A Comparative Study on Industrial Promoting Policies of China’s Service
Outsourcing Model Cities
Jun-wu Dong, Wei-jin He
School of Management, Guangdong University of Foreign Studies, Guangzhou, China
(675692576@qq.com)

Abstract - This paper summarized industrial promoting
policies of China’s 21 service outsourcing model cities, and
found that the policies focused on the following key areas---distinctive managerial mechanism and financing policies,
established intellectual property protection system,
multilevel policies in educational training and talent
attraction, conditionally developing headquarters economy.
With the reference to the advanced experience from abroad,
this paper came up with the suggestions for the service
outsourcing model cities to further optimizing the industrial
policies, which including to develop the model cities’
industrial parks in differential way based on comparative
advantages, to form strategic alliance among outsourcing
companies, to establish a dominated association at national
level or among the model cities, to further improve
intellectual property protection systems and educational
training and talent attraction mechanisms.
Keywords - Model cities, optimal suggestions, promoting
policies, service outsourcing
I. INTRODUCTION
Service outsourcing is about a kind of economic
activity in which enterprise completes its IT business by
stripping out and outsourcing it to external professional
service providers. The IT business including basic noncore business which originally should be done within the
value chain and others based on IT process which
outsource to the external providers. In the mainstream of
service outsourcing study, service outsourcing is divided
into information technology outsourcing (ITO), business
process outsourcing (BPO) and knowledge process
outsourcing (KPO). Service outsourcing developed
rapidly thanks to the deepening of economic globalization
and the extensive application of information technology,
which plays an important role in accelerating the
transition of the mode of China’s economic development,
manifested in promoting industry upgrading, particularly
on speeding up the transition from traditional
manufacturing industries to high value-added producer
service industries. Undertaking service outsourcing does
help in improving the vendor countries’ industrial
structure, increasing its export earnings and creating jobs.
This research is sponsored by National Social Science Foundation of
China (Grant No. 10CGL020) and Ministry of Education of the People’s
Republic of China (Grant No. 09YJC630045）
Staff get benefits from wage increased and skill levels
improved [1].
As the most attractive outsourcing undertaken
country, India has made good use of globalization and
informatization to drive the rapid development of its
domestic industries such as software and information
service industry [2]. Although service outsourcing industry
in China hasn’t developed for a long time, China still has
its unique advantages and it is thought to be an emerging
outsourcing service center [3]. In 2010, Chinese offshore
service outsourcing business has amounted to 14.45
billion USD, increased by 43% than last year. At present,
China has 21 service outsourcing model cities, where a
series of policies have been put forward to support and
cultivate the service outsourcing industry.
II. THE PRINCIPAL POLICIES IN MODEL CITIES
In order to implement both the Eleventh Five-Year
Plan and the “Thousand-Hundred-Ten” program
promoted by the Ministry of Commerce, the relevant
ministries of State Council successively identified several
groups of service outsourcing model cities and
demonstration plots. On August 4, 2006, the Ministry of
Commerce and the Ministry of Information Technology
held an awarding ceremony in Dalian Software Zone,
making it the first service outsourcing demonstration plot.
Also, several zones and cities were awarded the title of
“Chinese Service Outsourcing Demonstration Plot” or
“Chinese Service Outsourcing Model city” from 2007 to
2008. In 2009 and 2010, the General Office of the State
Council identified 21 cities as China’s service outsourcing
model cities.
In light of the experience in the development of
service outsourcing from abroad, the role that government
played cannot be ignored. From the aspect of resource
allocation, government plays an important role in
advocacy and platform construction in addition to market
regulation [4]. The State Council also introduced a series of
documents and policies to promote the development of
service outsourcing industry when identifying the 21
model cities. Then the local governments established
relevant detailed policies on that basis, which shows three
main features: firstly, efforts has been made to implement
the national policies strongly; secondly, to support
national policies in detail; thirdly, new trails were brazed
in service outsourcing policies to suit local circumstances,
such as managerial mechanism and financing policies,
intellectual property protection, educational training and
talent attraction policies [5]. Table I describes the main
contents of principal policies in 21 model cities.
TABLE I
THE MAIN CONTENTS OF PRINCIPAL POLICIES IN 21 MODEL CITIES
Representative
cities
All of the model
cities
Principal Policies
Main Problems
Methods
Managerial
Mechanism
Lack of institutionalized
management
Start-ups and small
medium enterprises have
difficulties in getting
loan
Set up service outsourcing leading
groups or joint conference systems
Offer “green channel” which
simplifies procedures and offers
discounts on loaning rates.
Beijing, Wuhan,
Harbin
Intellectual
Property System
Insufficient protection
for intellectual property
Formulate local regulations and
intellectual property trade fair
Dalian,
Hangzhou
Educational
Training and Talent
Attraction
Shortage of senior
technical and managerial
talents
Establish students’ training bases and
offer subsidies
Headquarter
Economy
The quality of the
enterprises set up by
foreign investment
Offer financial rewards to both
companies and senior mangers
Tianjin,
Chengdu,
Chongqing
Beijing,
Shanghai,
Guangzhou,
Nanjing
Financing Policy
A. Distinctive Managerial Mechanism and Financing
Policies
By 2009, all service outsourcing model cities had set
up service outsourcing leading groups, established joint
conference systems or long term working mechanisms of
service outsourcing, in accordance with the relevant
policies put forward by the State Council. Many cities had
made particular provisions that special administration will
be provided, which are respectively responsible for
personnel incentives, funds management, intellectual
property protection and so on.
Start-ups and small medium enterprises (SMEs)
usually faced the problem of low capital turnover and
difficulties in getting loan. In order to solve these
problems, some cities provided them with preferential
loan interest subsidy and “green channel”. In Beijing, “A
notification on promoting service outsourcing industry
issued by the Municipal Commission of Commerce”
issued in 2009 had asked the banks, guarantee and reguarantee institutions to offer favorable guarantee
business to service outsourcing corporations. For instance,
Beijing Zhongguancun Sic-tech Guaranty Co., Ltd
provided eligible software corporations with loan
guarantee for their outsourcing business through the
“green channel”, which simplified procedures and offered
discounts on loaning rates. In addition, Wuhan established
the SME Technology Loans and Financing Platform,
where the administrative committee cooperated with
Science and Technology Bureau and financial institutions
to give financial priority to service outsourcing
corporations. Besides, Harbin innovated on its loan
financing mechanism by providing service outsourcing
corporations a financing portfolio: capital contributions
made jointly by corporations and the government, who
share both benefits and risks.
B. Established intellectual property system
Notes
All of 21 model cities had set up
similar managerial mechanisms
Only part of the model cities
have special financing policies
like Beijing
Dalian and Hangzhou have
advanced experience in
intellectual property system
All of the model cities have
similar policies, but
differentiated in some details
Only developed large cities have
corresponding conditions such
as Beijing and Guangzhou
Dalian formulated the “The regulations for
Protecting Personal Information of the Dalian Software
and Information Service Industry” in 2006, which is the
first a set of industry regulations for personal information
protection among the 21 model cities [6]. The regulation
put forward a Personal Information Protection
Assessment (PIPA) for the software and information
service industry, which achieved mutual recognition with
Japan’s P-MARK （Personal Information Protection and
Certification System ） since June 2008. Moreover,
Hangzhou is the first city which standardized the
intellectual property of service outsourcing in a way of
legislation.
In terms of the creation of intellectual property,
Dalian enhanced the originality of its scientific researches
with the help of its universities and research institutes,
turning the resource advantages into intellectual property
advantages. Also, enterprises’ awareness of intellectual
property has increased, and working mechanism of
intellectual property is established and improved
gradually. In terms of the application of intellectual
property, a platform was established to display intellectual
property trading; and the internationally well-known
brand of China International Patent Fair and China
International Software & Information Service Fair have
expanded the influence on intellectual property trading
and enabled the establishment of a long-term intellectual
property trading market. Finally, in terms of the
protection of intellectual property, Hangzhou has further
improved its intellectual property protection system,
which combined the government regulation, industry selfregulation, public opinion, and mass participation.
In the management of intellectual property,
Hangzhou set up a leading group responsible for making
rules on the protection of service outsourcing as well as
dealing with relevant major events. Other measures were
taken including the integration of intellectual property
information resources, the establishment of the city’s
intellectual property information service platform and the
city’s intellectual property talent supply and demand
information database.
C. Multilevel Policies in Educational Training and
Talent Attraction
In order to support the development of service
outsourcing, it is quite common that model cities carried
out the policies like establishing panels of the demand for
talents, constructing training bases and carrying out talent
attraction policies. Tianjin formulated the “Incentives to
accelerate the development of software and service
outsourcing in Tianjin Hi-tech Zone” in 2007, which
encouraged enterprises and organizations to establish
students’ training bases and offer subsidies; set up Tianjin
service outsourcing talent training center which helped
enterprises to train talents through cooperative
agreements; utilized the teaching resources to increase the
proportion of service outsourcing knowledge taught in
college curriculums. What’s more, senior talents were
contained in the range of main attractive talents policy in
Tianjin, so that they would be provided some convenience
in household management.
The management of software talents in Chengdu is
comparatively systematic and comprehensive. Firstly,
with regard to mechanisms, Chengdu has its own joint
conference system for investigation of demand for
software talents and training capacity assessment.
Secondly, with regard to encouraging employees to
receive further training, Bureau of Education in Chengdu
allocates special funds for training potential software
talents, which reduces their cost of entry. Thirdly, with
regard to encouraging enterprises to introduce talents
outside, the government set up the specialized
administrative department for talent introduction. A
software talent market has been built through publishing
software talent supply and demand report and relative
conference system.
D. Conditionally Developing the Headquarter Economy
Some regional central cities rely on their powerful
economic strength and locational advantages to attract and
encourage service outsourcing enterprises to set up
headquarters or regional headquarters in the city, which
radiated its surrounding provinces and cities, seeking to
the win-win situation.
Multinational corporations or individuals which set
up their headquarters in the capital are encouraged
according to the policies of Beijing. First of all,
enterprises which headquarters set up in Beijing can
receive different grades of financial subsidies in
accordance with their registered capital level, government
will give them one-time grant to purchase or to rent
office; senior managers not only can get incentives, they
and their relatives are also given a convenient living way
(immigration and other living facilities). In Guangzhou,
several kinds of foreign investment in establishment of
headquarters or regional headquarter are welcomed
including organizations such as investment companies,
managerial companies, R & D centers or productive
enterprises. The government offered a reward of up to 5
million RMB to the identified enterprises. It also
contained the basic housing purchase or rent concessions,
Chinese or foreign senior managers and their family
members were given a convenient way of dealing with
immigration, residence and school affairs. In addition,
raw materials which processing with imported materials
could be exempted from Value Added Tax; to set up
purchasing center or logistics center in the city could
obtain export rights and export tax rebate; infrastructure
rental costs were given a certain discount; what’s more,
the government also offered the convenience to the
enterprises in foreign exchange management.
III. EFFECTS ON PROMOTING POLICIES IN
INDUSTRY LEVEL
In the first half of 2010, it has increased about 1548
new enterprises and 272 thousand employees in this
industry, which including about 183 thousand new
graduated students and made up 67.2% of the total new
employees. The contract executed amounts reached to
6.76 billion USD, increased by 105.8%. The general
situation represented in Table II. According to the
sampling survey in 2010 conducted by China Outsourcing
Institute, half of the enterprises’ orders are from inland.
According to the data from 388 representative enterprises
in the model cities, the service outsourcing offshore
customers are still concentrated in the United States and
Japanese market, but most of the customers still from
inland, which accounted for 73.2%. Table III describes
distribution of business customers of key enterprise in
service outsourcing model cities in 2008 and 2009.
TABLE II
THE SITUATION OF CHINA’S SERVICE OUTSOURCING
INDUSTRY
Contract
The numbers of
Employees(
executed
the service
Period
Thousand
amounts
outsourcing
people)
enterprises
(Billion USD）
2007
1731
427
2.094
2008
3301
527
4.69
2009
8950
1547
13.84
10498
1819
6.76
2010（1-6）
TABLE III
THE DISTRIBUTION OF BUSINESS CUSTOMERS OF KEY
ENTERPRISES IN SERVICE OUTSOURCING MODEL CIYIES
South
other
China
U.S.
Japan
Europe
Korea
s
Number of
Enterprise
140
114
96
86
32
77
（2008）
Number of
Enterprise
284
214
151
134
46
141
（2009）
The central or the local governments have paid much
attention to the talent training of service outsourcing. The
policies such as “Reply on Issues of Encouraging Service
Outsourcing Industry” by The State Council, “Opinions
on Enhancing Service Outsourcing Talents Training and
on Promoting the Placement of College Graduate
Students” by the Ministry of Education and the Ministry
of Commerce, and “Management Methods of the
Shanghai Service Outsourcing Talents Training Center
(Trial)” have further specified the details of the talents
training of service outsourcing. Different training methods
are applied to different trainees. An effective training
pattern was formed by the active participation of different
education institutions, training institutions, service
outsourcing companies and institutes.
There are many difficulties in conducting statistical
research on service outsourcing industry, as it is a kind of
emergent and burgeoning service type with the
characteristics of cross-industries and cross-fields, and
also because of no consensus on an exact classification of
service outsourcing among all parties. Thus, the Ministry
of Commerce issued “Service Outsourcing Statistical
Reporting System” based on existing relevant regulations
in the third industry in 2008. The regulations will be
implemented initially in the model cities, marking an
initial establishment of China’s service outsourcing
statistical system. Additionally, relevant statistical work
on service outsourcing has been conducted by Ministry of
Industry and Information Technology and various
industrial zones. Service outsourcing zone acts as an
undertaking, hatching and promoting carrier for the
service outsourcing enterprise, and gradually to be a key
point to build up a multi-level industrial system for the
development of service outsourcing. The construction of
service outsourcing zone all over the country has been
boosted, for example, the enterprises and staff in the past
5 years scale up nearly 20 times in Zhongguancun
software zone. Since 2009, the model cities have
successively introduced service outsourcing zone
identification and assessment managerial practices, and
intensified the policies for supporting facilities and
construction.
professional zones. Besides, the soft environment
becomes a more essential key factor for competition and
development, that is to say, the zones need to be more
multifunctional, characteristic on improving the
information platform and service system.
Since the model cities have their distinct location
features and characteristics of differentiation, policy
guidance should give full play to them. For instance,
Dalian has obvious advantages to do business with its
Japanese clients, such as convenient traffic condition,
mutual trading frequently, lots of Japanese talents.
Therefore, Dalian became the first one to positioning on
“the strategic gateway of China-Japan software
cooperation” and come up with the idea that to be the
“outsourcing center of north-east Asia”, which made it the
first choice for Japanese clients [8]. Although there are
differences in the empirical studies on the competitiveness
of the model cities, some model cities still contact closely
because of the location [9].
Suzhou and Wuxi are big cities located near
Shanghai with a good manufacturing base, and as
pioneers of China’s private economy, they have a more
efficient administrative system and superior financial
capacity to ensure the successful implementation of
supporting policies for service outsourcing industry. For
the reasons of costs, Shanghai’s service outsourcing
enterprises have built up a mode called “a shop in front
(Shanghai) and a factory behind (neighboring cities)” or
transfer its business to the neighboring cities. In this way,
these cities are going to share benefits. Shenzhen is also a
good example to show the vitality of “a shop in front
(Hong Kong/ Macau) and a factory behind”, the “Hong
Kong Packets, Shenzhen Services” mode helps it to
develop offshore outsourcing business vigorously.
Preferential policies are easy to be imitated because of the
cruel competition. If several cities compete for one
project, then it will lead to the vicious competition, and
becomes difficult to acquire the expected benefits [10].
Therefore, each city should make their respective
advantages complementary to each other.
IV. THE OPTIMAL SUGGESTIONS FOR
INDUSTRIAL POLICIES
Apart from physical resources, service outsourcing
enterprises also require tacit knowledge like technology
and patents. With the continuous development of modern
science and technology and the ever-changing demands of
markets, service outsourcing industry emerges as a large
and complex project, which has an increasingly high
demand for strategic resources like capital, technology,
knowledge and professional engineers. Service
outsourcing strategic alliance is a kind of horizontal
cooperation among service outsourcing enterprises to
provide a certain outsourcing service through a way of
sharing resources, complementing advantages, and
sharing risks and R&D [11]. The research shows that, over
30% of service outsourcing enterprises have established
for 8 years, 35% have established for 5 to 8 years, 10%
A. To Develop the Model Cities’ Industrial Parks in
Differential Way Based on Comparative Advantages
Since 2006, the development of China’s service
outsourcing industry has come to the stage of exploration;
most of the zones have similar policies, goals and
positioning. Homogeneity of competition leads to a fact
that only several industrial zones in developed districts
are able to achieve their development goals [7]. During the
period of implementing the Twelfth Five-Year Plan, the
industrial zones should utilize their unique competitive
advantages to specialize themselves and create
B. To Form Strategic Alliance among Outsourcing
Companies
have established for 3 to 5 years, and the rest have
established for less than 3 years. What’s more, the
companies enjoying an annual sales volume of more than
100 million RMB are those with a history of at least 7
years [12]. The competitiveness of a service outsourcing
enterprise is closely related to its history, the massive
accumulation of competence and reputation can help to
win recognition in the market for an enterprise. The
service outsourcing strategic alliance helps each
enterprise with respective expertise to be in charge of
corresponding parts of the whole work and totally offer an
integrated solution to the client, just after those enterprises
with good reputations receive orders.
Since the different enterprises have heterogeneous
resources and different competence, then service
outsourcing strategic alliance can help them to integrate
those differentiated skills and knowledge. The overall
competitiveness can be increased, if favorable policies
can provide a good platform for enterprises to learn from
each other.
C. To Establish A Dominated Association At National
Level Or Among The Model Cities
The advanced service outsourcing countries like
India and Ireland have their corresponding service
outsourcing industrial associations. India National
Association of Software and Services Companies
(NASSCOM), provides favorable conditions for the
service outsourcing industry through protecting
intellectual property within the country, making industrial
database, and helping Indian enterprises to exploit the
external market[13]. Irish Software Association (ISA)
represents the interests of the majority of Irish software
developers, and to be on behalf of them to negotiate with
government, provides latest information for the industry,
and sponsors Irish software industry meetings as well as
software sales projects [14]. In contrast, most industrial
associations of our country belong to the government or
institution with relatively weak influence. We should
learn from abroad to set up industrial association which is
clearly positioning in providing service for enterprise.
According to the research from home and abroad, the
clients always follow the principles that consider about
the country or region first and then pick up outsourcing
companies, when they are choosing offshore outsourcing
providers. Because there is different production
efficiency, economic development and social environment
among different countries, the enterprise seeks to
outsource some business will have a comprehensive
consideration of each aspect such as the macro
environment of vendors’ country [15]. Service outsourcing
industry in our country is still at the primary stage of
development, under such circumstances, it is necessary to
establish a broadly representative industry association.
Generally speaking, the association at least should contain
several important functions. First of all, to build China's
outsourcing brand and represent domestic enterprises to
exploit international market. Secondly, to establish
professional service outsourcing platform aims to
introduce the trend of international outsourcing and
strengthen the cooperation and sharing of information. To
act as a role of intermediary organization, offering
services like market research, legal consultation, and
information management for the service outsourcing
enterprises.
D
To Further Improve the Intellectual Property
Protection Systems and Educational Training and Talent
Attraction Mechanisms
At present, the legislation of intellectual property
protection is still not specifically used for service
outsourcing, the policies and regulations that applied are
mostly appeared in the third industry, which are lack of
executive maneuverability [16]. With reference to the
advanced experience of foreign intellectual property
protection, the policy needs to be improved from three
aspects. At the national level, the largest enlightenment
from India service outsourcing development is that, we
can build an intellectual property protection system in the
industrial level which under the premise of avoiding
conflict with international obligations, instead of setting
all types of intellectual property protection standards. So
we can formulate intellectual property protection
regulations just in outsourcing field. On the one hand, it
can help to reassure the outsourcing companies; on the
other hand, it won’t involve other industries’ complicated
problems. At the industry level, to set up a cooperation
mechanism between industrial association and law
enforcing departments to reduce intellectual property
infringement. At the enterprise level, to establish a more
specific intellectual property protection mechanism inside
the company, for example, to make the staff sign a
confidentiality agreement aims to protect the internal
intellectual property. Sometimes, some big enterprise can
also customize the intellectual property protection
regulations for the outsourcing companies [17].
In order to conduct the talent construction, it’s
common for the governments from home or abroad to
adopt some experience, like adjust the personnel structure
and improve the cultivation mode, actively attract and hire
senior personnel from abroad, encourage overseas
students to come back [18]. From the aspect of talent
training, many model cities have already made a good
demonstration, but China still faces the problem of
shortage of high quality talents. In order to alleviate this
problem, policies can be put forward from two aspects.
For fulfilling high quality talents in demand, it should
encourage enterprise to send their senior engineers or
managers to universities or research institutions even
abroad to learn latest technological or managerial
practice. Secondly, it should formulate preferential
policies to attract and hire overseas senior talents,
especially those who are familiar with offshore market
and international business process and can communicate
with foreign clients directly.
ACKNOWLEDGMENT
We thank China Outsourcing Institute for providing
Report on Development of China’s Outsourcing (20072009), it had brought this paper rich material and
beneficial enlightenment.
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