Indian outsourcing companies change China market entry strategy

China daily recently reported Indian outsourcing giants are aggressively acquiring smaller Chinese outsourcing companies, including more than 40 local outsourcing companies in Shanghai. Indian tier 1 outsourcing companies have been operating in China for years, but traditionally have built development centers rather than growing through acquisition. There are several reasons for this significant shift in Indian outsourcing companies China market entry strategies.

Economic crisis – As sales slow or decrease in America and Europe, Indian companies need emerging markets to increase revenue.

Opportunistic acquisitions – A previous post on how the global economic downturn has affected Chinese outsourcing companies, mentioned that many smaller Chinese outsourcing companies are experiencing cash flow problems making them prime targets for acquisition.

Local business development – In China, relationships (or guangxi) are essential in winning local contracts. Many small outsourcing companies in China were setup because of relationships with buyers and have significant guangxi helping win local business.

China’s services growth – Analysts are predicting signification growth in the local Chinese outsourcing industry over the next 10 years.

Due to the cash flow problems of many smaller Chinese outsourcing companies, they were probably purchased at a significant discount. This strategy may prove to be an economical way for Indian providers to increase their China market share. However, it will be interesting to see how effective the Indian companies will be in integrating these smaller, less process oriented companies into their China operations.

It should be noted, that the Chinese outsourcing companies who grew through acquisition with venture capital did not meet significant success. Also, larger local Chinese providers turned down proposals before before Indian providers were approached. Which begs the question, do the larger Chinese companies know something the Indian providers do not?

It will be interesting to see how this strategy plays out and if the Indian tier 1’s significantly increase their market share in China in coming years.