Knowledge-based outsourcing to China: Is China losing its competitive advantage to other Asian countries?

The paper looks at why foreign companies outsource or locate their high-tech production, R & D (research & development) and design to China.. Moreover it looks at the competitive advantage which China offers in terms of abundant labor force, low wages, large domestic market and excellent infrastructure as compared to the rest of the emerging markets and developing countries. This type of knowledge-based outsourcing also leads to faster innovation and the companies reach the global market quicker. The focus of the paper is on Asia with particular reference to China, India, Vietnam, and Thailand. The empirical study shows that China has tremendous advantages over its neighboring countries particularly due to its well developed infrastructure and large domestic market. China is also seriously implementing the WTO (World Trade Organization) agreements in terms of tariffs and non-tariffs barriers. However, the cost is rising due to inflation, wage increases and imported raw materials. The IPR (intellectual property rights) protection is weak in China as compared to India and few other Asian countries. If China does not develop its IPR protection system and control cost then it is on its way to remain a world factory with low value added production. Finally, advice given to foreign companies is that China is a suitable place for knowledge-based outsourcing as long as there is IPR protection and cost advantages.