Development Overview of Service Outsourcing Industry of Hangzhou

Hangzhou Municipal Foreign Trade and Economic Cooperation Bureau

I. Operation Overview of Service Outsourcing Industry of Hangzhou

As one of 21 service outsourcing demonstration cities in China, Hangzhou is awarded by the Ministry of Commerce and Ministry of Education as a service outsourcing talent training center. Since 2006, Hangzhou has closely centered on the strategic objective of transforming the development mode and vigorously developing the service outsourcing industry so as to build a world office. The progress of offshore outsourcing scale and various tasks is leading among the demonstration cities mentioned above. Hangzhou is steadily advancing to become a domestic first-class and international famous service outsourcing demonstration city.

After six years of practice, the service outsourcing industrial system of China has been preliminarily formed.

(1) Quick expansion of industrial scale: The total amount of service outsourcing contracts signed in Hangzhou reached USD 3.132 billion, and the amount of outsourcing contracts executed reached USD 2.261 billion in 2011, including the amount of offshore service outsourcing contracts signed of USD 2.408 billion and offshore contract execution amount of USD 1.872 billion. The offshore contract execution amount grew by 30.92% compared with last year. Hangzhou was among the first row of 21 service outsourcing demonstration cities in China. Hangzhou accumulatively realized the offshore service outsourcing execution amount of USD 4.851 billion from 2007 to 2011, presenting an annual growth rate of 95%.

In 2011, there were 53 training organizations registered in the Ministry of Commerce. 663 service outsourcing talent training courses were opened in Hangzhou and 19,700 service outsourcing talents were trained. The number of service outsourcing talents trained accumulatively in Hangzhou exceeded 84,700 from 2007 to the end of 2011, and the number of talents trained annually surpassed 17,000.

(2) IT outsourcing is leading in the industry: The execution amount of IT Outsourcing (ITO) offshore service outsourcing contracts reached USD 1.345 billion among all offshore service outsourcing contracts received by Hangzhou in 2011, taking up 66.14% of the total execution amount.

(3) Obvious effect driven by leading enterprises: There were totally 24 enterprises with the execution amount of offshore service outsourcing contracts above USD 10 million in 2011. They completed an offshore execution amount of USD 1.571 billion, taking up of 77.23% of the total offshore execution amount of Hangzhou. Among these 24 enterprises, there were 7 with offshore contract execution among between USD 30 million and USD 50 million, 4 with offshore contract execution amount between USD 50 million to USD 100 million, and 2 with offshore contract execution amount above USD 100 million. The government exerted efforts to expand and support the leading enterprises. As a result, Insigma Technology Co., Ltd was selected as “2011 Leading Service Outsourcing Enterprises in China” and ranked the third place in the country. Other 9 enterprises including Hundsun Technologies Inc. were selected as “2011 One Hundred Growing Service Outsourcing Enterprises in China”.

(4) Increasingly apparent high-end features: The service outsourcing industry of Hangzhou involves multiple areas including software development, financial backstage, communication R&D, creative design, medicine R&D and online animation. In 2011, the offshore execution amount of financial service outsourcing reached USD 260 million, taking up 13% of the total offshore execution amount of Hangzhou; the offshore execution amount of network R&D service outsourcing was USD 550 million, taking up 27% of the total offshore execution amount of Hangzhou. Currently, Hangzhou has already formed two featured industries, i.e. financial service outsourcing and communication R&D. High-end service outsourcing areas including medicine R&D, product technical R&D and industrial design also presented a quick growth trend.

(5) Europe, USA and Japan become the main contract awarding markets of Hangzhou: The service outsourcing enterprises in Hangzhou have relatively strong international contract receiving capacity. A great batch of enterprises including Insigma, Hundsun and Totyu has established contract receiving windows in Europe, USA and Japan. The parent companies of State Street, WebEx, ArcSoft, SSS, etc. are located in USA, Great Britain and France respectively, thus boasting quick access to information, vast market and extremely strong contract receiving capacity. The execution amount of service outsourcing contracts from Europe, USA and Japan in 2011 reached USD 1.395 billion, taking up 68.58% of the total offshore execution amount of Hangzhou.

II. Investment Environment of Hangzhou and Advantages for Development of Service Outsourcing Industry

As a historical and cultural famous city, a well-known scenic tourist city, and one of the central cities in Yangtze River Delta, Hangzhou has won titles like UN “Best Human Habitat Award”, “Oriental Leisure Capital” and “Best Chinese Tourism City”. Hangzhou was rated by Forbes as Best Chinese Mainland City for Commerce and assessed by Oriental Weekly of the Outlook as a city where people can obtain the utmost sense of happiness. Hangzhou has its unique advantages for development of service outsourcing industry.

1. Talent advantage: There are 38 universities and colleges in Hangzhou with nearly 400,000 in-school undergraduates. There are totally 247 majors set related to service outsourcing including software and computer, integrated circuit and animation. 18,000 undergraduates are graduated annually on average, thus providing sufficient engineering talents, design talents and language talents for development of software and service outsourcing in Hangzhou. Currently, over 150,000 employees work in IT industry in Hangzhou, including about 60,000 of software employees. The number of R&D personnel takes up nearly 45% of the total number of employees working in software enterprise above designated size in Hangzhou.

2. Advantage of business environment: “Establishing the city by environmental protection” is a core strategy of the development of Hangzhou. Hangzhou has always stuck to the principle of “attracting first-class talents with a first-class environment, creating first-class causes with first-class talents and building a first-class city with first-class causes”. The city has realized two-digit quick growth rate for 18 successive years and established direct trading relations with over 200 countries and regions in the world. The investigation of World Bank indicates it only requires 8.1 days for Hangzhou enterprises to come into contact with the government on average. Thus, Hangzhou is a city with shortest time for enterprises to contact with the government and relatively high government work efficiency.

3. Industry advantage: Hangzhou is a national software industrial base, national software export innovation base, national animation industrial base, national digital entertainment demonstration industrial base, national intellectual property protection demonstration city and national copyright protection demonstration city. The software industry in Hangzhou is developed. The electronic information industry of Hangzhou has presented a quick and healthily developing trend since 1990s. It has already become an important pillar industry; the financial industry in Hangzhou is also developed. There are totally 203 financial institutions, taking up over 60% of the total number of financial institutions in Zhejiang Province; the total financial volume of Hangzhou ranks the 5th place among Chinese cities; the balance of Renminbi and foreign currency deposits exceeds RMB 1 trillion, only after Shanghai in cities situated at Yangtze River Delta. Famous international banks like Citibank, HSBC, Bank of East Asia and Standard Chartered Bank have successfully settled down in Hangzhou and established financial backstage delivery centers.

4. Location advantage: Shanghai will accelerate its step of constructing an international financial center. Hangzhou is only about 170km away from Shanghai. After Shanghai-Hangzhou High-speed Railway was open to service, it only takes 40 minutes from Hangzhou to Shanghai. The “urban agglomeration” effect becomes increasingly obvious between cities. Financial service outsourcing is a key area of service outsourcing industry of Hangzhou. The favorable location advantage enables Hangzhou to offer financial backstage service support for the construction of Shanghai International Financial Center. Besides, Hangzhou is an important transportation junction in Southeast China, boasting developed aviation, railway, road, and waterway transportation. There are already 193 flights including 38 international flights launched in Hangzhou International Airport. Furthermore, the “whole-journey broadband coverage” has been realized in the provincial capital.

III. Main Tasks Assigned for Promotion of Service Outsourcing Development in Hangzhou in Recent Years

With the support of relevant ministries and commissions of China and thanks to the high concern of Hangzhou Municipal Party Committee and Municipal Government, the service outsourcing industry of Hangzhou has been vigorously advanced and relevant measures and moves have been continuously adopted. As a result, we can see abundant highlights in this industry. Also, this industry is growing in an increasingly rapid way. The main practices include the following aspects:

(1) Leaders attach much importance to creating a favorable development atmosphere. Hangzhou sticks to the principle of “combination of three forces” (i.e. government leading force, enterprise subject force and market allocation force) during the development of service outsourcing industry. The Party community and municipal government collect common understandings in leadership level to form a resultant force. The standing committee of Hangzhou Municipal Party Committee has particularly listened to the service outsourcing work report and studied the service outsourcing work as well as made special report to main leaders in provincial party and government administration. Leaders from the municipal city lead delegates to survey service outsourcing and study advanced concepts and experience at home and abroad in India, Ireland, Silicon Valley, Canada, Japan, South Korea, Great Britain and Chinese cities including Dalian, Qingdao, Suzhou, Wuxi, Nanjing, Guangzhou and Shenzhen. Besides, the government launches city leaders and cadres service outsourcing training classes and invites leaders from Department of Foreign Investment Administration of Ministry of Commerce to lecture in Hangzhou so as to unify thoughts, deepen the understanding and change the original concepts. Furthermore, service outsourcing assemblies and thematic sessions are held for multiple times to reward the advanced, publicize relevant policies, create a magnificent momentum and inspire the morale, so as to form a favorable atmosphere for development of service outsourcing with collective efforts.

(2) Combine the actual conditions to establish suitable industrial development plans. The planning shall be carefully and properly established before industrial development. Hangzhou has compiled Development Strategy and Industrial Planning of Service Outsourcing Industry in Hangzhou (hereinafter referred to as Planning) which has clarified the orientation and objective of the service outsourcing industry in Hangzhou. Hangzhou aims to become an “international famous financial service outsourcing delivery center”, “domestic leading software outsourcing development center” and “SME trusteeship application management center” by 2015. Meanwhile, based on the actual conditions, Hangzhou has also planned to develop 8 key service outsourcing industries, namely, financial information technology and backstage service, application software development and maintenance, trusteeship application management, embedded software, animation production, telecom operation and service, and medicine R&D and human resources. In order to implement Planning, Hangzhou establishes a three-year action plan for the development of service outsourcing industry which has clarified the guiding ideology, action principle, work objective, action moves and guarantee measures for the service outsourcing work within a certain period.

(3) Increase the supporting efforts and continuously issue relevant policies. Policy is the driving force for industrial development. Hangzhou has actively built a service outsourcing policy system and established the following policies: Several Opinions on Promoting the Development of Service Outsourcing Industry in Hangzhou, Method for Fund Management of Service Outsourcing Public Platform in Hangzhou, Method for Recognition of Training Organizations in Hangzhou, Method for Recognition of Service Outsourcing Enterprises in Hangzhou, Training Scheme for Service Outsourcing Talents in Hangzhou, Planning of Service Outsourcing Industry in Hangzhou and Training Planning of Service Outsourcing Talents in Hangzhou, etc.. Hangzhou set up a service outsourcing special supporting fund in 2008. The fund amounted to RMB 180 million from 2008 to 2011. It granted subsidies for the overall publicity and promotion of service outsourcing, international market expansion, talent training, international certification and industrial park construction to promote the quick industrial development. After six years of practice, a relatively complete service outsourcing industry policy system has been formed in Hangzhou.

(4) Enhance cooperation and establish a perfect mechanism. Firstly, a coordination mechanism shall be established. Hangzhou Service Outsourcing Development Promotion Leading Group has been established. The municipal responsible leader assumes the office of group leader and 23 relevant departments in the city are the group members. Regular meeting is held to coordinate solving the difficulties and problems encountered during the development of this industry. Secondly, an assessment mechanism is established. The municipal government issues service outsourcing work objectives and tasks annually and conducts year-end service outsourcing comprehensive assessment on 14 departments in Hangzhou. Thirdly, a co-construction mechanism is established. A service outsourcing co-construction mechanism involving five levels (ministries and commissions-provincial government-Hangzhou municipal government-Hangzhou-service outsourcing demonstration zone) and three layers (Hangzhou-service outsourcing demonstration zone-key service outsourcing enterprises) has been initially established in Hangzhou. This mechanism can integrate resources, form a resultant force and promote the development of service outsourcing industry.

(5) Tamp the foundation and expand subject construction: 1) cultivation: Hangzhou Municipal Party Committee and Municipal Government attach great importance to the development of service outsourcing enterprises. Relevant leaders visit the service outsourcing enterprises and listened to their opinions and suggestions on a regular basis, help them solve the problems and create a strong businessman friendly and assuring atmosphere. Also, well-targeted investment promotion activities are launched to publicize the service outsourcing undertaking capacity of Hangzhou and establish a communication platform for contract awarders and contract receivers. The government also actively organizes service outsourcing enterprises to participate in exhibitions at home and abroad including China Sourcing Summit and international famous service outsourcing consultation meetings like annual meetings and global service outsourcing submitted held by International Association of Outsourcing Professionals and Gartner in USA, Australia and Europe. Hangzhou Service Outsourcing Association, Hangzhou Financial Service Outsourcing Association, and Hangzhou Japan-oriented Service Outsourcing Association have been established to organize the enterprises for joint expansion of international market. The government also actively encourages enterprises to launch international certifications like CMMI and ISO27001 to enable more enterprises to continuously strengthen contract receiving capacity and obtain the “stepping-stone” for expansion of international outsourcing market. Currently, there are over 800 enterprises registered in Service Outsourcing Business Statistical System of the Ministry of Commerce; 2) investment attraction: Foreign invested service outsourcing enterprises take orders from large foreign companies directly, boasting high output per capita and big profits. They are the main targets we are to attract. However, domestic-funded service outsourcing enterprises are also a force to be reckoned with. We focus on the key software enterprises and listed companies within the planning layout of the state. In recent years, main leaders from the municipal government have led delegates to launch service outsourcing investment invitation in Japan, India, Silicon Valley and Canada; they held Hangzhou service outsourcing publicity and special promotion activities in Dublin, Ireland; they organized special service outsourcing investment attraction activities in Great Britain and USA. As a result, great achievements have been made in outsourcing investment attraction. Recently, enterprise executives and representatives of famous service outsourcing consulting organizations and industrial parks at home and abroad have come to Hangzhou and discussed cooperation matters. Thanks to the vigorous investment attraction efforts made, top-100 growing enterprises in China and famous international outsourcing enterprises like State Street have successively established branches in Hangzhou.

(6) Cultivate talents and strive to expand talent training scale. It is essential to develop service outsourcing talents. In recent years, the construction of service outsourcing training center has been accelerated, service outsourcing training organizations have been established, and the forces of such organizations have been enhanced according to the development requirements of the industry and on the basis that the preferential training policies are focused on. A “three-in-one” (government, society and enterprises) favorable training pattern has been formed. Service outsourcing talent training center, Hangzhou Service Outsourcing Talent Training Association and Hangzhou service outsourcing talent training organizations are established. Move over, various flexible training modes are formed including the followings: universities and colleges (or training organizations) accept enterprise entrusted training; enterprises customize training based on their own demands; universities and colleges (or training organizations) cooperate with enterprises for oriented training. The training contents cover IT skills, software engineer, animation, TV and film design, multimedia technologies, database, TAVA, NET, CTE, etc.. The training courses are very colorful. As of 2011, there were already 53 training organization in Hangzhou filed and registered in Service Outsourcing Information Management System of the Ministry of Commerce. Also, there were 37 service outsourcing field training bases and key cultivation organizations recognized by the municipal government.

(7) Promote communication and actively establish relevant platforms. In order to help enterprises expand domestic and foreign market, Hangzhou has actively launched international communication activities within the service outsourcing area and constructed service outsourcing development promotion platform. International Outsourcing Business Development Summit has been held for four successive years. It is a comprehensive international service outsourcing meeting sponsored by Hangzhou Municipal Government with the vigorous support of the Ministry of Commerce and China Council for International Investment Promotion. This summit was initially launched in 2008. Overseas participants were mainly from European countries, USA, India, etc. and domestic participants are mainly representatives from some IT leading enterprises and Hangzhou-based service outsourcing enterprises. About 400 people attended the summit in which internationalization, specialization and high-end nature were full reflected. The summit mainly features information communication, IT development trend discussion and enterprise business negotiation, and as a result, the brand effect has been formed. International Conference on Information Technology for Financial Services sponsored by Hangzhou Municipal Government and co-sponsored by Zhejiang University, State Street and Insigma has passed its 11th birthday. Created by State Street Bank, this conference has long enjoyed a good reputation. From the 7th conference, Hangzhou Municipal Government and Zhejiang University began to join hands with State Street Bank to hold this event. The conference takes financial information technology as its theme. The main global clients of State Street gather together in Hangzhou annually to discuss professional technologies they concern. It has also drawn attention from some finance and insurance especially open-ended fund managers. The conference is very obvious in specialization and internationalization. Moreover, China Sourcing Summit 2010 and China Sourcing Summit 2011 were also held. Besides, Hangzhou has vigorously aided leading service outsourcing enterprises financially to create industrial brand meetings. Asia-Pacific Call Center Industrial Forum, Japan-oriented Software Outsourcing Forum and Talent Training Summit have also been held in succession. Meanwhile, delegates have been organized to go overseas and launch Hangzhou service outsourcing publicity activities in good time. Relevant service outsourcing special activities have been held in USA, Great Britain, Japan and Finland. Hangzhou has also launched effective cooperation with famous international consulting institutions like Gartner and TPI. They have already become favorable promotion platforms for the development of service outsourcing industry in Hangzhou.

(8) Establish famous brands and exert more efforts to publicity and promotion. Hangzhou has launched advertisements in CCTV, Shanghai Pudong International Airport and Beijing Capital International Airport for three successive years to publicize the brands of “Paradise Software ? Hangzhou Outsourcing” and “Financial Service Outsourcing Delivery Center”. Hangzhou also enhances its cooperation with famous international service outsourcing organizations and fully utilizes its resources to enhance the publicity and promotion at home and abroad. Also, cooperation has been conducted with professional magazines like China Outsourcing and famous international consulting institutions like Gartner. The vigorous publicity and promotion in recent years have resulted in the continuous establishment of the overall urban service outsourcing image of Hangzhou and further improvement of the familiarity and reputation of service outsourcing industry in Hangzhou.

(9) Strengthen system construction and continuously optimize industrial development environment. The legal environment of service outsourcing industry shall be optimized. The legislation of intellectual property protection of service outsourcing involves industrial development environment. It is the best investment promotion business card. In 2009, Hangzhou formulated and issued Several Regulations on Intellectual Property Protection of Service Outsourcing Industry in Hangzhou. The service outsourcing legislation work of Hangzhou has been leading in China. In order to optimize talent introduction environment, Hangzhou provides greatly-demanded service outsourcing talents with price-limited special housing and special economically affordable housing and offer all-around conveniences and services for talents to settle down, reside and seek medical advices and help their children to go to school so as to make sure excellent talents “live and work in peace and contentment”. The concept of Hangzhou is as follows: attracting first-class talents with a first-class environment, creating first-class enterprises with first-class talents, supporting first-class industries with first-class enterprises and building a first-class city with first-class industries.