I've long been saying that China is on-track to develop into the world's second most robust market for outsourcing services - second only to the U.S., of course.

There are a number of factors leading to this conclusion. The obvious one has to do with the overall size and growth of China's economy in total - it is already the world's second largest (purchasing power parity basis, 2003) and its fastest growing. The less obvious factors, however, have to do with the way the economy is developing and the way outsourcing is being embraced in China.

Consider the following:

- China is already the 'world's factory.' It produces 50 percent of the world's telephones, 30 percent of its color TVs and air conditioners, and 23 percent of its washing machines. As a result, the country's manufacturing sector is creating a cluster for outsourcing. MNCs are setting up operations in China to supply these factories - essentially going to China to be close to their customers. Similarly, IT and BPO providers are creating centers to serve the specific industry needs of China's manufacturers.

- At the same time, China is itself shifting from a manufacturing-based economy to a services-based economy. Find that hard to believe? That was the conclusion of a study just completed by The Conference Board. From 1995 to 2002 China LOST 15 million manufacturing jobs while adding services jobs - a pattern that has been playing out in developed countries for years. And outsourcing is, after all, the ultimate service industry.

- China is already on track to do more outsourcing than any other country in the Asia-Pacific region. This was the conclusion of a Hewitt Associates study that found that two in three companies in China are outsourcing at least one HR function as compared to an average of 39 percent in the other countries. As Cheng Si Wei, Vice Chairman of China's National People's Congress said at The 2003 China Outsourcing Summit, "Chinese companies have to outsource if they are to become competitive in the global economy."

- China is becoming an outsourcing hub for the Asia-Pacific region. While much of the talk is about Western companies creating offshore centers in China or directly outsourcing to Chinese companies, the bigger story may be China as a 'near shore' location within the region. Or, it may be the early bets that companies like Wipro and TCS are making to open up centers of their own in China.

All of these trends suggest a robust and multi-dimensional outsourcing market in China - buyers, sellers, domestic, and global - just like what we have in the U.S.

Interested in learning more about outsourcing in China? There's still time to join us at The 2004 China Outsourcing Summit that I'm co-chairing and producing in association with China's Ministry of Commerce and the China Council for the Promotion of International Trade.

Originally published September 2004