China is looking to be more than just a strategic solution for low-cost labor arbitrage
Way back in the day, the term "old China hand" referred to a diplomat or journalist who had spent years stationed in China and, as a result, understood Chinese culture, politics, and ways of doing business.
This week I spoke with two of what I would call "new China hands," Matthew Growney and James Popkin. Growney is executive vice president and chief strategy officer of DarwinSuzsoft, a staffing company that merged U.S.-based Darwin Partners with China-based Suzsoft and has headquarters in both countries. Popkin is group vice president and research fellow emeritus at Gartner. He co-authored IT and the East with Partha Iyengar, also a Gartner vice president.
Growney and Popkin offer different but complementary views of China. Growney has a feet-on-the-street perspective, while Popkin takes a high-level view of Chinese business. Together they help give a more complete picture of what is happening in China and how it will affect IT in the States.
DarwinSuzsoft has six offices in China, each with its own domain expertise and access to a different labor pool. The office in Suzhou province, for example, employs about 800 people and has access to 150,000 computer science graduates annually in Suzhou province alone. To get a feel for the scope of how big China is, the government recently completed a two-year project that built a million housing units. These units are located in what Growney calls an office park where DarwinSuzsoft is also located. The government pays the mortgage for workers, giving them a 70- or 99-year lease, and pays for their commute to and from work as well.
Now, if the wage rate for a standard software developer in India is a fourth of what it is in the States, a Chinese developer gets about an eighth. So, if the U.S. rate is $100 per hour, it is $25 per hour in India and $11 per hour in China. For a Java developer in China, the hourly rate is $7 to $9. For BPO (business process outsourcing), where a minimal level of education is required and the job is basically data capture and data entry, the rate is $2 to $3 per hour.
While China's outsourcing capabilities are increasing, the Indian market is decelerating, Growney says. The turnover rate is as high as 30 percent to 50 percent at some Indian outsourcing companies, and wages are spiraling upward.
"You have so much wage creep and turnover it is killing them," says Growney. In fact, Indian companies have started to call DarwinSuzsoft asking if they can outsource to it.