Factors That Make China A Successful Option For Outsourcing

Reasons for selecting China as an offshore outsourcing option

Discuss the Topic on the Giant Awakens for Sheen Software Systems.
 

Frank Xin selected China, for his offshore outsourcing. Several factors led China a successful option for delivering Xin’s expectation. He had used all the current appearance of the outsourcing industries in China. After that, he selected Shanghai, in China. Shanghai was selected as a place because of the buzz and due to the presence of some of his family ties.  According to Xin, if Shanghai would be expensive for him to afford he will select any other city with tech parks that are nearby to Shanghai. There were two options before him such as to set up a captive office and entering into a joint venture (Zhang and Huang 2012). According to the first option, he can set up a captive office that would be a subsidiary for Sheen-US. The second option would help him in entering into a joint venture with any obtainable firm.

 In a deal with Shanghai, he would sign a contract and on the other hand Shanghai would help Xin in allocating some of its staff to Sheen, which is one of the most important advantages. Xin access China because he had multiple choices before him. Xin’s main concern is in Tech Park, which is situated in Pudang (Dou et al. 2013). The rate of Pudang is slightly cheaper in Shanghai as compared to other cities.  Being an associate of Tech Park he will get many advantages such as monetary benefit, does not have to pay income tax, reduction on taxes, etc. All these factors were advantageous according to Xin for delivering his expectation. Therefore, he started setting up his offshore policy by presence the international IT outsourcing peak at an elegant hotel in Shanghai (Armalyte et al. 2013

 Xin had used all the new appearance of the outsourcing companies in China. Firstly his concern was in Software Park in Pudang, which was a recently built region in eastern Shanghai. He found that Pudang rates are very low as compared to rest of the city. Pudang rates for Shanghai are 55ȼ whereas rest of the city has 70ȼ-80ȼ. According to Dou et al. (2013), being an associate of a park that is related to software, even if he did not live there he can provide Sheen with monetary benefits such as income tax for the initial three years, 50% reduction in taxes for 5 years, etc. All these favorable factors led Xin to assess China as a location as compared to other possible offshore or onshore regions.

Assessment of China as compared to other offshore and onshore options

 Establishment of business relation in China is much important than surface level networking. The economy of China is flourishing at a faster rate while the culture is deep rooted in its history. Building relationships whether it is business related or not grows at a slower pace. For conducting business in China, one should need a local intermediary, an agent who can represent the interest, provide a right introduction, negotiate agreements, etc. Examining and insisting on all the points of supply chain management by continuing with the direct approach. This will be helpful in providing the requirements and needs of the company to the manufacturers ( Vaidhyanathan et al. 2013). Auditing the factory or factories and inspecting those products that are made by them on a regular basis. Therefore, Xin started setting up his offshore policy by attending the worldwide IT outsourcing meeting at an elegant hotel in Shanghai. The two-day conference mainly focuses on the offshore outsourcing. Shanghai Municipal Foreign Economic Relation and Trade Commission, the Shanghai Municipal and Formalization Commission and other organization, organized the conference (Zhang and Huang 2012).

There were many steps that Xin should follow in order to set up his outsourcing business in China. Xin has to proceed according to the following steps. Xin must follow all the above steps in order to set up his outsourcing business in China.  The steps are:

• For conducting business in China, one should need a local intermediary, an agent who can represent the interest, provide the right introduction, negotiate agreements, etc.
• Secondly, it is very much important to choose the manufacturer of the product. Exhibitors include companies, which helps in making everything starting from electronics products to building material and chemical goods (Zhang and Huang 2012).
• Establishment of business relation in China is much important than surface level networking. The economy of China is flourishing at a faster rate while the culture is deep rooted in its history. Building relationships whether it is business related or not grows at a slower pace. Therefore, it is very much important to create a good bonding or business relationship for outsourcing business in China(Vaidhyanathan et al. 2013)
• Needs and requirements of the company must be properly stated to the manufacturer.
• Examining and insisting on all the points of supply chain management by continuing with the direct approach. This will be helpful in providing the requirements and needs of the company to the manufacturers (Dou et al. 2013)
• Auditing the factory or factories and inspecting those products that are made by them on a regular basis.
• Arranging for shipping of the product or products to the business or warehouse

Xin must follow all the above steps in order to set up the outsourcing business in China. Therefore, he started setting up his offshore policy by attending the international IT outsourcing summit at a graceful hotel of Shanghai. The two-day conference mainly focuses on the offshore outsourcing. 

Outsourcing Manufacturing to China can cause a huge threat to any business especially when the organization does not have any idea regarding outsourcing. The outsourcing operation is a cost effective move, but when companies are not aware of the intrinsic risks, then the operations costs more than the anticipated savings. This led suppliers and sharing channels at risk. Problems like misunderstanding, operational misconduct, ethical standards, etc. causes legal ethical and operational problems. There are many dangers, for which Xin have to be prepared. The dangers are:

• Exact requirement for quality control specification which is relayed to the full extent cannot be met.
• Sometimes, the product does not meet the import rules and regulation of the country, which can pose threat to the outsourcing business.
• Shipping delay creates problems because of which sometimes they are unable to do anything. To avoid this type of problems, Xin has to be careful.
• Employee theft and backdoor sales are considered dangerous for outsourcing business.
• Intellectual property is infringed if an individual is unaware how to protect himself in a foreign country. It is very much necessary to know how to save an individual in a foreign market (Vaidhyanathan et al. 2013)
• Manufacturing and shipping process get affected if an individual does not have belief in the religion and culture of China. One must believe in the religion and culture of China in order to flourish the manufacturing and shipping process (Handley and Benton 2012).
• Directly dealing with outsourcing goods are risky and poses threat to the survival of the company. Therefore, it is always suggested to avoid direct dealing outsourcing resources.
• Companies must be aware of the inherent risk otherwise, the supplier is cost and distribution channel of the outsourcing business gets affected.

All the above problems can pose threat to the outsourcing business. Therefore Xin bust is aware of these threats in order to avoid them.

China’s outsourcing business is expanding at a faster rate. There is a huge difference in outsourcing business between the early 2000’s and today. It affects the decision that is contemplated by Xin. By the year 2003, the Chinese market related to software started rising at a faster rate. Unlike the Indian industry, Chinese business enjoyed strong command domestically from the financial system that had been growing over the earlier decade.

 Around 2000, Chinese companies started showing their sights by augmenting their domestic demands in the unfamiliar markets. In the year 2003, China was probable to export around 15 millions of software’s that are known as outsourcing.  12 % of the total software exports are accounted by Shanghai. Shanghai is the home of software R&D centers of HP. By the year 2010, the value of the offshore work amounts to $5.6. In 2016, Chinese companies started contracting outsourcing contract services that worth $ 130.9 billion (Handley and Benton 2012). Now, information expertise related services account mostly half off the offshore deals. The gains in the offshore market include IT sector, far outpace of the global markets, etc.

  Now, China has more than 6600 companies that provide outsourcing facilities to the foreign companies. The annual revenues made by the companies are more than 50 million. It became the second largest outsourcing provider after India. The state described the sector as “Green Industry” (Zhang and Huang 2012)

Chinese outsourcing providers work with companies all over the world. The government of China is also supporting outsourcing business. The focus of the government is on the IT services. It is concluded that there was a huge change from the early 2000’s in outsourcing business of China. The changes would affect those decisions, which are contemplated by Xin (Raj et al. 2016). 

References

Armalyte, R., Subramanian, N. and Gunasekaran, A., 2013. WITHDRAWN: Quality issues in outsourcing to China: Is it still a sustainable competitive advantage?. Journal of Engineering and Technology Management.

Dou, W., Qi, L., Zhang, X. and Chen, J., 2013. An evaluation method of outsourcing services for developing an elastic cloud platform. The Journal of Supercomputing, 63(1), pp.1-23.

Handley, S.M. and Benton, W.C., 2012. The influence of exchange hazards and power on opportunism in outsourcing relationships. Journal of Operations Management, 30(1), pp.55-68.

Raj, S.Y., Sathish, G., Kumar, C.S. and Sairam, R., 2016. A Quantitative Analysis of 3PL Providers and Their Workload in Automotive Industries.Middle-East Journal of Scientific Research, 24(S1), pp.149-154.

Vaidhyanathan, S., Dev, L. and Shattacharyya, D., Oracle Financial Services Software Limited, 2013. System and method for determining outsourcing suitability of a business process in an enterprise. U.S. Patent 8,392,240.

Zhang, A. and Huang, G.Q., 2012. Impacts of business environment changes on global manufacturing outsourcing in China. Supply Chain Management: An International Journal, 17(2), pp.138-151.