Outsourcing jobs: Why Dalian is so hot right now
While U.S. workers may lament the loss of IT jobs to New Delhi and other parts of India, workers there could soon be looking over their shoulders - at China.
India's efforts to educate its large potential workforce and to upgrade the infrastructure to facilitate commerce around outsourcing facilities aren't keeping up with demand, which has outpaced supply by 150 to 200 percent, says Wen Xiao, CIO for BT Business, a business unit of British Telecom. When demand exceeds supply, prices go up - and businesess begin looking elsewhere. For BT and other businesses, the costs of offshoring to India have risen at a rate of 15% per year. "A 15% a year jump is quite a burden," Xiao says, noting that BT alone has some 10,000 contracted workers in India and spends between $500 to $700 million a year on IT offshoring services there.
While prices have been rising, companies have had few alternatives. So BT last year began a pilot project to grow its own outsourcing facility in Dalian, China, hiring on a staff of 70 people. The three projects completed in Dalian last year were so successful that BT is in the process of building up its own facility there and hiring on local programmers as employees. "We are setting up our own captive operation...that will have a huge impact," he says.
Dalian gives BT a much-needed second source for IT offshoring services, but Xiao says the operation could give BT much more than a bargaining chip to play with India's powerful offshoring firms. While China represents less than 10% of all offshoring services in Europe today, Xiao expects it to evolve into a major offshoring base in and of itself in the coming years.
Xiao, who is a native of Beijing, believes that China may have another edge over India. While India is struggling to get roads and bridges built, China is moving apace, he says. "We have a much better infrastructure than India because we invest in infrastructure." China's policymakers believe that if they build the infrastructure the revenue to pay for it will come from the additional taxes gained from economic growth, says Xiao, who returned from a trip to China in March. "The biggest problem's government is they're collecting more taxes than they planned. Twenty percent more. That's the problem they're worried about," he says.
Xiao thinks India will need to make substantial infrastructure investments to stay competitive in the long term. There's a saying in China, he adds: "If you don't have the road you will never get rich."