India’s next phase of outsourcing boom may come from China’s shortage of graduates.
A shortage of well-trained graduates could hinder the growth of the Chinese economy and prevent it from developing more sophisticated industries, according to a report by consultants McKinsey.
A lack of practical skills and poor English-speaking levels will make it hard for China to develop service-based industries such as the sort of information technology outsourcing that India has specialised in over the past decade, it says.
The study underlines the difficulties China faces in trying to shift from an economy dominated by manufacturing into services and research-based industries, despite the large number of new graduates that the country is producing. McKinsey also predicts that multinationals will have an increasingly hard time recruiting high-quality staff in China at a time when growing numbers of foreign companies are expanding their operations there.
“It is a paradox of shortage among plenty,” said Andrew Grant, director in McKinsey's Shanghai office and one of the report's authors. “Few of China's vast numbers of graduates are capable of working successfully in the services-export sector.”
The report is based on interviews with 83 human resources executives who concluded that fewer than 10 per cent of graduates in China had the skills to work for a foreign company, compared with 25 per cent of graduates in India. China will produce 3.1m university graduates this year compared with 1.3m in the US.
However, he said the type of education many Chinese students received did not give them the practical and team-work skills that global companies needed. “The universities have a theoretical, text-book, fact-based, learn-from-the-master approach,” he said. English teaching also had insufficient emphasis on conversational skills.
According to McKinsey, China produces about 600,000 new engineers every year, nine times as many as the US. However, of the pool of 1.6m young engineers in the country, only about 160,000 have the practical and language skills to work for a multinational. Not only are there fewer graduates available to multinationals than many companies realise, but they also face fierce competition for them from local companies, given the strong expansion of the Chinese economy.
In a decade, China would need 75,000 managers with some form of global experience, the study said. It currently has only about 5,000 such people.
Mr Grant said China had to improve the “connective tissue” between universities and industry so graduates were taught the skills companies required. “China needs to develop a deliberate strategy on this issue.” Similar sentiments were voiced in a meeting last month between S. Ramadorai, chief executive of Tata Consultancy Services, India's largest IT company, and Professor Yunhe Pan, president of Zhejiang University in Hangzhou, a second-tier city whose lower costs are attracting potential Indian IT investment.
Mr Ramadorai told his host that TCS would send some of its Chinese staff in Hangzhou for training in India. He said TCS could also help design college courses to make graduates more employable in IT. Yet as TCS and other Indian IT companies are discovering as they develop local centres to service global customers, market access in China may add up to nothing if the country's graduate and post-graduate community of software professionals lacks proficiency in English.
India's greater comfort with English will set it apart from its rival in their respective technology ambitions. China has not disguised its admiration of India's low-cost, export-dominated IT industry, which has emerged as the world's largest offshore outsourcing centre