Pallavi Aiyar
The presence of a home grown business process outsourcing Indian multinational in China is emblematic of the increasingly globalised nature of services.
Analyses and overviews of the growing number of Indian companies that have breached the Great Wall tend to focus on big names such as the Tatas, Infosys, and the Mahindras. These are the industry equivalents of what are known as charismatic megafauna in the world of wildlife conservation.
But just as smaller animal species often reveal truly novel secrets of the natural world, there are several less known Indian companies in China that are illustrative of the new global economic architecture. There is, in fact, only one Indian company with China operations that has virtually a hundred per cent market share in its niche sector — VFS Global, a name that few will be able to put a “face” to.
VFS, a home grown business process outsourcing Indian multinational, is a visa outsourcing specialist. In other words, it focusses on providing services to the visa sections of diplomatic missions such as managing dedicated visa application centres, setting up online scheduling facilities for appointments and performing other non-judgment related tasks from acceptance of applications to collection of visa fees. The diplomatic missions are thus freed from the burdens of administration and can focus solely on the key tasks of assessing applications.
VFS’ presence in China is emblematic of the increasingly globalised nature of services. Thus, for example, the tens of thousands of Chinese students who apply for U.K. student visas every year no longer hand in their application forms to the British embassy. It is an Indian-operated visa centre that Chinese applicants must queue up at to secure permission to study in the U.K.
VFS began running its first visa centre for the British embassy in Beijing in February 2005. In the three years since, it has begun operating 20 centres for five different countries including Italy, Belgium, Germany, the U.K. and India, in 12 cities across China. This year, VFS will also start to provide visa services to the Canadian embassy in Beijing. By the end of 2008, the company hopes to have established two dozen more application centres around the country.
New field
Before the entry of VFS, visa outsourcing was a completely non-existent service in China. Even today, VFS only has one other direct competitor, a small French company that handles the visa application process for the French embassy.
There is not a single Chinese company in the sector yet. Kishen Singh, senior vice-president and head of VFS China’s operations, reveals that some Chinese companies with strong governmental backing have begun to express an interest in expanding into the visa outsourcing business. One company, under China’s Ministry of Foreign Affairs, in particular, has announced plans to enter into what has thus far been VFS’ exclusive space.
For the Indian company, domestic Chinese competitors could emerge as a major threat. Under Chinese law, embassies in China must seek the permission of the Chinese government before being permitted to tie up with foreign firms such as VFS. Were VFS to come up against competition from domestic Chinese firms, it is thus possible that the government would favour the latter.
“We realised that we need to neutralise the threat from any future Chinese challengers and so we have in fact decided to work with them,” explains Mr. Singh. VFS will thus be assisting the Ministry of Foreign Affairs’ company to set up visa outsourcing facilities for Chinese missions in Delhi, Mumbai, and Kolkata.
And while he admits that nothing can stop Chinese competitors from cropping up, the VFS China chief insists that for the short-to-medium term, Indian companies will retain an advantage over their Chinese counterparts in the sector. Elaborating his argument, Mr. Singh points out that VFS’ substantial experience in the business (the company already works with 19 sovereign governments in over 40 countries around the world) means that it has been able to generate the kind of trust with its clients that new competitors will find hard to match.
He adds that Indian businesses have an edge over their Chinese equivalents in the service sector as a whole. Concepts such as customer satisfaction are much newer to China than India, he says, and changing the Chinese mindset to become more service-oriented will take time.
Indeed, the fact that not a single Chinese company has so far entered into the outsourcing of business processes involving visas, while India boasts of the world leader in this sector, seems to underline Mr. Singh’s point.
But despite a virtually captive market, operating in China has not been all smooth sailing for VFS. “In China, you can have a 100-page agreement and it is still of no use but at the same time you can have no agreement and still do business,” smiles Mr. Singh.
Although the Chinese market is famous for being one where “it is easier to take money in, than to get it out,” VFS in China has eventually become profitable. While unwilling to disclose any specific figures, Mr. Singh says it took the company two years to start making profits. Last year, VFS China handled 250,000 visa applications, a number that is expected to double this year.
Explosive growth in tourism
China’s outbound tourism market has seen explosive growth in recent years. In 2005, 31 million Chinese travelled abroad (up from 12.1 million in 2001) and according to the World Tourism Organisation this number will rise to 100 million by 2020, by when China will be the fourth-largest source of outbound tourists in the world.
“If we get even 10 per cent of this market, we’ll be laughing all the way to the bank,” sums up Mr. Singh.
Ultimately, what the VFS China story represents is a concrete example of how economic growth in China and India is not necessarily a zero sum game. In the new interconnected global economy, China’s surge in the tourism sector only helps India’s visa outsourcing service providers. Both countries thus benefit from Hindi-Chini fly-fly.
