Mixed Reviews of Outsourcing in China

The past few weeks have brought a couple of notes about outsourcing IT services to China, with rather different perspectives.

McKinsey’s recent research note notes some key challenges: lack of employees with strong English skills and international project management capabilities, and poor intellectual property protection. But the note also highlights strengths, such as the large number of Japanese- and Korean-speaking employees, and expertise in high tech realms that could support outsourced R&D. They boldly state that:

…McKinsey research—including interviews with officials at many Chinese government agencies, executives at Chinese leading services providers, and managers at Chinese services-outsourcing parks—suggests that by implementing an aggressive strategy to develop the sector and cultivate talent, the country could capture opportunities worth $56 billion a year by 2015.

On the other hand, the Go East blog offers a few quotes from this year’s Black Book of Outsourcing report that are quite critical. The 2008 State of the Industry report notes that none of the China outsourcing firms made it to their top 50 global outsourcing firms list, and while some have received positive marks, “the level of client satisfaction has not been maintained over long periods as have other offshore suppliers.” They continue:

Customer-provided grades in work quality and staff dedication are extremely high but clients complain of several crucial issues keeping China outsourcing vendors from receiving top satisfaction scores. On top of a fragmented market, China still lacks outsourcing management talent, along with problems with intellectual property protection, differences in culture, poor English language skills, and sparsely found project management expertise especially in outsourcing. Having to tread carefully with these concerns is causing clients to reconsider these suppliers until more intrepid competitors substantiate successes in China.

Upon closer comparison, it seems to me that while their overall assessments have a very different tone, both groups see similar pros and cons. I’m guessing that part of this is about whether you are looking at China outsourcing as an industry, and can see the overall growth opportunity; or whether you are looking at it from a single company’s perspective, and are concerned about an individual client’s business risks.

What’s also interesting is that only a small part of either assessment is related to the specific content of the outsourced work (whether IT or BPO services). This affirms my view, that managing global projects requires a broad set of individual skills and organizational capabilities, beyond the specific project content-related skills.