in accordance with standards in transnational companies and a credit interchange system is applied.

III. Hefei’s Innovative Path to Development of Outsourcing Industry

In an effort to boost the outsourcing industry, Chinese and foreign experts including Professor Kunihik Higa from Tokyo Institute of Technology, head of Japan Offshore Service Outsourcing Association, and Professor Fang Zhaoben from University of Science and Technology who is also Vice-chairman of People’s Political Consultative Conference in Anhui Province, have founded Anhui Service Outsourcing Industrial Park Promotion Commission, which is committed to conducting systematic study on Anhui’s outsourcing industry in terms of talents cultivation and introduction, technique research, industrial clustering to provide decision support for Anhui’s, especially Hefei’s outsourcing industry.

1. Innovation of “Hefei Mode”

Since the year 2007 when Hefei was approved as an outsourcing base city, it has been placing the breakthrough point of the outsourcing industry on talents cultivation and attraction. Under the guidance of Anhui and Hefei governments, China Outsourcing Talent Training Center (Hefei) has been the first to adopt the “credit interchang system” and create systematic training courses and talents evaluation criteria. Benefiting from the application of the system among universities and training centers, graduates can be transferred seamlessly from colleges to workplace. The system is thus praised as “Innovative Mode of Hefei” by the Ministry of Commerce.

According to the credit system of higher-education institutions, “credit interchange” means in addition to taking courses in their own schools students can also take courses from other colleges the credits they get from which can be added to the credits they obtain in their own schools and vice versa. Hefei has successfully applied the “credit interchange system” into outsourcing talents training to create an innovative training mode.

In detail, the “credit interchange system” refers to the “training credit education system” established between universities and training institutions which offer current university students outsourcing professional training courses. The teacher force is composed of senior project managers and business English trainers from training institutes and teachers from universities. Teaching materials are provided by Anhui Outsourcing Talents Training Center, which is also responsible for evaluating teachers and courses.

Anhui Outsourcing Talents Training Center and universities jointly certify and grant students credits, and the Talents Training Center and training institutions will issue the certification. Students will also receive a fixed amount of allowance for the training expense from the provincial government.

2. Construction of Synergic Outsourcing Platforms

In order to lift regional restraints on synergic work, information sharing and talents fostering, in October 2007 Hefei government started constructing outsourcing public service platforms, which now include an outsourcing network and three sub-platforms—public information platform, public training platform and public technique platform.

The outsourcing public service platforms follow the combined principles of market orientation and government promotion, focusing on both profit and non-profit service organizations and serving governments of all levels, local outsourcing companies, transnational enterprises and talents training organizations.

Thanks to the synergic outsourcing platforms, Hefei has constructed a public service support system that covers outsourcing companies assembling areas province-wide. It has improved the industry’s core competitiveness and has provided outsourcing companies with sound and ongoing public services, playing a significant role in boosting infrastructure construction, technology promotion and application, intellectual property protection, public branding promotion and talents training. In addition, it has also positively advertised its model industrial parks and enterprises in them to eventually facilitate the surging development of the industry.

3. Building of Talents Training Bases and Incubator Bases for Overseas Elites and College Graduates

It is usually the case that Global Top 500 and other transnational companies establish their training centers in where they set up R & D centers. Thus, training bases are the incubators of R & D centers. The key issue to be solved for the sake of attracting investment in outsourcing industry is talents shortage, which is also the bottleneck for Global Top 500, other transnational companies and China’s large-sized outsourcing service providers.

Anhui Outsourcing Talents Training Center aims at fostering elites with international competitive edge, providing tailored training adherent with international standards and criteria of outsourcing service providers and serving as a resourceful and comprehensive elites base. It has acted as a trustworthy elites supply guarantee for Global Top 500 and other transnational compannies to establish R & D centers.

In the meanwhile, in order to bring into full play University of Science and Technology’s advantages in elites, scientific research capacity and overseas resources, attract overseas elites and support college graduates in starting their own businesses, Anhui Outsourcing Industrial Park and University of Science and Technology co-founded some incubator bases for overseas elites and college graduates to start and advance their own businesses.

By establishing talents training bases and business incubator bases, Hefei has initiated a talents fostering and evaluating system, through which it has solved the talents issue that prevent the outsourcing industry from a sustainable development.

4. Formation of Unique Outsourcing Industrial Clustering

During 1970-80s, the Telework Theory was initiated to battle the difficulties in employee travelling and high cost of office renting. It used IT technologies to overcome workspace barriers. Based on this, Hefei used modern Internet technologies to set up a virtual industrial park to connect outsourcing industrial parks, small and medium-sized companies, higher-education institutions and scientific research organizations nationwide, through which it has broken the traditional concept of space and formed unique industrial clustering. Virtual industrial park is a newly invented concept, which in detail is a partnership network of independent innovative platforms. Its ultimate goal is to overcome the limitations of time and space and intensify the use of external resources. Therefore, broadly speaking, it is a scientific park without boundaries.

In reality, since the application of the Virtual Reality Technology in everyday life, the virtual part has always been associated with “expansion”. In information science, for instance, virtual memory management enables a memory to have greater logic capacity than physical capacity. The “expansion” applied to the virtual park is manifested in at least three areas. 1. Openness: virtual organization is an open system that optimizes external competencies, and is beneficial to importing of external resources. 2. Target-orientation: network operation has the same goal, in order to achieve which all parties will make the best use of their advantages without the need to go through “administrative channels”. 3. Integration: virtual organizations’ integration of knowledge, technique and information from various regions can help shorten R & D processes. These three points are independent on and interrelated with each other, but integration is more important than the other two. In other words, thanks to integration, the elements required for success are expanded, and as a result, efficiency gets improved.

The establishment of a virtual park is intended to optimize the use of external resources, achieve coordinating development and expand the content and size of the park in future. The successful cases are Taiwan’s Hsinchu, America’s Silicon Valley, and India. One important goal of virtual phenomena is to attract more talents in a wider range, and the well-known plans include India’s World R & D Project, Taiwan’s Scientific R & D Center of Asia Pacific, and Malaysia’s 21 Centaury Multi-media Center.

Currently, Hefei is actively conducting the feasibility test and market research on the virtual park, and is coordinating with government authorities and outsourcing service providers in designating a path and major steps for its development.

Hefei’s outsourcing industry is providing outstanding and intensive services to outsourcing industrial parks and small and medium-sized companies around China on account of the seamless combination of industrial clustering and the virtual park. It has attracted talents, outsourcing enterprises, R & D institutions and Global Top 500 as well as some other transnational companies to settle down in Hefei.

IV. Inspiration

Along with the upgrading of outsourcing industry, the competition over international outsourcing business is getting increasingly intense, which has become a major problem facing China’s outsourcing industry. In addition, competition among China’s outsourcing model cities is also heating up. By fostering outsourcing talents, building service and technique platforms, Hefei has explored a development path covering talents training, services executing and industrial clustering, and has successfully overcome the bottleneck in resource optimization in offshore outsourcing and laid down a solid foundation for the virtual industrial park, which breaks the space restraint inherent with traditional industries and thus puzzles out the difficulty in achieving clustering in the outsourcing industry. Moreover, cooperation and coordination can improve China’s overall outsourcing competency, and help it make great victory in international competition. In terms of addressing the shortage of professionals and preventing elites loss, Hefei has innovated the “credit interchange system” in talents training, with which it has cleared the obstacles on the talents supply channels of universities, training institutions and outsourcing enterprises to eventually expand the scale of the industry. With dependence on outsourcing platforms and equipped with the double engines of “virtual park” and “credit interchange system”, Hefei is now quickening its pace to catch up leading outsourcing model cities in China.

(Zhao Zheng is an associate professor in University of Science and Technology of China and vice-president of Anhui Easy-Biz Digital Technology Co.,Ltd with a doctor’s degree from Tokyo Institute of Technology; Peng Bin is a master degree candidate in University of Science and Technology of China)

(Reproduced from "ChinaSourcing" magazine)