The Economist magazine published a very insightful article recently. The online version is available here. In my not so humble opinion, the Economist nailed one of the issues that truly keeps me awake at night. The shortages that they discuss, and the impact on both workforce stability and the cost of skilled resources are challenging to both India and China.

The magazine correctly points out that there are not quick fixes for this challenge. We do the best we can with intensive training programs and “importing” experienced managers from other companies, but it’s an obstacle to growth for everyone. I think that these types of issues will give an advantage to the organizations that have a strong management presence in the West, while peddling as fast as they can to grow their depth chart in China.

Technorati Tags:  China, China Outsourcing

I mentioned Darwin Partners’ acquisition of Suzsoft in an earlier post. The combined company is now known as DarwinSuzsoft. We watched them with a lot of interest, but didn’t seem to encounter them very often, at least not competitively.

Now they’ve gone and done it. They have executed on the strategy that insiders told me they were aiming for when the did the original acquisition. They raised $48M from Francisco Partners! That’s really an accomplishment, and I think that it will turn out to be a game changer in Chinese outsourcing.

Let’s consider some of the implications of this investment. First, it validates, in a very big way, that Chinese outsourcing companies are playing on the world stage, at least as far as the people with equity to invest are concerned. Second, it gives DarwinSuzsoft some very deep pockets to invest in delivery, sales / marketing and further acquisitions. Finally, it puts all of the other companies on notice that they also have to take aggressive action to avoid being left behind.

Giving credit where credit is due, Ned Stringham is the first person that suggested this construct to me. Ned’s insight was to combine a U.S. front-end, with a strong Chinese resource base and then to raise a bundle of private equity both to make the deal go through and to fund aggressive expansion. I tried to figure out how to implement Ned’s vision, but I couldn’t get the players to line up - my loss. Although their order was slightly different, the Darwin guys are the first ones to pull it off. Now we’ll all REALLY be watching them to see whether the model works.

Congratulations to the Darwin guys for recognizing the opportunity and having what it took to pull it off!

Technorati Tags:  China, China Outsourcing

I’ve been predicting that we’d see some sort of consolidation among the Chinese outsourcing companies for several years. At first, I thought that it would be the local companies that reached critical mass buying up those who didn’t (See my post on that below). Now it seems like it’s more companies from outside China starting to pick off the local companies. Please consider:

• Sierra Atlantic (an Indian company) bought ArrAy Inc. to gain access to the Chinese resources
• Softtek (a Latin American near shore outsourcing provider) bought I.T United , presumably for the same reason

So what we’re seeing is international companies establishing their presence in the China market by acquiring established players. I strongly suspect that this will turn out to be the exit strategy for a large number of the Chinese outsourcing companies that are not positioned to reach critical mass on their own. It’s not a bad strategy, ‘eh?

Technorati Tags:  China, China Outsourcing