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“Three Stresses, Constructions and Breakthroughs”, Interpretation of the Twelfth Five-Year Plan for the Development of China’s Service Outsourcing Ind

2016-03-07 10:51:13

According to the Twelfth Five-Year Plan for National Economic and Social Development of the People’s Republic of China, “the service outsourcing should be developed robustly and several service outsourcing bases should be constructed”. The Ministry of Commerce and National Development & Reform Commission jointly published the China International Service Outsourcing Industrial Development Program (2011-2015) (hereinafter referred to as the Program). The Program is the first specialized development planning for the service outsourcing industry in China and guides the continuous development and upgrade of the service outsourcing industry during the “Twelfth Five-Year Plan” and in the future.

With the “Thousand-Hundred-Ten” projects as the guiding principle, the whole service outsourcing industry develops from nothing and booms rapidly, the industrial size expands persistently and the coverage is gradually extended with the overall support from and cultivation by the central government and local governments. From January to September 2012, the contract amount of service outsourcing undertaken by the service outsourcing enterprises nationwide was USD 41.21 billion, up by 43.9% on a year-on-year basis, and the implemented amount was USD 30.68 billion, up by 53.4% on a year-on-year basis. The contract amount of undertaken international (offshore) service outsourcing was USD 28.55 billion, up by 36.4% on a year-on-year basis and the implemented amount was USD 21.18 billion, up by 45.9% on a year-on-year basis, which was far higher than the growth of goods trade export during the same period. Simultaneously, the industrial factors sprout quickly, the basic cultivation stage of factor self-generation is completed, the coordination and interaction of all factors occur, the upgrade development stage of uniform service outsourcing industrial ecosystem is formed, and the core task of industrial development is upgraded from “short slab mending” to “framework establishment”.

According to Ding Tao, three core transformations and development trends will be realized in the service outsourcing industry in China during the “Twelfth Five-Year Plan”. Firstly, the endogenous development in which the cultivation of industrial factors dominates is transformed to the exogenous development in which all factors develop in coordination and the ecosystem construction dominates. Secondly, the policy-oriented development in which the government dominates is transformed to the market-oriented development. Finally, the autogenous development in which the free growth is the core is transformed to the integrated development in which the investment & financing trend is the core. Propelled by the technical transformation represented by the cloud computing, the development of the whole service outsourcing industry will enter the era of great changes. The market, technology, and capital, together with talent, cost, policy, and environment, are the new core factor systems to promote the industrial development in the future. In the Program, the market is the core orientation. Besides the traditional factors such as intellectual property, talent, cost, policy and governmental mechanism, the new factors of industrial development, including the trade, innovation, merger & acquisition, platform and capital are underlined and intensified. There are five core highlights.

1) Trading center: according to the Program, 1-2 global service outsourcing trading centers should be created. They should be the gathering platform and industrial exchange platform for the international service outsourcing businesses, will effectively fill in the gap in the service outsourcing industrial system in China, and play an important role in the improvement of industrial chain, promotion of market development, and optimization of the whole industrial ecosystem. In particular, since the global offshore outsourcing businesses shrink increasingly and the development of domestic demand market in China is slow, the establishment of trading center will be beneficial for the rapid aggregation of industrial resources, and shorten the trading procedures and time so as to further improve and mature the market systems in the whole service outsourcing industry.

2) Enterprise innovation: in the era of industrial revolution, the service outsourcing in China will be shifted from “cost leadership and size for success” to the value-driven and innovation-oriented development route. The innovation becomes an important approach and inevitable choice for China’s service outsourcing industry to realize the transformation and upgrade and for the enterprises to cope with challenges. As the main body for innovation, the outsourcing enterprises bear the heavy responsibility for innovation practice, transition from cost to value & innovation orientation, and for the overall industrial upgrade. In the Program, “the great improvement of independent innovation capacity” is one of the objectives for the industrial development during the “Twelfth Five-Year Plan”, “great breakthroughs should be achieved in the brand building, the total international qualification certificates of enterprises should be over 3,000, the technically-advanced service enterprises are over 1,500, several industrial clusters with strong innovation capacity and great brand recognition should be formed” are put forward, and the main body for innovation, assessment criteria and objective quantity are specified. Generally speaking, the Program is instructive.

3) Strategy of going global: from the civil calls to the remarks on China made by Obama and Romney in the presidential election, more and more jobs are homebound , which becomes a feature in the secondary migration of global service outsourcing industry. In the trend of “outsourcing backflow” and “insourcing re-start”, the service outsourcing enterprises are encouraged to formulate the strategy of going global in the Program, re-formulate the development and market strategy based on the new features and trends in the global service outsourcing, make overseas investment by new construction, merger & acquisition, participation, capital increase, contribution and the like, and to set up branches and service delivery centers in the local markets in the USA and the like to effectively integrate and utilize the international resources and establish the international service outsourcing strategic system. They not only meet the development trends and requirements in the global service outsourcing industry but also are favorable for the international progress of the whole industry, and for the overall improvement of the order processing capacity, overseas delivery capacity, market development capacity and transnational operation capacity of the outsourcing enterprises.

4) Capital: with the industrial growth, capital becomes the key factor that promotes the industrial integration and development during the “Twelfth Five-Year Plan”. In the Program, the capital factor is stressed, and the improvement of highly-efficient investment & financing system, improvement of financial services of international service outsourcing industry, and great support for the listing of outsourcing enterprises are put forward. Ushered by the government, tremendous financial institutions, private equities and other social capital will enter the service outsourcing field. Under the influence of capital factors, the service outsourcing industry in China may cultivate many typical super-large service outsourcing enterprises to compete against the global leading enterprises. The development trend of industrial integration will be consolidated.

5) Platform: in recent years, the central government and local governments have accumulated much practical experience and made outstanding progress in promoting the development of service outsourcing industry. The platform trend of service system is increasingly conspicuous, and various public service platforms, such as public training platform, public technical platform, public information platform and public research platform have been constructed in succession. According to the Program, the construction of public platforms should be strengthened, which fully embodies the mature industrial environment in China. Meanwhile, it will effectively boost the development and upgrade of service outsourcing industry and enterprises in China.

As the Program is published, the continuity of special policy system in the service outsourcing industry in China is officially established. It not only embodies the determination and force of Chinese government to regard the service outsourcing industry as the strategic forerunner industry but also predicts a new round of development climax in the service outsourcing industry in China. According to Ding Tao, the Program centers around the new industrial features and trends, the stresses of market, innovation and capital (three factors), and the constructions of center, platform and system (the strategy of three stresses and constructions). Meanwhile, the resources should be converged in the industrial development practices in the future to form the following “three breakthroughs”. 

Firstly, technical breakthrough. According to Ding Tao, faced with the future development trend and challenges in the global service outsourcing industry, the biggest problem in China’s service outsourcing industry is insufficient technical preparation. In the transformation of fundamental growth pattern in the industry brought about by the cloud computing, rapid emerging of mass data outsourcing and other core changes, the outsourcing industry and enterprises in China are not well-prepared, and lag behind the enterprises in the USA and Europe in the platform and smart development, which will directly affect the global competitiveness and continuous development capacity of the whole industry. Consequently, the overall enhancement of popularization & application of emerging strategic technology to form the technical breakthrough is an important basis for the upgrade and development of the whole industry. 

Secondly, association breakthrough. As the global service outsourcing is more complicated and unpredictable and the political & regional economy becomes the key factor that affects the buyers during the secondary gradient transfer of the global economy and service outsourcing industry, the professional and dedicated outsourcing consultation and intermediary enterprises are especially important. The global buyers strongly require an institution that may stand for the whole industry in the region to provide comprehensive support for the formulation of outsourcing and development strategy. Therefore, China urgently needs to establish a national industrial association like NASSCOM to publicize the China’s industrial advantages and maintain the overall interests in the industry around the world. After that, different kinds of service outsourcing associations should be established, the communication and early warning mechanism between the governmental agencies and industrial associations should be  set up and the cooperation with the international industrial associations should be carried out.

Finally, domestic demand market breakthrough. The domestic demand market with great potential is always one of the key factors for the attraction of foreign investment in China’s service outsourcing industry and universally deemed as the core comparative advantage in China’s service outsourcing industry. At the same time, the great economic and social benefits in the service outsourcing industry may be brought into full play after being in combination with the upgrade & development route of the traditional industry. Nevertheless, due to the lack of reform driving force and objective & direction, the development of domestic demand market of service outsourcing in China has been stagnant and sluggish for many years. As the growth of global offshore market slows down in the future, the full development of domestic demand market will be a key to the continuous development of China’s service outsourcing industry. According to Ding Tao, the development of domestic demand market is extremely urgent, and the government must fully attach great importance to and bring the guidance and support role of research & consulting institutions in the domestic potential employers into full play in order to promote the rapid maturity and development of China’s domestic market and to form the benign ecosystem in the service outsourcing industry.

To sum up, Ding Tao deems that the Program will drive a new round of growth in China’s service outsourcing industry. Meanwhile, we hope the industrial factors and institutions may be arranged and coordinated with the planning as the guiding principle so as to jointly promote the upgrade and development of China’s service outsourcing industry and rapidly improve the global competitiveness of the whole industry.