1. By CBRE Consulting, Hong Kong
China Location Trends
By CBRE Consulting, Hong Kong
August 19, 2009

2. A Snapshot – China Economy
2008 GDP by Country (USD Billion)
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.
Data Source: International Monetary Fund
China GDP & CPI Trends
Data Source: National Bureau of Statistics, PRC

3. Key BPO Locations in China
TAIWAN
Source: CBRE
First-tier Cities
Second-tier Cities
XIAN
Foreign companies typically open their first operations in either Shanghai or Beijing. As their business in the region grows, they will then seek out the lower cost tier 2 and 3 markets.

4. 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.
2nd tier markets are gaining traction with BPO operations as provincial governments create favorable economic incentive programs and policies. Competition and wage inflation in tier 1 markets is also pushing companies to look beyond.
Dalian has focused on the IT sector and has successfully attracted IT software development and pharmaceutical software R&D operations.

5. Competitive Advantages
China’s BPO Market
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
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%.
The Chinese BPO market is primarily focused on IT software development. Non-native language skills are the prime limiting factor to call-based BPO operations in China. Those with the language skills are typically well-educated and in position to acquire better jobs than call center work. This has created a shortage of talent for BPO jobs requiring non-native language skills.

6. Second /Third Tier Cities
China’s BPO Market
The 20 Designated Cites:
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.
First Tier Cities
Second /Third Tier Cities
Beijing
Shanghai
Shenzhen
Guangzhou
Tianjin
Chongqing
Dalian
Chengdu
Nanjing
Xian
Jinan
Hangzhou
Hefei
Nanchang
Changsha
Daqing
Suzhu
Wuxi
Wuhan
Harbin
No longer need to pay premium to entice ex-pats to relocate to China, due to rapid improvement of entertainment, recreation and quality of life in the big cities. This has changed over the last 5-7 years.

7. Talent Supply for China’s BPO Industry
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.
Approximately 5% - 10% of population in major cities (Beijing) has college degree.
Source : Projob51

8. 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)
Employee’s Career Motivation Drivers
Driver 1
Driver 2
Driver 3
China
Career Opportunities
Pay
Performance Assessment HK
Work Processes
Work Activities
Singapore
Career Aspirations
Korea
Policies & Practices
Japan
Labor shortage for BPO operations requiring non-native language, due to mismatch of skills and jobs. Generally, those with the language skills have better job/income opportunities than BPO operation can offer. BPO operations are viewed as low-end job by these people and their language and education give them opportunities such as equity analysts or investment banking.
BPO ops are experiencing increasing turnover rates, due to competition and wage inflation as BPO’s struggle with small labor pool. As new foreign operations come in, many will gladly pay premium to get talent as they cost increase is still very low relative to other markets. Example: a BPO rep might leave one job that pays $200/mth for a similar job at a new company and earn $400/mth.
Source : Accenture (2008)
Source : Hewitt (2007)

9. Beijing TIER I MARKET STRENGTHS WEAKNESSES LABOR AVAILABILITY
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
STRENGTHS
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)
Beijing is political center, Shanghai is financial center. Shanghai is 10%-15% higher cost than Beijing – stronger ties to international business. Companies that benefit from close proximity to Chinese political system want to be in Beijing.
WEAKNESSES

10. Guangzhou TIER I MARKET STRENGTHS WEAKNESSES LABOR AVAILABILITY
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
COLLEGES & UNIVERSITIES
MAJOR OCCUPIERS
STRENGTHS
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
All of HSBC’s Chinese call centers (4-5) are located in Guangzhou. They service the Chinese customer base. Well-educated workforce (lots of college students) and lower cost than Beijing/Shanghai. But more BPO competition. Popular location for internal BPO’s requiring Cantonese.
WEAKNESSES

11. Dalian TIER II MARKET STRENGTHS WEAKNESSES LABOR AVAILABILITY
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.
COLLEGES & UNIVERSITIES
STRENGTHS
MAJOR OCCUPIERS
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)
WEAKNESSES
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.

12. CBRE Consulting, Hong Kong
Contact Information
CB RICHARD ELLIS
CBRE Consulting, Hong Kong
For more information, please contact:
Karen Chan
Director, CBRE Consulting Hong Kong
Dir:
Ellen Li
Associate Director, CBRE Consulting Hong Kong
Dir: