Companies are now looking to outsource their processes locally

China has emerged as a key location amid the evolving global business process outsourcing (BPO) industry. The BPO industry in China has been growing steadily over the past decade.

The most significant enablers of this growth have been the thriving economy being driven by huge investments pouring into China, as well as domestic enterprises taking a global route. China's proximity and cultural similarities to nearby Asian markets have also enabled this growth.

China's Ministry of Commerce launched a project to promote BPO in 2006 in a bid to build 10 service-outsourcing bases. At present there are 21 cities that have been identified as model cities that are attracting attention from both multinational and domestic enterprises.

The demand from American and European enterprises for offshore BPO services in China is growing. China has traditionally followed behind the Philippines and India in serving these enterprises, but that pattern is changing to China's advantage.

The key drivers of demand in China include Japanese, Korean and other companies near China's shores as well as multinationals with operations in China or in the Asia-Pacific region. Those looking to the BPO industry in China also include domestic enterprises and American and European enterprises.

There are three factors fueling BPO growth. First are China's emerging regional hubs. The Chinese economy has been experiencing tremendous growth, evident from the global economic balance shifting toward China and Asia. This has also witnessed a trend of many multinationals shifting their Asia-Pacific headquarters to China.

As a consequence of this trend, many companies are now looking to set up their shared services centers or outsource their processes locally in China. Initially, such outsourcing was limited to operations in China but as they gain experience they plan to make China a regional hub for outsourcing of services.

Second, domestic companies are getting competitive. Many Chinese companies are now aggressively expanding their presence globally and are now seeking to streamline their business processes to focus on their core business.

To achieve this, these companies are now exploring the options of outsourcing their activities to global and Chinese BPO suppliers.

The third driver comes from the consolidation of business units. Traditionally, the growth of many multinationals in China forced them to expand their back-office services, but presently, the same companies are thinking of consolidating these services.

In the traditional model, various business units set up their own processes and services in order to efficiently run their operations.

As the volume of revenue generated and the size of operations increase substantially, the need for consolidation of business processes and services became necessary. Such consolidation is commonly achieved through shared services or BPO, and recently through business process optimization and transformation.

Various different operating models are emerging in the China market. Service providers in India and globally are supporting Chinese operations as well as supplementing their global delivery capabilities with Chinese resources.

The global service providers use their standard delivery models for service level-based offshore outsourcing and they have also penetrated the domestic client base.

The Indian service providers continue to serve their global customers in China but they have also started to focus on expanding their domestic client base. The local service providers provide a range of models from basic staff augmentation to full outsourced models.

In conclusion, the demand for BPO services in China will continue to grow given the burgeoning growth.

The service provider community realizes the importance of BPO as many global and regional suppliers are now ramping up operations and many Chinese IT companies are also starting to offer BPO services.

Apart from English, China can offer multiple regional language support including Japanese, Korean, Cantonese, Malay and Bahasa. The language advantage, coupled with extensive government support and a large talent pool, will enable the BPO industry to grow faster in the next few years.

The author is a partner in charge of outsourcing and shared services advisory at KPMG China.