Chengdu: an emerging BPO hub in China

24 Apr 07

By TIGER TONG

AS industrial growth in China suffers increasingly from constraints on its resources and environment, the country has been paying more attention to its services industry in order to make its economic growth sustainable.

Software development is one of its targets. In 2006, China's software industry had combined sales of 480 billion yuan (S$94 billion), 23 per cent higher than 2005. But, more importantly, with the rapid development of telecom infrastructure, software development is no longer centralised.

In addition, the IT industry is moving from providing products to a service-oriented one. With a huge talent pool and competitive price, China views business process outsourcing (including IT outsourcing) as one of the potential growth sectors in the future.

At the 2007 China International Software Summit last week, five of the seven enterprise representatives were talking about outsourcing in China. The China International Software Summit is the key forum of ChinaSoft 2007, an international IT event held in Chengdu from April 19-21, 2007.

An attractive talent pool, strong government support, low attrition rates, and a strong presence of foreign companies in China are cited as the reasons why MNCs, such as Oracle, IBM, HP and NEC have set up outsourcing centres in the country.

While language remains a big hurdle for China in venturing into English voice-based BPO businesses, its geographic and cultural knowledge of Japan and South Korea has provided China an edge over other competitors in these two markets.

With India, the world's most important BPO (including ITO) player facing an increasing talent shortage and higher attrition rate, similar industries in China are expected to grow very fast. In 2006, China's overseas BPO business is valued at about US$1.4 billion. It is expected to reach US$5.5-6.3 billion by 2010.

At the same time, compared to manufacturing, the services industry is less constrained by geographic distance and might provide chances for cities in the China hinterland to emerge as new BPO hubs. Chengdu, the capital city of Sichuan, is more associated with its spicy food and pandas. What is less well known is that Chengdu has a strong IT foundation. And in the past few years, it has made considerable achievements in IT manufacturing.

Intel, the world largest chipmaker has invested US$525 million in two assembly and testing facilities in Chengdu. Following in the footsteps of Intel, Semiconductor Manufacturing International Corporation (SMIC), the world's third largest foundry, set up an assembly and testing plant in Chengdu.

Cension Semiconductor Manufacturing Corporation, the first 200mm wafer fab in Central and Western China, is expected to start trial operations in the city soon. The facility is invested in by Chengdu government controlled companies and will be managed by SMIC.

Encouraged by the quick development of the IT manufacturing industry, the Chengdu government has chosen software as one of the key areas of focus and they are looking at BPO business in particular.

The city's rich human resources is certainly the most important factor. There are 40 universities and colleges in Chengdu with more than half a million students. IT particularly is a popular major in Chengdu. According to data released by the Chengdu Software Association, there are currently more than 65,000 people working in Chengdu's software industry. In 2007, there will be nearly 18,500 new IT graduates from Chengdu's universities.

Compared to major cities, such as Beijing and Shanghai, the labour cost for the BPO business in Chengdu is about 30 per cent lower. In addition, the turnover rate, or attrition rate in these cities is more than 30 per cent while that in Chengdu is about 5 per cent.

'Compared to Beijing and Shanghai, people in Chengdu pursue a more relaxing lifestyle and are less willing to job-hop, unlike their counterparts in the coastal cities,' commented Jade Zhang, president and founder of Sofmit Co. Ms Zhang sees Chengdu carving out a niche in the BPO market.

'There is no doubt that Beijing and Shanghai have closer ties with the world, which means they have more opportunities to reach out to customers. But Chengdu can complement Beijing and Shanghai by offering lower cost services. They do the marketing, we do the job,' Ms Zhang said. Currently, Sofmit has set up offices in Shanghai and New York, and works closely with companies from Beijing and Shanghai.

Ms Zhang, a Chengdu native, returned to Chengdu after a short stay in Canada and set up Sofmit in 2002. In 2006, Sofmit's revenue was 40 million yuan, about 40 times more than it was four years ago when the company was founded.

To some companies, talent itself has become reason enough for them to set up a branch in Chengdu. Liu Jiren, chairman and CEO of Neusoft Group is one who thinks so. Neusoft is one of the biggest software companies in China. In 2006, it became the first Chinese company to have BPO business revenue exceeding US$100 million.

At the same time, Neusoft also became the first Chinese software company with more than 10,000 staff. To focus more on the BPO business, Mr Liu plans to have more than 30,000 staff within a few years. To hire the additional talent, Mr Liu has shifted his focus from Shenyang and Dalian, the two traditional bases of Neusoft, to Chengdu. In October 2006, a software park in Chengdu invested in by Neusoft started operations. Mr Liu plans to have more than 5,000 staff within five years. The race for talent is on.

The booming BPO industry in Chengdu has also attracted the attention of international players. In February 2007, IBM opened a new global delivery centre in Chengdu, its fourth in China after Dalian, Shanghai and Shenzhen. In his speech at ChinaSoft 2007, Harry Storer, senior VP of Oracle Consulting in Asia-Pacific, said that a new technology centre will commence operations in Chengdu in June 2007.

While Chengdu's future as a BPO hub looks promising, there are many challenges as well.

Compared to pure software development, people for BPO will require good language proficiency and communication skills. As fast growth is expected in the future, Chengdu may become a victim of its own success. It needs to find the answer to creating a fast talent grooming system before it can become a true BPO hub in China.