Download Shenzhen - North American Representative Office of Shenzhen, China

Shenzhen:
China’s New Bangalore
- Opportunities and Incentives in BPO/ITO
Robert Fraser
KPMG Advisory University
June 12, 2008  Chicago, IL
Outline
• Outsourcing to China
• What’s Shenzhen?
• Why Shenzhen?
• What Does Shenzhen Offer?
Outsourcing to China
• Outsourcing to China would have once been considered a
gamble. Now, companies have a wide range of choices to
diversify their operation.
• With cost, talent, infrastructure, government support
advantages over other outsourcing destinations, and strategic
benefits, there are powerful reasons to outsource to China.
• China will be emerging as one of the world’s most promising
ITO and BPO destinations.
Outsourcing to China
The predominant reason for
companies to choose China as
an offshore location is the
opportunity to co locate….
Country
Product
Development
China
56%
Eastern Europe
27%
India
30%
Latin America
24%
Philippines
14%
Country
Co-Locating
China
66%
Eastern Europe
32%
India
33%
Latin America
42%
Philippines
18%
….and the preferred activity is
R&D, Product Development
and related services.
Source: Duke University CIBER/Archstone Consulting 2nd Bi-annual Offshore Survey Results December 2005
China’s Strengths:
Infrastructure & Environment
Key Indicators
China
India
9.9%
8.5%
FDI Investment (in millions 2004)
60,630
5335
Electricity Production (billion Kwh)
1,907
633
Telephone Penetration
26.63
4.51
Internet Penetration
8.44
5.44
PC Penetration
4.08
1.54
GDP Annual Growth
China’s superior infrastructure and business environment is a
major reason for attracting offshoring activity. These 2 factors
provide the required context for IT and BPO offshoring.
Source: ITU; WDI 2006, UNCTAD, Hewitt Research
China’s Weaknesses:
Language & Awareness
• Lack of English language proficiency
– May not be fluent English speakers, but possess valueadded functional skills quickly
• Lack of global awareness of China’s competitiveness in
service outsourcing
• Western culture and business nuance gap
• However, the pitfalls that some companies may experience
are rapidly being addressed by the Chinese government
What’s Shenzhen?
Shenzhen is in the seaboard area of South China neighboring Hong
Kong Special Administrative Region, and in the Pearl River Delta
Shenzhen Position in Asia
Shenzhen
Shenzhen:
Facts and Figures
• China’s 1st and most successful
Special Economic Zone
• Population: 12 million, including
the resident population of 8.61
million. Area: 1,953 square
kilometers
• China’s 4th largest city economy;
China’s manufacturing,
technology, trade and port city
• New city, high priority for
international trade and foreign
direct investment
• A clean, safe, recreational city
with mild weather and the best
living quality in China
Shenzhen:
Major Industries
• Consumer products manufacturing
– IT related products
– Traditional consumer products
• High-tech products manufacturing and R&D
• Logistics center in South China
– Port of Shenzhen is world 4th largest container
seaport
– Shenzhen Airport is China’s 4th busiest airport
– Shenzhen has an advanced and extensive
highway and railway system
• Regional financial center
– Shenzhen Stock Exchange is one of two stock
markets in mainland China
Emerging
Outsourcing Industry
• Shenzhen is certified as one of the first 5
pioneering cities in China to develop
ITO/BPO business by the Ministry of
Commerce, the Ministry of Information
Industry and the Ministry of Technology.
• More than 120 ITO/BPO enterprises in the
area of finance, IT, logistics, software,
animation, etc.
• In 2007, the revenue of ITO/BPO reached
USD 605 million, with an annual growth rate
of 65.8%; and the ITO/BPO exports USD 284
million, with an annual growth rate of 32.7%.
Emerging
Outsourcing Industry
Some ITO/BPO Companies in Shenzhen:
• IBM call center
• ORACLE R&D center
• Microsoft hardware development
center
• UBS finance and IT development
center
• Kodak imaging service center
• Lufthansa service center
• Wal-Mart global procurement center
• Freeborders
• Achievo
Shenzhen in 1985
Shenzhen Today
Why Shenzhen?
Element 1: Proximity to Hong Kong
Shenzhen was established
due to its proximity to Hong
Kong, then a prosperous
British colony. This
Talent Inflow
Open
Economy
Immigration
& Migration
historically led to a great
deal of cross-fertilization
Financial
Services
Center
due to a constant exchange
Proximity
to HK
Cultural
Adaptability
of people, ideas, culture,
business practices and
norms.
Multiracial
Multilingual
Multicultural
Why Shenzhen?
Element 2: China’s 1st SEZ
Shenzhen was granted SEZ status on
Industry
knowledge
August 26, 1980 established by leader
Deng Xiaoping to boost the country's
reform process, open up the economy
and commence China’s
modernization drive. This resulted in
the creation of a liberalized and
Mix of
Industry
Verticals
Mix of
Manufac
&Services
Industries
Investor
friendly
environment
China’s 1st
SEZ
Benefits
& SOPS
planned environment long before it
happened anywhere else in China.
Domain
Skills
Talent
variety &
depth
Infrastructure
Combining these 3 elements gives Shenzhen unique
locational advantages for the ITO/BPO Industry
Demographic Advantage
Elements
Shenzhen
Beijing
Shanghai
GDP Growth Rate (2003-2004)
17.30%
13.20%
13.60%
Population Growth Rate (2000- 2004)
38.60%
9.38%
4.07%
76%
49%
48%
7.95%
3.16%
2.88%
100
134
112
% of Employed Population
Growth in Employed Population (2003-2004)
Pay Difference Index
Element 1: Proximity to Hong Kong
Element 2: China’s 1st SEZ
Industry
knowledge
Talent
Inflow
Open
Economy
Financial
Services
Center
Multiracial
Immigration
& Migration
Proximity
to HK
Cultural
Adaptability
Multilingual
Multicultural
Mix of
Industry
Verticals
Mix of
Manufac
&Services
Industries
Investor
friendly
environment
China’s 1st
SEZ
Domain
Skills
Infrastructure
Benefits
& SOPS
Talent
variety &
depth
Human Capital
• Since 2003, China has become the
country with the most graduates of
higher education.
• Among China’s 5 million annual
university graduates, 600,000 have
engineering degrees while India has
400,000, U.S. 70,000, and Europe
100,000.
• Increasingly, more major in finance,
accounting and management.
Human Capital
• Shenzhen people have an average age of 28 years.
• Shenzhen area has 121 full time colleges and universities with
220,000 graduates every year.
• Shenzhen also draws graduates from China and overseas because of
the dynamic economy and abundant opportunities.
• Shenzhen has 791,000 skillful technical and engineering personnel,
mainly IT engineers.
• The English level is higher than the average level of the country.
• Labor cost is highly competitive.
Infrastructure
•
Telecom
–
China has 888 million phone lines, 372 million are land lines and 516
million are mobile
–
Shenzhen has 22.3 million phone lines, 3.8 million are land lines and
18.4 million are mobile
•
Internet Access
–
Dial-up networks, broadband networks, IP metropolitan area
networks, wireless data networks
–
10 GB/s backbone bandwidth and 2.5 GB/s transmission bandwidth
–
China has 162 million internet users and Shenzhen has 1.9 million
•
Power Supply
–
Shenzhen’s Municipal Power Authority provides an uninterrupted
source of electrical power to 2.16 million users
Infrastructure
SEAPORT
LAND PORT
21.10
Million
177.7
Million
20.62
Million
(passenger)
(passenger)
1st in China
4th in China
(TEU)
4th in the world
AIRPORT
2007 Figures
Hong Kong International Airport is 45 minutes from Shenzhen with nonstop flights to all major North American cities.
0
What Does Shenzhen Offer?
In 2010, the ITO/BPO market in Shenzhen will total USD 7.14
billion and export will hit USD 5 billion.
R&D
Supply
Chain Management
What Does Shenzhen Offer?
• City Policies
– Shenzhen Municipal Government’s Provisions on Developing
High-End Services Industry
– Shenzhen Municipal Government’s Provisions on Expediting
the Development of Shenzhen Services Outsourcing Industry
What Does Shenzhen Offer?
• Exemption and/or rebate of corporate income taxes.
• Exemption of tariffs and import value-added taxes for self-use
imported equipment.
• Financial support for enterprises applying for international
certification, e.g. ISO, CMMI/CMM, etc.
• R&D expenditure subsidies.
• Financial support for enterprises developing products with
independent intellectual property.
• Loan interest subsidies.
What Does Shenzhen Offer?
• Shenzhen City Government attaches great
importance to IPR protection, with a
strategic position to build the city as an
innovation-oriented city.
• China’s State Intellectual Property Bureau
and Shenzhen City Government signed the
"Protocol for Jointly Building a Strong IPR
City," making Shenzhen the first city in
China to position IPR as a priority
(December 13, 2007).
Thank You!
Q&A