Editorial: China's offshoring challenge

Tholons, the offshoring consultancy, in its third report on emerging offshoring destinations, has tried to a draw a more nuanced map of the future by looking at alternative regions that hold promise. This has come after it has shifted focus from countries to cities to specific skills (rather than generic ones) to Tier II cities. The cities that come out looking good in this report are those that have the best prospects, and should be distinguished from those that have already arrived and are today’s leaders. Reassuringly, India as an offshoring destination remains supreme when it comes to today’s leaders. The list of top five global cities has been extended to eight. All three new centres — Chennai, Hyderabad and Pune — are in India. In the top eight, therefore, there are six Indian cities, including the first movers Bangalore, Delhi NCR and Mumbai.

While celebrating this success, it is important to know how fast the others are catching up. The report conveys the unambiguous message that India must take China seriously as its most serious challenger, though that country has a long way to catch up. The 2008 list of the top 50 emerging cities has both dropouts and new entrants, as also changes in rank. Among the new entrants, the Philippines and Mexico have two cities each, indicating that they pose a challenge for the future. While the Philippines’ performance is to be expected in view of its proficiency in English, Mexico has done well mainly because of the North American offshorers’ desire to spread risks and develop footprints at near-shore destinations also. However, neither Mexico nor the Philippines has the numbers that would give sustainability to a challenger. It is China which has that. Both China and India (Jaipur) have one city each among the nine new entrants in the “Top Emerging 50”, but China scores by having six cities in the list of 50 compared to India, the Philippines and Brazil, which have four each. What is more, the Chinese cities have done well and improved their ranks. Beijing has gone up seven notches to third place, and Shanghai by six notches to second place. In comparison, only one Indian city (Coimbatore) has improved its rank (by four places) while two (Chandigarh and Kolkata) have slipped in the rankings. It is clear that Shanghai and Beijing will soon join the first division, where China has no representation right now.

China’s performance is noteworthy because it had two well-known handicaps — inadequate knowledge of English and high wage costs in cities like Shanghai and Beijing. It is here that the emergence of non-metro cities like Dalian and Shenzhen is important. While watching how China progresses, India has also to keep an eye on East European countries like Poland and the Czech Republic which have a strong emerging presence, with the advantage of being within the European Union. And of course there is no underestimating Russia (which has two emerging cities), with its historically superior skills and waiting to get its corporate act together. Against all this, the challenge in India is systemic rather than industry- or company-specific. City administrations have to improve so that more cities become livable, and higher education has to be overhauled so that there is a larger pool of well-qualified manpower available for the sector, which in turn will help keep people costs low.