February 18, 2013
Over the past three years, multinational companies’ (MNCs’) approach to outsourcing in China has steadily matured as they seek to leverage broader outsourcing models and source from a combination of global providers and local Chinese providers.
In my latest report, Lessons Learned From Outsourcing In China: Part 2, I analyze the key outsourcing trends and approaches to help sourcing and vendor management (SVM) professionals at MNCs select the right local outsourcing suppliers. As part of this analysis, I’ve highlighted the main service capabilities of local Chinese vendors broken down by service model and profile the different types of service providers that currently operate in China.
Key findings from the report include:
- MNCs are adopting sophisticated outsourcing approaches in China. Many MNCs are shifting away from a pure global service provider approach to a broader shortlist that also includes Chinese providers. SVM professionals at MNCs appreciate local providers’ broader geographic coverage, lower outsourcing cost and more flexible service deliverables.
- MNCs are also diversifying their outsourcing requirements. After signing the first wave of outsourcing contracts in the past five to 10 years, MNCs are becoming increasingly comfortable considering more sophisticated outsourcing contracts, such as best-of-breed selection, vertical outsourcing, etc.
- Local outsourcing service providers are continually improving their capabilities. To approach more MNC clients in China, local providers have enhanced their geographic coverage in remote cities, accelerated consolidations, recruited senior talent for improved depth at key positions and aggressively recruited fresh graduates to manage costs.
So what should you do to take advantage of the increasingly broad range of viable outsourcing providers in China? Firstly, to move away from a pure global service provider approach, SVM professionals at MNCs must seriously evaluate local providers’ general technical background, service quality, existing credentials, and industry reputation.
As part of our research, we’ve identified a few key evaluation criteria that can help SVM professionals better engage with local vendors. At the top of the list is ensuring that senior executives be engaged in the outsourcing deal’s governance.
Verify that executives of local outsourcing vendors will be involved throughout the outsourcing deal, from the initial proof of concept to service fulfillment. Ensure that outsourcing providers can effectively collaborate with the MNC’s local IT and business operations teams.
It’s difficult for SVM professionals at MNCs to change their behavior overnight, but I believe incremental change is well underway in China.
Your own experiences and ideas are always appreciated. I’d love to hear from you.