Though not a new phenomenon, it is now possible to analyze and qualify the processes that have made overseas outsourcing successful and profitable, write the analysts at Capgemini. The report, Outsourcing to China and India: A North American Perspective, notes that, in fact, some North American companies have been outsourcing to China for as much as 40 years. However, experience in India is much more recent.
With India, much of the outsourcing has been in the area of information technology. Supply chain processes related to manufacturing are a challenge and an obstacle for North American companies.
Chinese infrastructure has proven to be a challenge as operations move away from the economic hubs along the coasts and into the less developed areas of China's interior. The rapidly developing economic hubs are already exhibiting problems with overcrowding, traffic congestion, air pollution and rising costs. Skilled labor and raw materials are particularly affected. Companies with substantial size in China are extending their reach into the interior by forming partnerships to lessen some of the impacts of these problems.
Though China has shown a willingness to address issues of quality and safety concerns, companies are putting greater significance to the need for risk mitigation. Other positive signs of China's response to business needs include major investments over the last 10 years and changes in laws that encourage a business culture that fosters growth. Today, only about a third of the Chinese economy is state owned. These and other reforms have allowed China to double its share of global manufacturing output as most wealthy Western countries see manufacturing output decline.
Since 2003, two years after it joined the World Trade Organization (WTO), China's gross domestic product (GDP) exhibited 10% growth each year. While that growth is expected to continue, it will be at a somewhat slower pace.
As China's economy grows, so does its consuming population. One major consumer products company reports it no longer uses China merely as low-cost production, instead, it has shifted production of products bound for North America and other markets to other low-cost locations. Its China-based production serves the Chinese consuming market.
Wage inflation in the urban hubs, mostly located along the eastern coastal regions, has led to China manufacturing wages outstripping the Philippines and Indonesia in terms of average manufacturing wage. Though costs are lower in the interior of China, the infrastructure limits the opportunity for North American companies to take advantage of those lower costs.
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