China vs. India For BPO Outsourcing

China BPO outsourcing

The Rational Outsourcing Blog just did an interesting post comparing the future of business process outsourcing (BPO) for China versus India.  The post is entitled, The secret weapon of the Chinese BPO industry, and the writer starts out by talking about his diminishing confidence in India’s ability to dominate China in outsourcing far into the future. He thinks China may surpass India in outsourcing within a few years, and not just because of China’s “lower employee churn rates, lower effective salaries, and better infrastructure.”  He sees China outsourcers as having the “secret weapon” of having had to mostly serve its domestic market, which, “out of necessity,” forced them to be “incredibly cost conscious.”  Because Indian outsourcers mostly serve wealthy Western companies with whom they “have enjoyed a large labor cost differential” they have been able to get away with being much less labor efficient than the Chinese business process outsourcers:

I must admit that many Indian BPOs often have an attitude that labor is cheap so we can always throw a lot of bodies at any problem. This has in many cases led to inefficient use of labor. If Chinese BPOs have truly figured out a way to be profitable in the absence of a labor cost advantage and are now shifting their attention to the US market then Indian BPOs may have cause for concern. An industry that is used to running lean and mean in their own country would have a huge advantage once they gain the additional advantage of the labor cost differential between China and the US. Look out India!

I do not know enough about this industry to comment on this, but I have to believe both that India is fully capable of getting more efficient and that China is fully capable of getting less efficient as its wages rise and as it begins servicing more foreign companies.  At one time, I was sure India, with its huge cadre of English speakers, had a language advantage over China, but those in the industry quickly set me straight on this. They told me China has the language advantage because it has so many people who speak Chinese, Korean, Japanese, and English.

Will there not be plenty of work out there to keep everyone busy in both countries for a very long time to come?  Will not bigger companies intentionally outsource to both China and India so as to reduce their dependence on any one country?  Forget about language for a moment, is China really ready to provide great service?

29 responses to “China vs. India For BPO Outsourcing”

  1. I believe that both countries have what it takes when it comes to being a top outsourcing destination. It just so happens that India was the first one to be groomed as such. Though that is the case, the potential in China is very strong especially if English language programs would be implemented in the said country.

  2. BPO where the “O” means offshoring (versus domestic outsourcing) means Japan and Korea.
    Fact is, if somebody has the adequate English-language skills to work in a call center, for example, they can get a job running international marketing at numerous Chinese firms. (I’m not kidding about this.) What would you rather do?
    There might be some play for those with G-d awful verbal skills but meager (i.e., slightly better) reading and writing skills for things like forms processing. But I’m highly skeptical about this. Don’t believe what the Xi’an government wants you to believe: BPO in China for servicing English-speaking countries is a fantasy. Matter of fact, to even consider this shows how little one knows about China. Again, don’t believe the propaganda about English-language skills in China. It’s all a hoax.
    In areas like ITO, there are numerous engineers with adequate English-language skills, but they’re better educated than anyone you’ll find in a BPO operation.

  3. Dan, with respect to industrial development, China is indeed moving up the product experience curve in numerous areas because of its production for the domestic market in the 1950’s,60’s and 70’s. This is how Japan developed its economies of scale in cameras, automobiles and consumer electronics. Japan did not first seek to satisfy export demand, but rather faced the awesome challenge of manufacturing for its own market. The rest of the world became the beneficiaries of Japan’s swift progess up the learning curve. Japan’s central government was also key in setting “guidelines” for industries into which it wanted capital to flow. Whether Indian industries can match such development is yet to be seen. The current outsourcing of back-office services to India in computers, banking and other fields is obviously cost-effective to U.S. and other companies, but whether such service-based outsourcing can affect the Indian economy in as wide-scale a way as the Chinese manufacturing-based development is unlikely. He who controls the means of production will continue to control the creation of wealth.

  4. I just posted my answer to your question regarding China’s English language shortcoming on my site. By the way, my point is not that “China may surpass India in outsourcing within a few years.” Previously I believed that China beating India on BPO was a pipe dream, now it is beginning to sound plausible though not probable.

  5. David —
    Help me out here because I fear I was using wrong terminology here. I was trying to talk about outsourcing (offshoring) within the technology arena. I was trying to talk about software coding and the like, not so much about call center type stuff. I think my mistake was using the term BPO, which no doubt includes call centers and the like. I would also find it hard to believe China could compete in that arena with countries where English is much more common.

  6. Apu —
    Thanks for checking in. I hate to play lawyer on you here, but wasn’t my use of the word “may” the same thing? In any event, your statement regarding plausibility is what you said in your post.

  7. Re: the English language requirements: My students are all oil workers, sure, but they work in every aspect of the oil industry: drilling, logging, pipelines, storage, processing, R&D, etc… AND the back office, administrative stuff which would seem to me to be very similar to a lot of what these BPO firms do (but what would I know?). Some of them speak abysmal English, true, but many of my students speak excellent English. One, and only one of many examples, would be an accountant who has just returned from a year in Sudan speaking excellent English. I don’t know if we can extrapolate from my little corner of the oil industry, but it seems fair enough to me: If my mudloggers, drilling engineers, and accountants can learn such excellent English by working in places like Sudan, Iran, Indonesia, Pakistan and Iraq (I just sent a mudlogger off to Iraq a couple of months ago), then I would say a Chinese BPO industry is starting to look very plausible.

  8. I often find it interesting to see this an India vs China issue. Are we really assuming Indians and Chinese are competing a limited amount of BPO/ITO outsourcing business out there? Almost all projections point to the steady growth of BPO/ITO. India is having problem to fill the demand because of the lack of qualified people and China poses to grab a piece of this growing market. What if we are seeing Chinese companies growing faster then Indian ones, it doesn’t really show which is better then the other.
    I agree that China will not likely to compete with Indian on the jobs with strong English language requirements, especially spoken English. However, a lot of the BPO are related to document processing in which only reading are required.
    The smart companies will likely to divid up their BPO processes and send jobs to whichever regions that fits. After all, it’s not exactly Indian or Chinese vendors who are signing BPO deal with Fortune 500 clients. It’s the IBM, EDS and HP of the worlds. The same Internet technologies making it easy to ship jobs from US to oversea are making it easy to divid the works amount whatever regions that fits them the best.

  9. I find it interesting to see the theme of “China vs. India” in many forums. I would tend to agree with David Li who has commented that “Are we really assuming Indians and Chinese are competing a limited amount of BPO/ITO outsourcing business out there?”
    I guess, the discussion should focus first on the “global sourcing pie” and then on “where” it is going to be executed from. After all, it is a flattening world, right?

  10. David Li —
    I agree with you that it is a bit much to paint this as an India v. China issue as though only one country will be left standing. But, hey, it’s the headline that draws the readers. I should have put in the word “smackdown,” like I did the last time I compared China versus Vietnam.

  11. India vs. China… a close one
    India has democracy, so happier ppl.
    China has Work Ethics, so they get the job done.
    Between the two… pretty close

  12. Hi Dan. I just got quoted by an interesting news article on this very topic. You can see it at: This story appeared in a leading Indian newspaper. Some of it is a repeat from what already appeared on my blog, but it should be interesting to you. Let me know what you think. Regards,
    Apu from the Rational Outsourcing Blog

  13. Joe —
    I wish it were true that democracy leads to happier people, but I was under the impression surveys show the Chinese are generally happier with their lot than Indians. Do you have any hard evidence to back up the democracy equals happiness statement?

  14. China vs. India For Outsourcing and Offshoring
    What does it mean? For this discussion, assume that Infosys is your sourcing partner: well, we have global teams in several locations in India and in China, and can deliver out of either, or both locations but does it matter to you? This means that I …

  15. China and India will be close on IT BPO, but in KPO (market reserach, consulting, financial reserach, legal research, hospital services and such), India will always be far ahead because of raw scale, talent, and English talent.

  16. Yeah, I agree India is quite a bit ahead than China. But we can’t predict what will happen in the future. Who knows China will go beyond India. We really don’t know. Everything is possible.
    “Lets cross the bridge when we get there”. 😉

  17. I think this post is brilliant. Clients pay more attention to service capabilities, including intellectual property protection, language skill, and ability to provide comprehensive solutions. The global economic crisis and the Mumbai attacks have temporarily caused some shifting of outsourcing business from India to China, but this trend will not last. Should China return its slice of the outsourcing pie to India when the end comes?

  18. Interesting article, but I think it ignores what is really happening out there which is that countries like Ukraine and Vietnam are going to be the next wave.

  19. I love this line of yours: “But I have to believe both that India is fully capable of getting more efficient and that China is fully capable of getting less efficient as its wages rise and as it begins servicing more foreign companies.” India is on the move.

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