India's Outsourcing Domination is Being Challenged by China

ZhongHuaRising ^ | June 12, 2006 | Dr. Bill Belew

[G. Stolyarov II]

India is by far the largest outsourcing market with a predicted 169,000 offshore call center staff by 2010-- nearly double the present number of 95,000.

But call centers in Eastern Europe are expected to triple in that same amount of time from 3,700 to more than 10,000.

Growth in North Africa is also expected to triple from 7,800 to over 23,000-- mostly driven by Egypt.

The major concerns are the high turnover rate in India and the instability in the latter players.

Still, India has to be looking west, AND while doing so, looking back over its shoulder at China.

The Chinese don't have the English expertise that the other countries do, BUT there is a growing population of Chinese overseas who would like very much if someone who spoke Chinese picked up the phone to listen to them complain about their cell phone bill overcharge.

The Chinese at home are also becoming greater consumers and they, too, would very much like to have someone they can understand take their order for a book from Amazon.com or otherwise.

Isn't it great to be alive in the 21st century to see and hear about how people around the whole world are interacting with and reacting to one another?

What do you think?

[G. Stolyarov II]

This article is a good way to address and demolish the faulty zero-sum view of wealth; outsourcing of services to China does not sacrifice or reduce other services in the United States and the Western world. Rather, the new outsourced services are here to meet a *new* demand from Chinese immigrants to the West-- a demand only made possible by these immigrants' newly-gained economic prosperity. The immigrants created wealth through their own work-- which has created new opportunities for Chinese call center staff in China, since the immigrants can now afford to hire this staff to help them solve their problems. See Dr. Belew's blog at ZhongHuaRising

[newgeezer]

If we ever succeed in gaining independence from the Middle Eastern people who want us dead, we'll still be funding the efforts of the Far Eastern people who share that common goal.

[voletti]

Well, good luck to china then.
Scale economies don't quite woirk in services the way they do in manufg. Besides, bottom-up entrepreneurship and innovation is critical. Most of China's boomhas been driven by top down govt or FDI. It owuld be interesting to see how China adapts to the demands of service offshoring.

[Dixie Yooper]

What you call outsourcing, I call a bunch a foreigners waiting with baited breath to help us with our problems.

[MimirsWell]

1) There are not that many Chinese abroad that would necessitate such call-centers just to service one immigrant group. I think that argument is immature.
2) To service chinese in China, setting up call-centers is not called outsourcing. Not in an international perspective anyway.
3) What do I think? I think you're just one of those blind China lovers who wishes he was born Chinese. There are reasons why China is looking good for outsourcing but they have neither the service attitude nor the English skills and international exposure that Indians and Eastern Europeans have. Your arguments lack analysis and are sometimes plain immature.

You might argue that they are catching up (with all the vagabond high-school dropouts from the USA, UK and Canada going to teach English over there in China and of Chinese investment in educating their children in English). But by the time China catches up with its English, its costs would have rocketed and India would have increased its base of English speakers even further. By 2010, India will have more English speakers than the population of UK and USA put together. I think it will be too late for China on the outsourcing front.

We are not even discussing the Chinese attitude which lacks a service mentality completely.

[ardmoreokie]

By 2010, India will have more English speakers than the population of UK and USA put together. I think it will be too late for China on the outsourcing front.

Are you sure about that? Do you mean as fluent English speakers? "UK and USA put together"? That's 340 million people we are talking about. I don't think India will have 340 million fluent English speakers by 2010, it's mid-2006 already. Right now, only 60 million Indians are competently fluent in the English language (fluent enough to answer my convoluted American English calls). If you mean by English learners or semi-fluent English speakers, then that's a moot point because China has equal that number *now*. I see a lot of India hype and hyperbole here whenever a India vs. China topic comes up. Let's get real. English is not the majority native language of either the Indians nor the Chinese. As of right now, India has a 60 million fluent English speaker advantage, while the Chinese fluency in English is under 10 million. That's not a permanent advantage by any stretch of the imagination.

[ardmoreokie]

We are not even discussing the Chinese attitude which lacks a service mentality completely.

"Completely"? Could you expound on this? Is this a traditional cultural byproduct or a result of the decades of Communism? If it's merely due to Communism, why do you believe Eastern Europeans have a greater advantage? If it's perhaps a traditionally ingrained mindset of the Chinese, how do you explain Hong Kong, Singapore and Taiwan, whose economies are all heavily service-oriented today?

[MimirsWell]

Tied down with work now. Give me a bit of time and I'll get back with a proper post on your questions.

[andyahoo]

Actually, Indian English speakers are seriously overestimated and overrated. First of all, many Indians DON't speak traditional English. Rather than that, many Indians speak "Indianized" English, which is hard for foreigners to understand.

Second, unlike most Indians here brag about, only a small fraction of Indians really speak good English. And considering Indians 60% literacy rate, the labor source for English speakers will soon hit the wall if India does not improve its education system.
A
Third, India's service industry will NEVER able to touch the East Asian market which consist of China, Taiwan, Korea and Japan. Here is where China comes into play.

These are the facts that those Indian Nationalists never want to face and don't want to let Westerners know. It is no wonder Mimirswell respond in such a immature and violent way here.

[MimirsWell]

"Actually, Indian English speakers are seriously overestimated and overrated."
Probably true. But have you heard the Chinese speak English? Past the "Hei Louuuuu" that they throw at every foreigner on the street, their English is almost non-existent. Even the educated ones who haven't been abroad speak very very poor English, pronunciation-wise and grammar-wise, and also transliterate Chinese into English. When you combine quality and cost-savings, I am not sure China will beat India in the medium term. Long term might just be too late. Not to forget that inflation is a serious problem in China and the smaller cities have too small a pool of English speakers to make relocating there economically viable.

And considering Indians 60% literacy rate
60% is close to 600 million people. Considering that even if half of these are educated in English medium schools, it makes 300 million people. Lets assume half of these live in the cities with acess to outsourcing jobs. And half of that number have English good enough to qualify for the jobs, thats 75 million people. We'll see when China, inspite of its great literacy rate, can put 75 million fluent English speakers in the job market. The employability rate of Chinese graduates is much lesser than that of Indian graduates. I have also seen the quality of these employable people when I worked in China, so don't get me off on it.

Third, India's service industry will NEVER able to touch the East Asian market which consist of China, Taiwan, Korea and Japan. Here is where China comes into play.
Agreed that this is true and East Asia is a big market. Now lets look at services out-sourcing. India has an umbrell organization that deals with issues faced by the industry, called NASSCOM. They help frame policies, deal wit litigations and assist members to cross hurdles that might appear. China's industry is fragmented where regional political leaders have vested interests and often block take-overs by companies from other provinces. Given this, it is highly unlikely that a home-grown company will actually be able to corner a big piece of the out-sourcing pie. It will be Indian and American companies that have opened up in China that will get a lion's share of this pie. But you're right, it will go to China, figuratively, but not to the Chinese. Second, I am nost sure how many Japanese and Taiwanese, or for that matter even Korean companies would feel safe sending confidential ban data to China where it can be accessed and misused. You might cite instances of this happening in India. But India's enforcement of its IP laws have been much better than China's. All the malpractice cases have resulted in conviction and imprisonment. I am yet to see the same happen with GM-Daewoo Matiz vs QQ. The fines and compensations are a pitiable amount and most of it is tokenism. After the Japanese have become aware of the kind of sentiment that they are faced with from the Chinese, I am not sure they will want to pick up the phone to ask a Chinese man about their bank details. Same for Taiwan..atleast for now. Korea is a different story. But in the eventuality of a Korean integration, China can forget about getting any low-cost outsourcing from there. They would much rather send it up north. So you see, the uncertainties work against China. For low cost English-based services, China will have to compete with Philippines and Vietnam, even South Africa. For E. Asia, there are opportunities but we'll see how that turns out.

I sincerely hope that this time around, I made a logical, fact based argument that would satisfy you. I assumed that the things I explained are common knowledge. Obviously it wasn't so.

[andyahoo]

Only very small percentage of Indians speak good English. I have heard of very few Indians speak good English in fact. Most Indians I know speak Indianized English which is extremely heard to understand. Speaking English itself does not make you competitive. Speaking bilingual or more language is what needed. At this point, Indians in general do no better than the Chinese. In fact, China mostly have the edge here since their people have good base in their onwn language.

And service industry itself will never lift most Indians out of poverty anyways. Traditionally, countries need to develop its manufacturing sector before it develop its service sector. India took the short cut in this aspect which I think will come back to bite them.

"60% is close to 600 million people. Considering that even if half of these are educated in English medium schools, it makes 300 million people."

That's a pretty sweet dream, but the reality is only Indian elites speak English. Most Indians speak their own local languages and need to rely on interpreters to speak with officials or Indians from other provinces.

"The employability rate of Chinese graduates is much lesser than that of Indian graduates. I have also seen the quality of these employable people when I worked in China, so don't get me off on it."

I get you. I have same feeling of my Indian co-workers too. Don't get me started..sign..

[andyahoo]

Here is an article bursted the bubble of India's knowledge economy. Go read it before you even start bragging.

Many people, especially Americans, think that China's only competitive edge is its cheap labor. There is a saying: China is the workshop of the world, while India is the lab of the world. Well, not quite. According to the World Bank, China actually done really well in industrial innovation, entrepreneurship, as well as Research and Development.

The World Bank uses Knowledge Assessment Methodology (KAM) was designed as an interactive tool for benchmarking a country’s position vis-a-vis others in the global knowledge economy.

Overall, the KAM is best suited to providing a preliminary or ‘starter’ knowledge economy assessment of a country. It has the ability to identify quickly and succinctly key strengths and weaknesses, areas for development and even anomalies in the available data for a given country. The KAM results, however, should be treated with some caution. Further data sources and analysis are usually required to confirm issues or trends.

http://web.worldbank.org/WBSITE/EXTERNAL/W...1414721,00.html

The 80 variables of the KAM represent the overall performance of the economy and the four pillars of the Knowledge Economy framework. The dataset is divided into seven functional cuts:
1)Overall Performance of the Economy
2)Economic Incentive and Institutional regime
• Economic Regime
• Governance
3)The Innovation System
4) Education and Human resources
• Education
• Gender
5)Information and Communication Technology (ICT)


The [b]KAM Knowledge Index (KI) measures a country's ability to generate, adopt and diffuse knowledge. This is an indication of overall potential of knowledge development in a given country. Methodologically, the KI is the simple average of the normalized performance scores of a country or region on the key variables in three Knowledge Economy pillars – education and human resources, the innovation system and information and communication technology (ICT).

The Knowledge Economy Index (KEI) takes into account whether the environment is conducive for knowledge to be used effectively for economic development. It is an aggregate index that represents the overall level of development of a country or region towards the Knowledge Economy. The KEI is calculated based on the average of the normalized performance scores of a country or region on all four pillars related to the knowledge economy - economic incentive and institutional regime, education and human resources, the innovation system and ICT.

These are the figures from key developed and developing countries in Asia.

KEI, Econ. Incentive Regime, Innovation, Education, ICT
Japan 8.35 7.74 9.27 8.08 8.30
Taiwan 8.10 7.63 8.97 6.94 8.85
Hong Kong 7.68 9.40 7.49 4.82 9.01
Korea 7.48 5.38 8.18 7.62 8.75
China 4.12 3.84 4.74 3.60 4.30
India 2.58 2.47 3.72 2.16 1.96


These are the figures from 1995 for comparison
KEI 1995, Econ. Incen. Regime 1995, Innovation 1995, Education 1995, ICT 1995
Japan 8.61 8.19 9.35 8.43 8.48
Taiwan 8.18 8.35 8.85 7.50 8.03
Hong Kong 7.77 9.43 7.09 5.60 8.95
Korea 7.51 6.55 7.47 8.11 7.93
China 2.85 2.32 3.94 3.48 1.68
India 2.79 2.86 3.51 2.38 2.40



Now here is the interesting part. Taiwan actually do a little bit better than Korea in most areas. China is the only country that has rapid progress in every area from 1995 to 2005. In fact, China is one of the few country that progress rapidly in world bank's Knowledge Assessment Methodology. China actually beat India in every area such as Knowledge Economy Index, innovations, education, and information technology. More importantly, the gap between China and India is widening, instead of narrowing.

It shouldnt be surprising that China is lag behind Korea and Japan in knowledge development. But we have hear so many times from western media that India is a knowledge based eonomy, while China is just a cheap labor bathtub!! The objective research shows the opposite. China is more innovative and more knowledge based than India!! And we are progressing much faster!!!

Go to http://web.worldbank.org/WBSITE/EXTERNAL/W...1414721,00.html for more info

[andyahoo]

Notice according to World Bank, China earn 4.74 in innovative index while India only earn 3.72 in 2005. And th gap widen compare to 1995.

[MimirsWell]

Only very small percentage of Indians speak good English. I have heard of very few Indians speak good English in fact.
And your source is? Obviously you have not been to India at all.

Most Indians I know speak Indianized English which is extremely heard to understand.
Don't blame them for you ot being able to comprehend them. The Americans in the US have no such problem with the Indian-American English. Its probably how poor your English is. If you mean the Indians that you speak to when you call customer service, one can only imagine the problems Americans will have if the guy picking up the phone was a mainland Chinese

Speaking English itself does not make you competitive. Speaking bilingual or more language is what needed.
Most Indians speak 3 languages. India has more languages than China so lets not discuss bilingual or trilingual. It is an accepted fact that the average Indian speaks more languages than people in most other countries in the world. If you were to take Gengis Khan and me for an example, we speak atleast 4 languages. English, German, Hindi and our native language (Kannada for me, Marathi for Gengis). Further, I also speak semi-fluent Mandarin and French. All educated Indians speak atleast two languages. This can go upto four in the citie.

At this point, Indians in general do no better than the Chinese. In fact, China mostly have the edge here since their people have good base in their onwn language.
So you're saying Indians don't know their own language as well as the Chinese know theirs? Kinda pathetic your argument, dont you think??

And service industry itself will never lift most Indians out of poverty anyways. Traditionally, countries need to develop its manufacturing sector before it develop its service sector. India took the short cut in this aspect which I think will come back to bite them.
Well it means we don't pollute our environment like you chinese are polluting yours. You are just crying sour grapes here. (I hope you understand the phrase since you're evidently Chinese). I would like you to substantiate the statement you made about which industry musr develop first and why? If India took the short-cut like you say, it also means that it choked China's chance of taking over the service sector. So we'll see how that turns out. China will become more expensive as a manufacturing sector. It is easier to shift manufacturing out of a country than services. Training people to run machines is easier than training them to offer services which is why services cost more and is a step above manufacturing.

That's a pretty sweet dream, but the reality is only Indian elites speak English. Most Indians speak their own local languages and need to rely on interpreters to speak with officials or Indians from other provinces.
There you go, contradicting yourself. First you allude that Indians don't speak their language well enough and now you say they speak only their language. Which one? Is jealousy clouding your judgement?

I get you. I have same feeling of my Indian co-workers too. Don't get me started..sign..
I don't care what you think. When we have a Chinese born and educated CEO of a firm like McKinsey or Pepsi, we can consider your argument. Even in China, most high-level managers are non-Chinese. HongKongese or Taiwanese are a majority of the chinese who head MNC's in China. Its an accepted fact, even coming from papers released by McKinsey and the likes that China is quite short of managerial talent. And its an accepte fact that managers are more valuable than underlings. Like I said, I am waiting for a Chinese global CEO of an MNC.

[MimirsWell]

Notice according to World Bank, China earn 4.74 in innovative index while India only earn 3.72 in 2005. And th gap widen compare to 1995.
Haier has patents that are useless in a global cntext and probably useless even in a Chinese context. For example they have a patent for a washing machine that can also wash sweet potatoes. Very useful. A lot of patents filed in China ae similar. In IBM and in the company I worked for, Chinese on an average filed 1/30th the number of patents that Indians filed. Granted that IBM is bigger in India than in China. But in my company, we had 20 Indians working in India compared with 300 Chinese working in Beijing and Shanghai. Indians filed for 24 patents in the company's APac region and Chinese for 2.

I filed a patent in China, so I know of the law there. In China, irrespective of whether the filer is Chinese or a foreigner(citizenship-wise), he cannot file a patent abroad if he is a resident in China.
Many Indian firms file patents directly in the US as it saves costs of multiple filings. This law also has a lot to do with fewer patents filed in India than in China. That explains a the disparity doesn't it? It has nothing to do with the relative creativity of Indians compare with Chinese. There wouldn't be such a myth otherwise.

[andyahoo]

Actually, I do know Americans complain they can't understand what their Indian representatives are talking about.

Most Indians speak three languages like German, French, Mandarin, and English. Sure, I wonder if your face go red when you say that.

"Well it means we don't pollute our environment like you chinese are polluting yours. You are just crying sour grapes here."

Lol, oh my god, you are here starting all these insults on the Chinese and you call me sour grape. Anyways, I see Indian nationalists like you insult China all the time. I wonder what is motivation behind it? And you work in China? Smiling in front the Chinese and badmouthing them on the internet. People like you make me sick.


"I don't care what you think. When we have a Chinese born and educated CEO of a firm like McKinsey or Pepsi, we can consider your argument."

Yea, right now there are some Indians doing pretty well in western firms. But they are making profit for foreign companies. That's the thing. The brightest Indians work for foreign firms, instead of contributing something to their country. Lol, and you laugh at the Chinese?

And right now Indians have an upper hand in global managerial skills because of their English skills. Sooner or later they are going to catch up.
And that does not change the fact China beats India in both manufacturing and knowledge economy. Lol

[andyahoo]

Lol, any statistics that shows China in the upper hand you call it is useless, then why the hell all comparison? Everytime I showed you statistics, you will say that is useless because it makes India looks bad.

The fact that China beats India in innovative index shows China is a better place to develop innovations.

[MimirsWell]

All educated Indians speak atleast two languages. This can go upto four in the cities "Most Indians speak three languages like German, French, Mandarin, and English. Sure, I wonder if your face go red when you say that." I said:
"All educated Indians speak atleast two languages. This can go upto four in the cities"
You interpreted it as:
"Most Indians speak three languages like German, French, Mandarin, and English. Sure, I wonder if your face go red when you say that."
Says volumes about the level of your English. I gave GK and myself as examples. Why are you behaving like a dumb idiot? Or is something getting lost in translation?

"Lol, oh my god, you are here starting all these insults on the Chinese and you call me sour grape. Anyways, I see Indian nationalists like you insult China all the time. I wonder what is motivation behind it? And you work in China? Smiling in front the Chinese and badmouthing them on the internet. People like you make me sick.
Again, I see your poor grasp of English here. Where is the insult? I hope you know what it means. I don't see anything rude about talking about China's pollution. Every other month, there's a spill in one of your rivers, go figure...Yes I used to work in China. So? It doesn't mean a thing. I don't have to LOVE your country. I was there for my cause and for that of my employer. Not to sing false praises where none is required.

The brightest Indians work for foreign firms, instead of contributing something to their country.
You see the weakness of your argument? foreign FIRM, own COUNTRY. These two are not the same abstract, there need be no conflict of interest. We live in a globalised world. Its probably why Chinese will find it tough to come up. They don't know the difference between firms and countries. YOU need to come up with better arguments. That comment was to discuss which group is better qualified to do something worthwhile.

Besides, I didnt counter your statistics, I only clarified them by telling you about the different legal realities in the 2 countries. If China is such a great knowledge economy, we will soon see all companies shifting R&D out of India to China. There might be some basis for why China is called the world's factory and India, the world's lab/office. People like Mr Dilip Chhabria design cars for big auto majors while people in China steal designs from GM and Cisco.

[andyahoo]

"We live in a globalised world. Its probably why Chinese will find it tough to come up. They don't know the difference between firms and countries. YOU need to come up with better arguments."

Geeezzz, it seems like working in foreign countries never really boarden your mind. Sure, this is a globalized world. And who is the first one start bitching on this thread? It is you. You are the one who has the hard time accepting China is becoming an outsourcing market and attacking G. Stolyarov II. And you come here lecturing globalization? Pethetic.

"foreign FIRM, own COUNTRY. These two are not the same abstract, there need be no conflict of interest."

Humm...that's why Indians young college graduates can't wait to work for a foreign firms in a foriegn country whereas the Chinese can't wait to go back mainland to work.

"China is such a great knowledge economy, we will soon see all companies shifting R&D out of India to China."

You bet. You are going to see that happen soon. And actually India is no where a world's lab as you can see in the world bank report.

[MimirsWell]

I asked you to substantiate some of the things you said in your earlier posts. If you don't plan on doing it, don't waste my time with your useless justifications and your diatribes.