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Shared services and outsourcing shaping companies' future direction in Asia Pacific - China sees rapid expansion...

China sees rapid expansion of shared services

China's outsourcing and shared services are rapidly expanding and winning market share over India and other regional destinations, according to a recent KPMG survey.

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Shared services and outsourcing shaping companies' future direction in Asia Pacific - China sees rapid expansion of shared services, according to a recent KPMG survey

China's outsourcing and shared services are rapidly expanding and winning market share over India and other regional destinations, according to a recent KPMG survey of over 280 C-Level executives across Asia.  

The survey finds that over 80 percent of C-Level executives employ a strategy of outsourcing, shared services, or a combination of the two. Senior executives across Asia Pacific also now view China as the preferred destination for setting up their shared services centres. Forty-two percent of the respondents said their companies have set up one of their shared services centres in China. With regards to outsourcing, 41 percent said they have a third-party outsourcing provider in China. In addition, 36 percent also employ a "plus-two" strategy in Asia, in order to minimise operational costs.  

Singapore stands second as a popular location for shared services (29 percent), followed by India (25 percent), Hong Kong (22 percent) and Malaysia (20 percent).  

Edge Zarrella, Global Head, IT Advisory, KPMG China, says: "China continues to have huge potential in the outsourcing arena, as the vendor footprint expands. But right now it is growing even faster in the shared services space. Though at the moment the country has still not reached the level of maturity seen in India, the growth of China's outsourcing market is significant. Many western companies may still see India as their location of choice, but for executives within Asia Pacific the message is clear - China is now leading the way."  

Figures from KPMG show that in 2007, China's onshore and offshore outsourcing market stood at only USD 7.5 billion. That amount nearly tripled to USD 20 billion last year, according to China's Ministry of Commerce. By 2014, KPMG predicts that China's total outsourcing market will stand at USD 43.9 billion.  

"Shared services are expanding rapidly in China," Ning Wright, Partner in Charge, China Outsourcing Advisory, KPMG China, notes. "The speed with which China has emerged as a shared services destination will undoubtedly surprise some people." 

"Shared services are growing across the board in China - ITO, BPO and KPO are occurring simultaneously," adds Ning. "It is different from the way that things evolved in other markets in Asia Pacific. Accounting already ranks higher than IT as a function provided by shared services centres, which shows that BPO is already overtaking ITO in China, if not in other parts of the region." 

Large multinational corporations, which have long been in China to manufacture and sell their goods abroad, are expanding in the domestic market. This also has implications as they are increasingly setting up shared services and outsourcing services. This is evident in the explosion in the number of R&D centres across the mainland. Microsoft's R&D centre in Hangzhou, for example, is expected to become the company's biggest R&D centre after Bangalore.  

The survey also revealed low labour costs as one of the reasons for contracting outsourcing providers (51 percent of respondents choose low labour costs as the top factor), although it is clear that this is far from the sole determining factor. In addition, when asked about key factors used in determining the location of their shared services centre, respondents once again cited low labour costs, as well as language capabilities (53 percent each).  

Ning notes that senior executives should be careful about making location choices based on cost. "They should take into consideration the longer term needs of their business and how employing their outsourcing and shared services approach can align with their wider business growth strategy." 

The key rationale driving outsourcing strategies, she said, is no longer just cost arbitrage. Equally or even more important is the need to ensure access to a reliable supply of abundant and skilled talent. Language, skills and infrastructure are all critical. 

 

- Ends -

 

Notes to the editors 

Outsourcing:

When outsourcing, a company uses third parties to perform noncore business activities. Contracting third parties enables a company to focus its efforts on its core competencies. Outsourcing helps companies reduce cost and improve performance of the activity. 

Shared Services Centres:

Shared services centres reduce costs by consolidating one or more back-office operations used by multiple divisions of the same company, such as finance, information technology, customer service and human resources into a shared operation. 

ITO - IT Outsourcing

BPO - Business Process Outsourcing

KPO - Knowledge Process Outsourcing 

 

About the survey 

In May and June 2010, CFO Innovation conducted an online survey for KPMG China involving 286 CFOs, finance directors, financial controllers, CEOs and other senior executives based in Asia. The survey takes the pulse of executives with regard to their use of shared services and outsourcing providers in Asia, the preferred location of those shared services centres and outsourcing providers, the services they are outsourcing, and other related issues. 

The respondents were mostly based in China (including Hong Kong) and in Singapore, with a smaller number based in Malaysia (11 percent) and other parts of the region (11 percent combined). The majority held a senior finance function such as CFO (44 percent) or Finance Controller (13 percent). 

These executives represented a range of companies of different sizes, with 70 percent having turnover of over USD 50 million per annum and of those a further 32 percent having turnover exceeding USD 1 billion. All sectors were represented, with the most prominent being financial services (16 percent) and electronics/software/technology (11 percent). 

 

About KPMG 

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 146 countries and have 140,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International") a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. 

KPMG China has 12 offices (including KPMG Advisory (China) Limited) in Beijing, Shenyang, Qingdao, Shanghai, Nanjing, Chengdu, Hangzhou, Guangzhou, Fuzhou, Shenzhen, Hong Kong and Macau, with more than 9,000 professionals.

KPMG Pulse Survey: Shared Services and Outsourcing in China

KPMG Pulse Survey: Shared Services and Outsourcing in China

This pulse survey of executives from across Asia Pacific shows that China is now their preferred destination for both outsourcing and shared servic...

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