Key Takeaways
1. China has become a leading country globally in business processing, manufacturing, and Information Technology (IT) outsourcing opportunities for foreign companies.
2. Education is highly valued in Chinese culture — this means as an outsourcing destination, foreign companies will have access to an immense pool of highly educated individuals with specialized skills to meet current and future market demands.
3. One of the top benefits of outsourcing to China is cost saving, while key disadvantages can be related to quality control and Intellectual Property (IP) concerns.
4. There are a several issues related to compliance that need to be overcome when outsourcing to China – A Global PEO can help mitigate any compliance challenges, ensuring a smooth transition into the Chinese market.
China has advanced to be one of the world’s leading outsourcing nations — expanding as more than a manufacturing hub to catering in outsourcing opportunities across other capacities – such as business process and IT outsourcing.
As the most populated country in the world, China presents a unique opportunity to foreign companies to increase their access to a vast pool of talent, skills, services, and entry into neighbouring markets. Not only can this cut costs and maximise profits but improve the overall efficiency in business operations – ultimately setting them apart within their internal markets.
This article will highlight China as an outsourcing destination and discuss the top benefits and disadvantages companies need to consider when choosing to outsource to China in any capacity.
What is the definition of outsourcing?
In business terms, the practice of outsourcing is when a company looks to hire a third-party to perform duties, create goods, support operations, or provide a service to the company. Some examples of a third-party source is an individual with specialised skills (think consulting), an entire department (IT, HR, legal or accounting), a software solution (SaaS or PaaS), or a specific service (data entry, content creation, marketing etc.). Companies choose to outsource to lower costs and improve efficiencies and gain a strategic competitive advantage. A company can outsource onshore, offshore or to neighbouring countries.
What types of business activity can be outsourced to China?
China is constantly expanding its aptitude for outsourcing opportunities in business processing, manufacturing, and IT outsourcing. Below will be a brief rundown for each of these categories and highlight some common business activities associated with each that can be outsourced to China.
- Business process outsourcing to China
- In recent years, the Chinese market share for providing business process outsourcing (BPO) services to foreign companies has seen exponential growth. BPO services that are commonly outsourced to China include both front and back-office processes. The top types of BPO services include accounting processes such as payroll solutions; administrative tasks such as data entry; customer experience through contact centres; procurement services; digital marketing; content creation and travel reservations and itinerary bookings..
- Manufacturing outsourcing to China
- China is the world’s largest manufacturing nation, cultivating it’s leading position since the 1950’s with major industrial reforms. This makes China a goldmine to foreign companies if seeking to outsource all or part of their manufacturing needs. Even some of the biggest consumer-oriented multinational companies such as Apple and Tesla have chosen to expand or completely base their manufacturing facilities in China. The most common products that can be outsourced to China include electronics, clothing and textiles, shoe manufacturing, furniture, and plastic products.
- IT outsourcing to China
- The drive towards digital transformation globally has enabled China to create a solid foundation to build and provide IT outsourcing opportunities. In-house software development is renowned for being a costly undertaking for any business, so being able to acquire high-quality solutions at a fraction of the cost makes China a lucrative choice with foreign companies. As with its ever-growing market of innovative local software solutions, companies can also outsource database development, web development, virtual helpdesks, application support and management services across all these avenues.
What are the benefits of outsourcing to China?
Below will be a brief synopsis of the top three benefits of outsourcing to China.
- Cost Saving
- The undisputable principal reason and benefit for companies to outsource to China is that its cost effective across several avenues. China presents numerous opportunities to save cash and maximise profits, while presenting ample access to an abundance of local talent across many industries. There is also the benefit of lower salary caps for basic or specialised skillsets and cheap access to raw materials and manufactured goods.
- Additionally, many mundane and repetitive business processes such as employee onboarding or purchase order processing – once tasks that could only be completed through manual labour – have been transformed into autonomous and effective technological solutions. China presents copious opportunities to adopt locally developed software in an increasing array of business processing tasks. This presents companies with a unique opportunity to eliminate all associated human labour costs either partly or in their entirety.
- Access to a massive, growing consumer market
- As the most populated country in the world, choosing to outsource to China instantly presents companies access to one of the fastest growing and largest consumer markets globally. Building on this benefit pinpoints to China’s convenient geographic location, producing further market entry access advantages if looking to introduce products into other Asian and European markets.
- Highly educated and skilled potential workforce
- Prior to the COVID-19 pandemic, the Chinese economy was already undergoing rapid changes that focused on launching initiatives towards education, training, and its supporting infrastructure. These initiatives also surround the development of technical skills that support technological innovation and adoption.
- Additionally, education is highly valued in China and considered a great source of pride linked with enhancing a person’s worth and career. The key benefit of this makes China home to an immense pool of highly educated and rising talent that can meet current and future market demands.
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What are the disadvantages of outsourcing to China?
It’s important to recognise and understand what the disadvantages are with any new business endeavour. Here are the top three disadvantages that should be considered when choosing to outsource to China.
- Compliance
- Companies looking to hire foreign talent in China need to take a few things into consideration. Chinese employment and labor law are relatively complex and are subject to round the clock audits and enforcement by the Chinese Government. There is also a competing tension between policies for accelerating and controlling innovation – emphasised by the creation of the Chinese Social Credit System, a system to control and determine a company’s “trustworthiness” in their business operations. It is important to understand these regulatory systems and the potential consequences of non-compliance when outsourcing to China.
- Control
- For businesses that like to have control over their business processes, this can sometimes get lost if outsourcing to external agencies. Outsourcing to China can run the risk of facing quality control issues, intellectual property (IP) violations and differing standards for monitoring of task and employee performance.
- A key consideration if a company is looking to outsource its product manufacturing surrounds the fact that quality control practices in China are still underdeveloped across many industries. Quality control issues can mean your product does not meet the local standards as set out in your local jurisdiction.
- China also has had instances in the past where foreign Intellectual Property (IP) rights and international copyright standards have not been respected. Highly problematic if you’re looking at creating or have an existing cutting-edge product on the market.
- Both these points can have a significantly negative impact for a company, both financially and reputationally if not taken into consideration.
- Language and Cultural differences
- Finally, as a consideration when looking to outsource to any country, language and cultural barriers can pose a considerable challenge. Although language barriers are easy to overcome, cultural ones can prove more difficult and result in a misalignment in business vision moving forward.
In a recent Deloitte survey, 27 percent of respondents identified as a key learning from prior outsourcing, the importance of a third-party strategic advisor. If you have no local connections in China, you might consider hiring a Global Professional Employment Organization (a ‘Global PEO‘) to facilitate your entrance into the Chinese market. Global PEOs can also help companies with an existing presence in China, but who are concerned they are not meeting their compliance requirements.
These third-party companies take over and maintain compliance through rigorous contracts. This ensures a business is and can remain compliant in their new market. Although considered a cost-effective measure to get the ball rolling, it can take considerable time researching to find an appropriate Global PEO that is good value for money and can cater to all required business needs.
Conclusion
If your company is seriously looking at outsourcing to China but is not sure where to even begin – then Horizons can provide the needed support in getting the process started. For example, Horizons are leading experts in providing China Payroll solutions, acting as the employer of record within China, saving on costs and the need to establish a legal entity in China. This means you will be able to begin quickly and compliantly trading in China. Check out how Horizons can help your business expand globally.
Frequently asked questions
There are many reasons why companies choose to outsource to China. China presents as an enticing proposition for companies looking to expand globally through outsourcing. Outsourcing to China introduces access to new markets, specialised skills, and an abundance of highly educated talent. Labour costs in China are less across many industries compared to western standards, meaning businesses can elevate their success to the next level.
Outsourcing your business needs to China does not have to be a timely or costly endeavour. Companies often benefit from using a third-party firm, such as a Global PEO, to leverage their connections in China to help support an outsourcing operation.
