Transformation. Repositioning. Adjustment. Service + Innovation = Jobs. These were the keys from today’s 2012 China (Suzhou) Service Outsourcing Innovation Development and Investment Promotion Summit in Suzhou, China.

The summit was attended by the Delegation, a number of local government officials, business leaders from Suzhou and other business leaders from around the world. The stage used for the formal presentations contained a large multimedia screen and was surrounded with red flowers, and the podium top had a dozen red roses on it. I was told by an attendee that decorating the stage with flowers is very common in China. Also, the introduction of each speaker was very unique. When introduced and while approaching the podium, a “theme” song was played, the morning session featured the “Star Wars” theme song. Although most of the speakers presented in Chinese, simultaneous translation into English was provided.

As emphasized several times by the various speakers during today’s presentations, service outsourcing has contributed greatly to China’s economic growth. As part of China’s 12th Five Year Plan, and in view of the recent global economic downturn, it is a top priority of the Chinese government to restructure and transform China’s economy. The fundamental purpose of this restructuring and transformation is to ensure the quality of economic growth and enhance the overall competitive strength of China. Therefore, the recurring theme throughout the day was the refocusing of China’s service industry from manufacturing outsourcing, considered to be low-end or low-tech outsourcing, to high-end/high-tech service and international service outsourcing. Innovation is considered to be the key in making the change away from low-end industrial and increasing the overall competitiveness of China’s service outsourcing enterprises. Clearly, China wants to be the worldwide leader in service outsourcing enterprises and is willing to invest the time and resources to achieve this goal.

In 2009, China’s state council approved setting up 21 cities as models of service outsourcing. These cities receive preferential treatment in terms of tax benefits and receipt of certain subsidies. The selected cities themselves have invested heavily in public infrastructure, industrial parks and education and training. One such selected city is Suzhou, the location of today’s summit.

Service outsourcing originated in Suzhou in the 1990′s and has developed rapidly. As of 2011, Suzhou had more than 1,600 service outsourcing enterprises employing approximately 160,000 people. In fact, in 2011, 488 new service outsourcing enterprises were established in Suzhou. Additionally, the signed contract value of Suzhou’s offshore outsourcing services in 2011 was 3.57 billion US dollars, an increase of 57.4% over 2010 with an executed contract value of 2.01 billion US dollars, an increase of 58.6%.

Suzhou hopes to lead the way in the transformation from low-end services to high-end service outsourcing and it appears to be well positioned to do so. Specifically, the city is the source of a lot of talent: (1) it’s home to 20 colleges and universities; (2) it has over 30 Chinese-foreign cooperatively run institutions; and (3) it has a variety of projects with universities such as University of Liverpool, National University of Singapore and the University of Dayton. In addition, Suzhou established the first service outsourcing institute having a capacity to train over 20,000 professionals per year.

Today, government officials described in detail Suzhou’s aggressive economic plan to create a unique service outsourcing industry in the following ten areas:

1. Software development outsourcing – focus will be on software development in the areas of user operations, production, supply chain, customer relations, human resources and financial control, computer aided design, embedded software, system software, and software testing.
2. Research and development design outsourcing – focus will be on providing design services in the automotive, electronic products, chip design, and other industries.
3. Biomedicine research and development outsourcing – focus will be on the development of medical test technology services, animal experiment services, medical non-clinical research and evaluation services, biotechnology services, clinical trials for new pharmaceuticals, preclinical services, drug safety and evaluation, and medical apparatus design, research and development.
4. Financial background service outsourcing – focus will be on the development of financial outsourcing businesses, including data mining and analysis, financial payment services, credit analysis and rating, insurance services, and financial consulting services.
5. Animation and creativity outsourcing – focus will be on the development of international animation processing, original animation development, comic digitized applications, and special effects production.
6. Logistics and supply chain management outsourcing – focus will be on the development of total logistics and supply chain management services in the areas of e-communication, chemicals and pharmaceuticals.
7. Testing and inspection outsourcing – focus will be to establish “world-renowned” testing and inspection outsourcing enterprises and to actively develop professional analysis and testing services, including software evaluation services, quality inspection and testing services, and consulting services.
8. Outsourcing in the field of cloud computing – focus will be on the development of software operation services including on-line software delivery services, on-line system maintenance services, IT infrastructure management, data centers, trust and call centers.
9. Outsourcing in the field of Internet of Things – focus will be on the construction of a smart city and expansion in the business fields including the Internet of Things, development of information processing platforms, development of intelligent building equipment, sensor networks, small grids, and intelligent equipment.
10. Shared service centers for transnational companies – focus will be on those transnational companies that have settled in Suzhou and encouraging them to establish shared service centers by separating their service businesses.

The government officials of Suzhou are very proud of all that they have achieved with respect to their service outsourcing enterprises and are confident that they can achieve a service outsourcing industry in the above areas. Time will tell.

© MICHAEL BEST & FRIEDRICH LLP

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