On October 23, the Ministry of Commerce, the Ministry of Information Industry and the Ministry of Science and Technology of China held an award ceremony in Beijing, at which Chengdu, Xi'an, Shanghai, Shenzhen and Dalian, became the first group of cities to be formally designated as service outsourcing bases in China. At the ceremony, Minister of Commerce Bo Xilai said that China had taken a substantial step forward in building service outsourcing bases.

Seizing the opportunity to start the "10+100+1000" project

In the next few years, service outsourcing will be the main direction of China's foreign trade development. In February of this year, the Ministry of Commerce established the Department of Services Trade, specializing in software and information services outsourcing.

"The development of service outsourcing is in line with global market changes and China's development," Bo said, "which is not only beneficial to changing the mode of foreign trade growth and expanding the export of knowledge-intensive services and products, but is also helpful in raising the quality and level of foreign investment in China."

During the transition to global manufacturing in the last century, China rapidly became a world manufacturing base. However, it only has a primary position in the international industrial chain, therefore facing various difficulties such as international trade friction, energy and material shortages and environmental damage. In recent years, the trend towards global service outsourcing has been a rare opportunity for China to upgrade and develop its industry. According to Khalil Hamdani, the officer in charge of the investment, technology and enterprise division of the United Nations Conference on Trade and Development (UNCTAD), the outsourcing of services is pollution-free and knowledge-intensive with the potential to generate a lot of jobs. China and other developing countries are shaping the development of the industry.

Statistics from the Ministry of Commerce show that between 1982 and 2005, China's cross-border trade in services grew more than 35 times. The proportion of China's service trade in the total global service trade market rose from 0.6 percent to 3.3 percent. In comparison with trade in goods, however, trade in services is still a weakness for China. Trade in services in 2005 accounted for only 10.9 percent of total trade, far below the world average of 19 percent.

To promote the development of China's outsourcing services the Ministry of Commerce has launched the "10+100+1000 Project". During, the 11th Five-year Plan period, China will select 10 cities to become internationally competitive outsourcing bases. It aims to attract 100 world-renowned multinational companies to outsource various services to China, handled by 1,000 outsourcing service enterprises. With the value of services increasing, China aims to quadruple its outsourcing services exports in 2010 based on 2005 levels.

The current value of the global service outsourcing market is between US$300 and US$500 billion. It is estimated that by 2008 the value of the market will exceed one trillion US dollars.

"Twenty years ago, the world gave China the best opportunity for the development of China's manufacturing industry; 20 years later, the global outsourcing of services has become another excellent opportunity for the country," said Liu Jiren, Chairman and Chief Executive of the Neusoft Group.

Service outsourcing accelerates growth in central and west China

Chengdu and Xi'an are two of the first cities in central and west China to be singled out as service outsourcing bases. Ge Honglin, mayor of Chengdu, said that as a pilot city for the protection of intellectual property rights in China, Chengdu has unique advantages such as a favorable living environment, rich human resources, low business costs and more.

Experts say that in comparison to the traditional manufacturing sector, the outsourcing of services places fewer constraints on time and space and lower demands on logistics and industry support. The major factors in the development of an outsourcing services industry is human resources and the industrial environment.

"We understand that following the most recent international industrial transition, led by the manufacturing sector, coastal areas took the lead. But the next international industrial shift will be towards the outsourcing of services; central and west China will have no advantage over coastal areas and hopefully this time they will be able to get a greater share of the cake."

With this in mind, cities in central and west China have accelerated development. In 2004, the Secretary of the CPC Chengdu City Committee, Li Chuncheng, backed a research project entitled "Office of the world ¡§C construction programs in Chengdu, China." The project found that Chengdu has outstanding merits and great potential to compete internationally in software development, information technology support and research design.

"We need to accelerate the development of outsourcing services and create more opportunities for inland areas of northwest China to directly participate in international labor division," said Li Zhiqun, director of the Department of Foreign Investment Administration of Ministry of Commerce.

Expand and improve service outsourcing to meet demand

Beyondsoft Group, established in Beijing in 1995, is engaged in outsourcing services for the European and American markets. Wang Bin, CEO of Beyondsoft Group, has witnessed the recent development of China's outsourcing service industry. According to Wang, four years ago Beyondsoft signed only one new customer from overseas each month. Three years ago, it was two every month. Now, it signs three new customers every week. Beyondsoft is undoubtedly one of the most successful companies in the business. All over China, in Shanghai, Dalian, Shenzhen, Chengdu and Xi'an, new companies are springing up to deal with the demand of global service outsourcing.

"China has unique advantages for developing this industry," said Wang Bo, the Vice President of Accenture's Asia Pacific branch. "Right now, we have well-constructed roads and excellent communication systems in first-class cities, second-class cities and even third-class cities in China. China's rapid economic development has increased both internal and external demand for service outsourcing." Wang also warned that China "needs to remain clear-headed when developing the service outsourcing industry."

Experts have warned that has China started late and the current scale is still very small. For example, China's software outsourcing exports in 2005 were worth approximately US$960 million, only 2.3 percent of the gross volume of the global market. Compared to the industry leader, India, there is still a big gap in terms of the degree of industrial concentration and enterprise operating income.

"To demonstrate real competitiveness, Chinese software outsourcing enterprises should aim to become world-class software laboratories rather than just software factories."

To this end, the Ministry of Commerce has vowed to establish a special fund for service outsourcing training. It is committed to training between 300,000 and 400,000 professionals to work in the industry. China Development Bank will also provide a 5 billion yuan line of credit to support the construction and expansion of cities that will become the bases of service outsourcing enterprises.

Tips:

Service outsourcing refers to assigning a part of a business to an external service provider to reduce costs and optimize the industrial chain, consequently increasing competitiveness. Service outsourcing can include information technology, business processing outsourcing and knowledge processing; in terms of the geographical distribution of service providers, there is both onshore and offshore outsourcing.

Editor: Yan