About 300 outsourcing firms have set up in Changsha’s software and outsourcing zone. Some have partnerships with big names including IBM and Google, but most are tiny operations. One of the most promising locally bred IT companies, Powerise International Software which was bought by Chinasoft in 2006.

Today, Chinasoft’s 160 staff members in Changsha do IT outsourcing for mainly Japanese companies, but most of it is coding work and software testing, not the high-end engineering and designing that Changsha craves.

VanceInfo Technologies’ experience in Changsha isn’t encouraging.

The Beijing firm opened a branch here in 2003. Tian said it took him nine months to recruit 60 engineers. They had little trouble doing the work, including developing, testing and localizing software and handling electronic transfers of loans for major banks.

But Tian said his staff in Changsha, lacking strong English skills, struggled in conference calls with customers. Nor were VanceInfo’s clients entirely comfortable dealing in a small city unfamiliar to them, he said, and the firm shut the office in 2005.

‘Compared to the Japanese, major clients in Europe and North America emphasized much more the city’s characteristics,” Tian said. ‘They preferred Shanghai. Our clients weren’t supporting our establishing centers in cities like Changsha.’
China marches into outsourcing

This may not aound over-encouraging but these obstacles can be overcome.

For example, Beijing-based Chinasoft International Ltd., is recruiting hundreds of workers in Changsha to process medical bills and health insurance claims. Its target customers: U.S. doctors.

Chen Yuhong, Chinasoft’s managing director, thinks it’s only a matter of time before China makes big gains against India — which now leads the world in information technology outsourcing. Chen Youhong said, ‘They’re seriously concerned about our challenge.’

Most analysts reckon it’ll be perhaps a decade before China catches up. India’s IT outsourcing revenue, estimated at $18 billion in 2007, is about six times the size of China’s. The gap figures to be even bigger for business-process outsourcing, such as medical billing and back-office work.

China’s sales of IT outsourcing work are growing at roughly twice the rate of India’s. Consulting firm Analysys International says they jumped 45% in the fourth quarter of 2007, to about $600 million.

China’s government wants both — and is helping with incentives. Firms setting up in designated outsourcing zones can enjoy a two-year waiver of taxes. They can get a subsidy of about $700 per employee for training and hiring. Local governments are chipping in with sweet deals for rent and land, as well as cash for certain sectors.

Chinasoft’s Chen, though, sees a way to leverage China’s large domestic market into offshore contracts. As more Chinese businesses and public agencies contract out their IT, back-office and call-center operations, the firms that provide those services could offer connections to Western firms to help them break into the Chinese market.
Source: LA Times

As we ease ourselves into this new section of the China Economic Review blog we are in a state of amazement at the size and scope of the already existing high-tech industrial zones and how solidly they have established themselves.

Changsha National High-Tech Industrial Development Zone (after this we will refer to it as Changsha as CHTIDZ is not an acronym that appeals) was founded in October 1988 in the capital city of Hunan which makes it a pioneer. It was already established when the first batch was approved by the State Council three years later.

(Changsha was notably where Mao Zedong, founder of the People’s Republic of China began his political career and the city contains a museum covering his life and times.)

In that short time it has established itself and grown. The raw figures surprise and amaze.

There are currently 800 high-tech enterprises set up in the zone of which 200 are enterprises with foreign investment.

Seriously up-to-date figures are always difficult to come by but in 2006 Changsha had a revenue of US$10.25 billion in technology, industry and trade which is not that far off that of a small country. The previous year the GDP for the whole of Changsha was $18.5 billion which shows how important the zone is to the area.

Worth noting the GDP for Changsha has grown at an average of 14% a year which puts it among the leaders in China.

Most of what it does is electronic information industry, advanced manufacture industry, new material industry and biological and medical industry.

Changsha has over 30 companies in the leading position in China or the world in their respective areas.

The Zone has been awarded the National Model Zone five times.

It is run, but of course, by a committee but it has established complete management organizations and supporting service systems so that incoming companies already of ‘one-stop’ high-quality and high-efficiency services readily available. And transportation of goods from the area is helped by th fact that Changsha is surrounded by major rivers, including the Xiangjiang, the Liuyanghe, and the Laodaohe whih carry commercial shipping. It is quite an amazing achievement.
Source: Frontier Blog