The government considers the outsourcing industry key to economic growth in the future. In the Eleventh Five-Year Plan, it lists down software and IT-related service development as a focal point. Related supporting policies can be classified into three levels. The top tier includes proposals in the Eleventh Five-Year Plan announced in March 2006 to develop the outsourcing industry on a large scale, “accelerate the change of the foreign trade growth model, and build several service industry outsourcing bases to deliver services internationally in an orderly way.” In all levels, the government has launched or is about to launch policies to support the development of outsourcing, adopt measures that are more positive and effective, and encourage MNCs to transfer sizable outsourcing work to China. The second tier involves the strategic conception of the Eleventh Five-Year Plan, leading the MOC to launch the “1,000-100-10 Project.” The third tier involves the promotion of outsourcing development at the provincial, municipal, and civic levels of government. Primary outsourcing cities like Shanghai, Chengdu, Nanjing, Dalian, and Xi’an have drafted more detailed promotion policies based on their location and situation such as loan policies favoring certain industries, competitive taxation supplements, and others.
China produces a great number of engineers and IT technicians every year. In 2005 alone, over 400,000 graduates majored in engineering. Although the resource supply is always a challenge in the outsourcing business in general, China has ample supply of trainable entry-level professionals, which forms a solid foundation for the country’s outsourcing industry. In addition, China’s employee turnover rate is lower than 15%, compared with over 25% in India. Another favorable condition is the low labor cost. China’s annual salary increase rate is expected to remain between 5% and 8% in the years ahead, giving it a labor cost advantage. To further promote education in the outsourcing field, the MOC and other state agencies have launched a series of special outsourcing training programs.
Following 20 years of economic development, China’s transportation, telecommunications, and network infrastructure have rapidly grown and improved, some reaching the international standards of developed countries. Compared with that of developed countries, China’s transportation, telecommunications, and network infrastructure are more cost effective, providing a solid foundation for the outsourcing business. China also has obvious advantages over other service providers, including high-speed Internet and broadband access, stable and uninterrupted dual power supply in main software sites, and around 150 airports that connect most of the primary and secondary cities. The low cost of IT infrastructure hardware further strengthens China’s cost advantages. In terms of China’s software environment, it has a good cultural environment, many outsourcing parks that are ideally located, as well as many comprehensive support facilities providing convenience to service providers, all of which significantly attract local and international service providers.
China’s proximity as well as linguistic and cultural similarities with countries in North Asia are giving it a leading edge as an outsourcing destination. Cities in Northeast China such as Dalian and other regions have gained ground in the outsourcing markets of Japan and Korea.
In China’s developed regions such as the Pearl River Delta, the Yangtze River Delta, and the Huan-Bohai Bay, industrial clusters form a firm foundation for the international transfer of service and outsourcing skills. China’s status as a global manufacturing center gives it a unique advantage in providing offshore R&D services—an emerging industry. As it developed its manufacturing industry, China has realized the importance of protecting IP and has begun to address issues that are important to Western countries. In 2005, authorities received 470,000 patent applications, 80% of which were filed by local companies. In comparison, of the 470,000 patent applications filed in the United States during the same year, only 60,000 were filed by U.S. companies. The filing of patents is the first step the industries are taking in protecting IP, indicating that businesses in China are committed to IP rights protection
