While we all focus on China and India, we risk missing strong new competitors rising up from other regions.  Originally a Russian outsourcing firm, Luxoft has been rapidly growing its business.  Two recent announcements clearly demonstrate the company’s global ambitions.  This week, Luxoft acquired ITC Networks (Romania).  Earlier this year, they established a new venture in Vietnam.  Luxoft may be setting up to do an end run around all of us.

With the ITC acquisition, Luxoft will have over 3000 employees, more than a dozen globally distributed development centers and a revenue run rate greater than $150M.  This scale would easily put them very near the top of the tier 1 Chinese vendors.

Both Luxoft and ITC Networks have made tentative moves towards establishing development centers in China, but they don’t seem to have found the right opportunity, yet.  I wouldn’t be at all surprised to see some progress on this front in the near future, however.

Luxoft is a member of Russia’s IBS Group, a collection that also includes IBS (Information Business Systems) Company and DEPO Computers.  The group provides a range of services and products to the global IT industry, with a special focus on Russia’s rapidly growing business infrastructure.

Keep an eye on this organization.  They are smart, aggressive and could leave us all in the dust.

Technorati Tags:  China, Russia, Romania, Luxoft, China Outsourcing

Hayden Hong, the founder of Long Circle, an embedded product development outsourcing provider with offices in Boston and Pudong, published a very good list of the “Ten Things You Should Know Before Outsourcing.”  The items that Mr. Hong suggests are:

• “Outsourcing is a process that must be managed
• A good outsourcing project manager is hard to find
• What time is it over there anyway?
• The 3 C’s of communication: communicate, communicate, and communicate
• Uncover the hidden costs of outsourcing …
• … and the real benefits
• Communicate with your employees
• Take the time to identify the work to be outsourced
• Is it IT or R&D?
• Choose your outsourcing partner carefully”

Although most of these are common sense, it is well worth your time to check out the full article.  Mr. Hong’s explanations are well thought out and demonstrate a real understanding of the business.

Long Circle has been around, in its current incarnation, since 2005.  I haven’t had an opportunity to work with them, yet, but I’m glad to see another strong player entering the China software outsourcing industry.  Long Circle appears to be making a number of smart moves, including focusing on a good market segment, using smart techniques to market their services and maintaining a customer facing presence in the U.S.  If you need embedded product development services, you should give these folks a look.

Technorati Tags:  China, China Outsourcing

Steve Hamm wrote a Business Week article and a post describing a trend of companies that are selling captive labs in India to outsourcing vendors.  Mr. Hamm attributes this to:

“…currency swings, the increased costs of doing business in India, and the need for some Western financial services to raise cash to handle shortfalls elsewhere.”

Perhaps it’s a reflection of the relative maturity of China’s outsourcing industry, but we’re not hearing much of this sort of thing.  We’re still at the stage where clients are insisting that contracts include an option for them to take the outsourced team captive at some point in the future.  I suspect that the contrast can be partially explained by two factors.

First, the scale and process maturity of the Indian vendors is generally higher.  Infosys, for example, has something on the order of 100K employees.  They are able to invest in processes and methodologies that they can deploy companywide to operate more efficiently.  The largest Chinese vendors have roughly one tenth of this scale, and many of the resources are deployed in staff augmentation roles.  There is simply less perceived benefit to making significant investments in process improvements within the Chinese outsourcing companies.

The other part of the explanation is the potential value of expanding direct operations in China.  Many western companies understand the tremendous strategic benefit of cultivating China as both a market and a resource base.  With this in mind, firms may choose to go direct once their operations in China reach a certain critical mass.

One other comment from Mr. Hamm’s article caught my attention.  He notes that

“[Infosys] plans to hire another 10,000 [new employees] this quarter alone.”

When pondering relative scales, one might note that Infosys is adding the headcount equivalent of China’s largest outsourcing companies in this quarter.  Put another way, Infosys will be adding more than twice as many employees in this quarter as VanceInfo (VIT) currently has in the entire company.

Technorati Tags:  China, China Outsourcing

iSoftStone has finally gotten around to announcing that Bruce Ferland has been named as its president and head its newly formed North American and European Operations.  We first heard rumors about Bruce taking this role last year, so I guess that we can now file this in the “facts” category.

I met Mr. Ferland when I tried to get involved in a transaction that Darwin Partners was doing.  Since he moved on from Darwin, he’s been deeply involved in China outsourcing, and it looks like he finally has a shiny new toy to play with.  Congratulations to Bruce!

Given Bruce’s extensive background in the financial industry, one can’t help but wonder whether iSoftStone plans to make a concerted push into that particular vertical.

Technorati Tags:  China, China Outsourcing

InfoWorld’s Reality Check blog had a thought provoking post regarding how IT managers perceive globalization.  Many of us in the industry just accept globalization as a fundamental assumption, so it’s interesting to see a different perspective.  According to the post:

“A recent survey of enterprise executives has found that — not surprisingly — IT executives are more averse to globalization than their peers from other departments.

The survey, summarized in “The Benefits and Challenges of Globalization,” was conducted by EquaTerra, a consulting firm that makes its living advising companies on how to refine their processes, a practice that often relies on some measure of outsourcing.”

In a phone interview with the blogger, Stanley Lepeak, EquaTerra’s managing director of research. reports that:

‘…the negative feelings IT executives have toward globalization and its offspring, outsourcing, are in part attributable to “airline” magazine syndrome.

In other words, some non-IT executive sitting in first class reads a business publication that tells them how cheap IT labor is in India. The exec gets back to the office and asks, “Why are we paying developers in New Jersey $90 an hour when we could get the same work for $30 an hour in India?”‘

Mr. Lepeak continues:

“Other C-level executives need to understand how outsourcing changes processes, such as managing operations 24/7, dealing with cultural and language barriers, managing staff discontent, both local and 10,000 miles away.”

Outsourcing certainly adds a level of complexity, and the cost savings are never as great as suggested simply by comparing hourly costs.  Mr. Lepeak also observes that managing globally distributed projects requires new techniques and understanding:

“The skills needed to manage outsourced projects may not have been learned when you were managing a team down the hall for the past 20 years. New skills include managing a third-party relationship with special skills for cultural differences.”

There are several other quotable quotes throughout the post that basically add up to the conclusion that worldsourcing is the new reality and smart IT folks will figure it out.  I particularly appreciated this bit:

“Globalization is not going away. In fact, it is only now becoming truly global, says Lepeak. Where it used to be simply a U.S. company outsourcing to India, now the Indian outsourcer may be outsourcing part of its work to China — even to someone back in North America.”

Technorati Tags:  China, China Outsourcing

As regular readers know, I tend to be somewhat skeptical about rankings of outsourcing vendors.  I probably should have shared some sort of disclaimer when I wrote about the “Black Book of Outsourcing” report.

Now, BusinessWeek has a story regarding some challenges to the validity of the report.

“… key players in the outsourcing industry question whether it merits such status. They say its methodology is not consistent with most accepted business research techniques. As a result, companies often rise or fall dramatically from one year to the next—an unusual pattern for a customer satisfaction ranking.”

The story was written by Steve Hamm, who also writes BusinessWeek’s well respected Globsespotting blog.  Mr. Hamm even found a professor to take a shot at the methodology behind the report.

“Claes G. Fornell, a professor at the University of Michigan Ross School of Business who specializes in customer satisfaction surveying, says Brown & Wilson’s methods aren’t sound. First, he says, the firm can’t be sure all the people who respond are qualified. Second, the results could be tilted in favor of companies that urge their customers to participate.”

Unfortunately, the story doesn’t mention that most of the industry rankings ignore clients completely, and simply rely on information submitted by the vendors.  Surely, this methodology is no more sound.  I guess that the take away is that you can’t rely on rankings.  You have to do your own evaluation.

Technorati Tags:  China, China Outsourcing

Digital China recently announced that two private equity groups have agreed to invest in a subsidiary unit.  I wasn’t able to verify this story on the company’s press release page, as it is apparently not currently available ( “Website Updateing [sic], Please visit again later.” )

“Digital China (00861) announces that the two private-equity investors, China Singapore Suzhou Industrial Park Ventures Co. Ltd. (CSVC) and Infinity I-China Investments (Israel), L.P. (Infinity Investments), have agreed to make a total capital investment of up to RMB500 million into Digital China Information Technology Service Co. Ltd. (DCITS), a company currently wholly owned by Digital China, assuming a subscription option (an option to make further capital investment in an aggregate amount of RMB100 million in DCITS granted to the two investors) is exercised, for investment in Digital China’s ITS (information technology services) business.”

The new entity will focus on the IT Services industry for clients in government, telecom and finance.

We have encountered Digital China as a competitor several times for domestic engagements within China.  We’ve yet to run into them in the U.S., but I’ve heard rumors that Microsoft is a client within China.  I wonder if they’ll follow the lead of several of their competitors and use some the new funds to develop western business.

Technorati Tags:  China, China Outsourcing

With the EDA industry currently in turmoil, and the “Big 3″ (perhaps) about to become the “Big 2″, Magma Design Automation (NASDAQ:LAVA) is making some aggressive, and smart, moves in China.

The company is opening new offices in Beijing and Shanghai.  These facilities will increase the company’s footprint by 140 percent, adding roughly 1700 square meters of office/lab space.  Magma plans to use the additional room for continued expansion of its analog and digital IC Design R&D as well as to provide enhanced support to local customers.

It’s interesting to see that Magma is investing in China and that the company understands the value of being close to its customers.  This move is a real testament to China’s increasing prowess in IC Design.

“Driven by computing and consumer electronics demand, the Chinese semiconductor market is projected to surpass $28 billion in 2011,” said Rajeev Madhavan, CEO of Magma. “Doing business here requires an understanding of the dynamic characteristics of the Chinese market, the role of the government and the differences in business practices. By growing our operations here, providing leading-edge technology, leveraging the growing pool of talented EDA and IC engineers, increasing our local support and strengthening key relationships, Magma will demonstrate its commitment to facilitating this growth.”

Beyond the commitment of staff and facilities, Magma is initiating a dual path strategy for leveraging local universities to develop engineering talent and to foster research.

“One aspect of the strategy is providing professors with course material, software and dedicated support for training students to use the Magma software. Additionally, Magma will contribute to China’s leading design automation research labs.”

Clearly, Magma appreciates the role that China will play in moving the IC industry forward.  With these kinds of initiatives, they seem to be setting themselves to move into the “EDA Big 3″ if Mentor (NASDAQ:MENT) gets gobbled up by Cadence (NASDAQ:CDNS).

Thanks to my time as an engineer at Mentor back when the competitors were Applicon and Calma, and doing my bit during the Daisy, Mentor, Valid era, I can’t say that I’m thrilled with the prospect of Cadence winning in the end.  Good luck to everyone involved, and don’t forget to check your six for Magma.

Technorati Tags:  China, EDA, Mentor, Cadence, Magma

I’m not familiar with Probe International, so I can’t make any judgments regarding the veracity of this very provocative article.  However, given the rather strident nature of their self description, I’m guessing that they have some pretty sharp axes to grind.  The actual report from Probe International is available here (PDF).

“BEIJING (AFP) - Beijing’s water crisis is so critical that the city is facing economic collapse and the need to resettle part of its population in coming decades, a leading development policy group said Friday.

Experts predict the Chinese capital could run out of water in five to 10 years, according to Grainne Ryder, policy director at Canada-based Probe International.

She said Beijing would potentially have to start shutting down industry, as the city would be incapable of supporting current levels of infrastructure or population.”

Of course, the government doesn’t quite agree with Ms. Ryder:

“But Jiang Wenlai, a professor at the Chinese Academy of Agricultural Sciences, said he thought the comments were exaggerated.”

The thing is, we all know that water, or shortages thereof, is the next big environmental crisis to hit most of the world.  Perhaps we should be expending as much effort, resources and thought on the challenges of wastewater reclamation and water purification as we are on alternative energies.

Technorati Tags:  China, Alternative Energy, Solar, Wind Power, BioFuel

The New Statesman’s Linsey Hilsum wrote a great piece on the changing of the guard among the world’s economic powers.  She writes from a British perspective, which seems to add a bit of poignancy to her comments.  Although her article doesn’t present much brand new material, she does a great job of putting things into a proper perspective.  I was particularly compelled by the use of her experience in the Dubai International Airport (DXB) as a foundation for the story.

While the whole piece is well worth reading, one bit particularly struck a nerve with me.  Being a somewhat rational engineer type, I rarely yell at the TV, since I do understand the difference between broadcast and bi-directional communications.  However, there is one fellow that I never fail to scream back at:

In the US, the anti-foreigner right has made common cause with labour unions to deny reality. The champion of this view is the CNN commentator Lou Dobbs, who sees American culture being swept away by a tide of immigration from the south while American jobs go to “communist China”, as he always call it. Economic studies show that service-sector jobs in Europe and the US have increased as manufacturing jobs have been lost, and that western companies and economies have benefited from outsourcing and globalisation. Europe and the US need immigrants to replace their ageing populations. That the US is no longer economically dominant does not mean it’s about to collapse - but fear rather than logic dominates the debate.

The truth is, I actually find myself watching CNN much less simply because they carry Mr. Dobbs’ bizarre ranting.  It’s too bad, because I sincerely appreciate Mr. Turner’s brilliant innovation in creating the network nearly 30 years ago.

Personal quirks aside, this shift is real, and we can either leverage it, or get buried by it.

Technorati Tags:  China, China Outsourcing