China Location Trends

China Location TrendsBy CBRE Consulting, Hong Kong

August 19, 2009

CB Richard Ellis Labor Analytics Group| Page 2

A Snapshot – China Economy

China’s economy demonstrated rapid growth over the last three decades, and now is the 2nd largest in Asia (after Japan).

While the the country has become the manufacturing hub of the world, known as the “world’s factory”, the Chinese government’s preferential policies and initiatives are now focusing more on promoting more value-added economic activities, including the development of the high-value outsourcing sector.

China GDP & CPI Trends

Data Source: National Bureau of Statistics, PRC

2008 GDP by Country (USD Billion)

Data Source: International Monetary Fund

4,924

1,210 947393 222 216

4,402

Japan China India SouthKorea

Taiwan Malaysia HongKong

7.3%

9.1% 9.5%10.2%

10.9%11.4%

9.9%

7.5%8.0%

0.7%

-0.8%

1.2%

3.9%

1.8% 1.5%

4.8%

7.0%

2.5%

2001 2002 2003 2004 2005 2006 2007 2008 2009Q2

GDP Growth

CPI


Key BPO Locations in China

TAIWAN

Source: CBRE

First-tier Cities

Second-tier Cities

XIAN


Key BPO Locations in China

Beijing, Shanghai, Guangzhou and Shenzhen currently account for the vast majority of the offshoring market. While traditionally the market is dominated by low-end, IT-based development, higher-value support services such as call centres and data processing centres are also gaining traction. The increased demand for these support functions is also a result of the stronger domestic BPO market, which is driven by the rapid development of the banking and insurance sectors.

Cities in the central/north include Dalian, Xi’an, Shenyang are considered the ones to watch in the future, given the large pool of low cost human resources from some universities/colleagues in the areas and the prevalence of other foreign languages.


China’s BPO Market

The outsourcing sector in China remains in its early stages of development.

Unlike India, the country is still an “exporter” rather than a “consumer”.

BPO spending in China is expected to grow from USD273 million in 2007 to USD721 million by 2012, for a five-year CAGR(2) of 21.4%.

Competitive Advantages Challenges

Lower cost structure as compared with Western and some Asian countries.

Proximity (both geographical and cultural) to other key Asia markets such as Japan and Korea.

Longtime investment in education.

China’s status as a global manufacturing center offers unique advantages when providing R&O services.

Workforce skills and industry expertise with a high degree of comfort and familiarity with the BPO services.

Intellectual property rights protection remains an issue.

Development of China’s BPO Market


China’s BPO Market

Recognizing China’s potential as a major BPO hotspot in the future, more attention has been paid to the outsourcing sector.

20 cities have been identified as China’s key BPO hubs.

The 20 Designated Cites:

First Tier CitiesSecond /Third Tier

Cities

Beijing Shanghai Shenzhen Guangzhou

Tianjin Chongqing Dalian Chengdu Nanjing Xian Jinan Hangzhou Hefei Nanchang Changsha Daqing Suzhu Wuxi Wuhan Harbin


Talent Supply for China’s BPO Industry

Source : Projob51

Supply of Educated Talent

Talent supply of university graduates is promising –approx. 6 million new university graduates entered into the labor market in 2008.

However, as BPO jobs are generally perceived as low-end operationally orientated rather than strategic, people with excellent English skill may not be attracted to work in the BPO industry.

Supply of Educated Talent in China

1.01.3

1.92.4

3.1

3.8

4.5

5.66.1

4.5

5.95.7

5.05.4

3.83.2

2.7

0

1

2

3

4

5

6

7

2001 2002 2003 2004 2005 2006 2007 2008 2009

Mill

ions

University Graduates

New Enrollment


Talent Supply for China’s BPO Industry

High labor turnover in the BPO industry has become a growing concern. The rising turnover rate may be due to 1) competition for labor as a result of the increasing numbers of BPO employers and 2) job nature associated with the BPO industry.

Source : Hewitt (July 2009)

Driver 1 Driver 2 Driver 3

ChinaCareer

Opportunities Pay Performance Assessment

HKCareer

OpportunitiesWork

ProcessesWork Activities

SingaporeCareer

OpportunitiesCareer

AspirationsWork Activities

KoreaPerformance Assessment

Career Opportunities

Policies & Practices

JapanPerformance Assessment

Career Aspirations

Policies & Practices

Employee’s Career Motivation Drivers

Source : Hewitt (2007)

Source : Accenture (2008)

China Average Attrition Rate – All Industry

8.3%

12.1% 11.7% 11.3%

14.0% 13.8%14.7%

17.4%

2001 2002 2003 2004 2005 2006 2007 2008

China Talent Management Challenges

3%

5%

8%

11%

14%

27%

35%

Others

No trouble in this area

Lack of Outsourcing-related Skills

Lack of Working Experience

High Attrition Rate

High Retention Cost

Lack of Foreign Language Skills


Beijing is the capital of the country, with close access to government authorities.

Good infrastructure – significantly improved in preparation for the 2008 Olympics.

Improved English skills in recent years. Availability of labor in various foreign language (high

concentration of universities/foreign schools)

Rising costs in the recent years (both labor and accommodation) but still lower than Shanghai

Heavy traffic congestion and pollution issues (the latter has improved in recent years)

STRENGTHS

WEAKNESSES

Population: 12,130,000 Number of graduates: 466,166 Population Growth : 1.6% (avg) Unemployment Rate 1.8%

83 universities / colleges Major schools: Tsinghua University, Beijing

University, Beijing Language and Culture University, University of Science and Technology Beijing

Multinational banks – Citibank, ABN AMRO Bank, HSBC etc

Telecoms companies – Oracle, Motorola, Samsung, Ericsson, etc

IT - Acer Computer, Microsoft, IBM, Yahoo, etc Others – Hitachi, Nestle, Ricoh, Shell etc

COLLEGES & UNIVERSITIES

MAJOR OCCUPIERS

TIER I MARKETLABOR AVAILABILITY

Beijing


Close proximity to Hong Kong (geographically and culturally)

Availability of Cantonese speaking labor (which can serve the Hong Kong and Macau markets)

Well-developed infrastructure and transportation system (international airport/intra-city railway)

Government policy – development of pan Pearl River Delta in Southern China

Social infrastructure and good standard of living

High attrition due to the presence of competitors in the voice-based BPOs.

Heavy traffic congestion and pollution issues

STRENGTHS

WEAKNESSES

Population: 9,487,500 Number of graduates: 330,000 Population Growth : 1.4% Unemployment Rate 2.3%

63 Universities ./ Colleagues (14 foreign language schools)

Major schools include: South China University of Technology, Guangdong University of Foreign Studies

Hong Kong-based banks - Hang Seng Bank, HSBC etc)

Telecoms companies -. Hutchison Whampoa, PCCW, CTI Telecom etc

Others: IT - Genesys Telecommunications Laboratories & IBM, KLM / Air France flyers Accenture Delivery Centres


MAJOR OCCUPIERS

TIER I MARKETLABOR AVAILABILITY

Guangzhou


ITOs are getting traction, especially in software development, due to government support - preferential tax policies and establishment of IT/hi-tech parks.

Proximity to other Asian markets (Japan and Korea) + Ability to serve domestic markets.

Availability of labor with other Asian language (such as Japanese and Korean)

Lower costs than 1st-tier cities (both labor and accommodation)

STRENGTHS

WEAKNESSES

Population: 6,130,000 Number of graduates: 36,000 Population Growth : 1.25% Unemployment Rate 2.4%

The city has 23 general institutions of higher education.

Major schools include Dalian University of Technology, Dalian Polytechnic University, Dalian Jiaotong University.

Key product development centre for GE, Intel, Dell, HP, IBM, Siemens, Sony Microsoft, Philips

Other electronic firms for hardware design and embedded software.


MAJOR OCCUPIERS

TIER II MARKETLABOR AVAILABILITY

Dalian

City development and infrastructure are not as mature /developed as compared with 1st tier cities

Labor with English skill is considered limited In general, less exposure to western culture.

Contact Information

For more information, please contact:

Karen ChanDirector, CBRE Consulting Hong KongDir: +852 2820 [email protected]

Ellen LiAssociate Director, CBRE Consulting Hong KongDir: +852 2820 [email protected]

CB RICHARD ELLIS

CBRE Consulting, Hong Kong

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China Location Trends