In a bid to fully tap Taiwanese resources, Newland acquired 58 percent of a Taiwan-based IT company in 2009, becoming the first Chinese mainland company to invest in Taiwan. Hu Gang, Board Chairman of Newland, said that the investment had four aims: developing in the Taiwan market, tapping the international market through Taiwan, enhancing product design, and learning from Taiwan to improve Newland's production capacity.

"Newland has achieved all these goals by investing in Taiwan. The company's market share is expanding, with products sold in many foreign countries. Newland's Taiwan branch is making profits," said Hu. "We were also given two extra benefits. First, we have been introduced to Taiwan's more advanced management in intellectual property. Second, we have a stable channel to recruit Taiwanese talent to service outsourcing companies on the mainland."

Wang Jing, President of Newland, told Beijing Review that Taiwan serves as a foothold for the company to get into the Southeast Asian market and even the global market. "For Newland, a thorny issue is the fear of breaking international rules in terms of laws, standard practices and intellectual property. Taiwan has had a head start and they are more familiar with international rules and how to better comply with them. We really should learn from them," Wang said.

Challenges ahead

Fuzhou's service outsourcing industry is still at the low end of the industrial chain, yielding low profits. Information technology outsourcing (ITO), business process outsourcing (BPO) and knowledge process outsourcing (KPO) are what Fuzhou is hoping to one day excel at. The majority of Fuzhou's service outsourcing industry is in ITO, accounting for 70.42 percent of total revenue in 2012, while the proportion for higher value-added BPO and KPO is 20.19 percent and 9.39 percent respectively.

Fuzhou faces fierce competition from other Chinese cities like Chengdu, Nanjing, Hefei and Suzhou, as well as its longtime rival India, which "has sharp competitiveness in terms of English language skill, lower costs, talent pool and familiarity with international rules," said Zhu Xiaoming, President of the China Europe International Business School based in Shanghai.

"I think China also has many advantages. First, China is at the same starting line for the third industrial revolution—the digital revolution—as other developed countries. Second, as the world's most populous country, China is a huge and attractive consumption market for outsourcers. Finally, the country has the most university graduates in the world," he said. "Facing severe competition, product and service innovation is the only way out."

Fuzhou invested heavily in its service outsourcing industry at a time when the city is transforming its growth model away from the manufacturing sector. In 2012, Fuzhou earmarked 5.87 million yuan ($958,600) to support the development of service outsourcing. In 2013, the city will increase the subsidy to 6.5 million yuan ($1.06 million) to sponsor talent training and brand construction, according to a report from the China Outsourcing Institute.

"It's the right direction. The Fuzhou Municipal Government should give service-outsourcing providers more guidance and policy support. Also, the government should better integrate resources in the industry by organizing them to go out as a group to attract outsourcers."

Jiang Zhenpeng, Vice President of ISG China, an outsourcing advisory company, said that the government should understand what exactly is needed to lure outsourcers to Fuzhou and China in general. "From 2006 to 2009, the selection of outsourcing destinations was based on the cost. From 2009 to 2012, it was based on talent pool. In 2013, it's based on local market demand for the outsourced products or services," said Jiang.

"If Fuzhou wants to develop its service outsourcing industry, it should encourage local conglomerates, such as SOEs, to outsource their businesses to private companies. Also, the government itself should outsource its e-government business to private companies," said Jiang.

Peng Qiang, Vice President of Softstone Co. Ltd., China's leading IT solution provider, thinks China is still too focused on manufacturing.

"The business environment and its respective policies are geared toward the manufacturing sector, not to the services sector. This is a vital bottleneck for the development of services in China," he said.

Email us at: zhouxiaoyan@bjreview.com