I’ve been a huge supporter of Chengdu for a long time, so I was very encouraged to see this story in The Hindu.  The focus of the story is potential cooperation between Indian and Chinese companies, but I was very pleased to see that India will send a large delegation to Chengdu next year.  According to the story, “Stressing that it will be a long-term engagement between Indian and Chinese IT companies, Mr. Bahl said they would be participating in ‘Chinasoft 2008,’ in Chengdu city in Central China, with a much bigger IT delegation.“  The event holds a special significance for me, as I was a speaker at Chinasoft 2005 (Topic: Providing World Class Service to US Clients).

I’m glad that Chengdu is receiving international attention as it’s a great area & a wonderful place to do business.  Also, the food is great!

Technorati Tags:  China, China Outsourcing

I noticed the story in the WSJ today. They report that Delta will have a nonstop from Atlanta to Shanghai (starting in April `08) and United will add a flight from San Francisco to Guangzhou in the spring of `08.  More flights to China can’t happen soon enough for me.  I’ve recently had to change plans for trips because I couldn’t get a direct flight from San Francisco to Beijing.  Also, the flights seem to always be packed, in both directions, at least on weekends.  I guess that we all fly back & forth to China so that we aren’t chewing up workdays in transit.

The story includes a candidate for understatement of the year - “U.S.-to-China air service has lagged behind China’s rapid economic growth and ballooning commercial links with the U.S.”

Fly the friendly skies… — I miss that slogan.

Technorati Tags:  China, China Outsourcing

XBOSoft is Philip Lew’s latest venture (Disclosure:  I know Phil & I have tremendous respect for him).  The company is exclusively focused on testing and the application of automation to shorten test cycles.  While they have technical resources in China, they don’t emphasize offshore teams as their primary driver.  Instead, they highlight their testing expertise and their test automation technology. Unlike many other Chinese outsourcing companies, XBOSoft doesn’t claim to provide a full spectrum of services.  They recognize that their real value springs from being experts in testing.  They are able to leverage their skills and their knowledge of test automation to better serve their clients.  They really push their ability to shorten test cycles.

When I’m trying to evaluate a company, I always give a lot of weight to the leadership.  Mr. Lew certainly has both the academic credentials, and the professional experience to pull it off.  Phil has done his time in the trenches with one of the leading Chinese software outsourcing companies, so he knows about all of the pitfalls & challenges.  I believe that he’s applied those lessons in setting up XBOSoft.  Beyond all of the resume information, however, Phil is a really good guy who is very comfortable working on either side of the Pacific.  In addition, he has a product development background that gives him a real appreciation of the problem that he’s solving.

One thing that particularly impressed me, given that they are a relatively young company, is that they already have really nice testimonials from satisfied clients.  That the team was sophisticated enough to understand the value of getting these positive affirmations from happy clients tells you a lot about what they will be like to work with.  Another indicator is that they don’t ask clients to simply throw work “over the wall” to them. They prefer to describe their process as supplementing the client’s technology team.

In summary, I think that XBOSoft is a company to watch:

• They have focused their service offerings to an area where the have true expertise - they aren’t trying to do everything, and they are addressing a real pain point for clients
• They understand the problem that they are solving for clients - shortening test cycles
• They are applying automation to solve the problems.
• They have a really smart CEO who knows what he’s doing.

It looks to me like they have all of the ingredients for success! I wish them all the best!

Technorati Tags:  China, China Outsourcing

Apparently the Founder Group (according to Wikipedia) “the second largest PC manufacturer in China,” has decided to enter the software outsourcing market with the creation of “Founder Software.”

While I welcome the company’s validation of the software outsourcing industry in China, I really have to wonder about their prospects.  My first thought is that providing excellent service to western companies is a far different business from building & selling great products.  The types of discipline, processes and values required to succeed in the service business are dramatically different.  You can’t just take a great development engineer, or dev manager, and have them magically become great service delivery people.  It just doesn’t happen.  I’ve seen a number of successful Chinese product companies who have tried to carve out a service organization.  Most have ended up with very disappointing results.  UFIDA Software Engineering is one of the very few successes that I can point to.

My second thought goes to their statement (from their press release) “Founder Software is focusing its business in the North American market and it has already established offices in a number of US and Canadian cities.” This is a great objective, but it’s a real stretch for any domestic Chinese company to actually win business in the U.S.  They inevitably fail to make the required investment, and they underestimate the level of sophistication required to build confidence with western buyers.  I respectfully submit that Founder Software is already demonstrating that they “don’t get it.”  I looked at their website last week, and was about to review it again in preparation for this post.  Unfortunately, it’s not reachable - tracert just dies off - not a great way to win western business.  Finally, their press release states that they’ll be traveling across North America attending conferences.  This is great for stories to the shareholders back home, but it’s not the way to win and keep clients in the U.S.

I wish Founder Software all the best, but they aren’t off to a great start right out of the gate.

Technorati Tags:  China, China Outsourcing

In a post titled China, Inc., Mr. Croft makes a pretty compelling argument that, due to lack of discipline in the west, China will soon own the U.S.  Mr. Croft concludes by joking, “Welcome to North America, sir, a wholly owned subsidiary of China, Incorporated. We hope you enjoy your stay.”

While one should never underestimate one’s opponents, I can’t help but remember when I heard the same things about Japan.  25 years ago, my company required us to take Japanese culture & language lessons.  The Japanese were buying various assets like Pebble Beach & Rockefeller Center.  There were apocryphal stories about Japanese arriving in Honolulu, jumping into limos and driving around pointing at property they were going to buy.  None of these investments worked out all that well, if I recall.

The points that I’d like to make are:  First, that we always seem to extrapolate growth in developing economies way too optimistically, until the bubble pops.  Second, we also seem to be worried that some other culture that doesn’t have the same weaknesses that we have is going to do us one better.

To the first point, and I say this recognizing full well that my professional career relies on a rapidly growing economy in China, we cannot forget that China faces extreme internal and external challenges.  Any one of these issues, or dozens of others, could really let the air out of the balloon:

• The pollution is almost overwhelming.  They’re killing their country and their people.
• The gap between the rich coastal areas and the poor inland areas is extreme.  They’re creating the sorts of inequities that lead to unhappy outcomes.
• Natural resources, especially clean water and clean energy sources are in very short supply.  I really worry about the water issues, and have even considered some of the business opportunities that are being created to solve the problems.
• There is massive unemployment / underemployment in many regions and economic segments.
• The one child policy could create a situation where an aging population is dependent on a too limited younger generation.

Personally, I think that the nation is doing a stunning job of clawing its way into the 21st century, while still keeping these problems in check.  However, before I worry about China dominating the world, I’ll want to understand how they’re going to keep things together domestically.

To the second point, I just flat don’t believe that “China, Inc.” understands the totality of the U.S. economy and culture any more than I believe an American who has been to China a couple times and tells me that he really understands China.  This is usually followed by a discourse on how he is going to teach them to do…whatever… at this point, I’m not paying attention I’m looking for an escape route.

Let’s relax about the doom and gloom and focus instead on how we compete in the global economy.

Technorati Tags:  China, China Outsourcing

I recently received an invitation to join TheFunded.  This site is partly a guilty pleasure if you’ve ever had to deal with VC.  It’s also a great resource if you’re even thinking about raising money.  I love the comments and observations.  I’m also pleased that there are a lot of positive comments mixed in with the inevitable negative observations.  Although the site lets you comment anonymously, I believe that you may as well take responsibility for what you write.

I’ve already posted some comments on VC firms that I’ve worked with, and will post more as time allows.  As with all such sites, the more that we all contribute, the more useful it will be.  I just wish that I knew who was behind it.

Technorati Tag:  VC

Everyone has heard the stories about the number of engineers / software technologists being turned out by the Chinese education system. Depending on who you believe, it’s somewhere between 400K and 1M each year. Of course, it also depends on exactly what you’re counting. The dirty little secret of the outsourcing industry, however, is that most of these graduates are not really ready to provide good service to global clients. The corollary to the dirty little secret is that the really good engineers tend to either work for leading domestic product development companies (think Huawei & Lenovo), or they head for the multi-national corporations - like Microsoft, Google, IBM & HP.

This leaves all of us in the outsourcing industry fighting over the rest of the resources, and also trying to figure out how to turn more of these graduates into suitable employees. Following the lead of Neusoft, there have been a rash of announcements regarding training institutes. We’ve set up the Symbio Software Institutes in Weihai. I just noticed that Tianjin Economic-Technological Development Area (TEDA) was setting up a pretty large scale training operation - you can check out the press release: “First Training Center for Outsourced Services in China Set Up in TEDA.” If the claims in their press release are to be believed, TEDA “promises to train 10,000 to 20,000 talented people every year for service-outsourcing companies in conformity with their requirements and will try to increase the number of people engaged in outsourced service in TEDA to between 50,000 and 60,000 by 2010.”

I believe that the leading Chinese software outsourcing companies do recognize the their human resources are really the most important elements for our companies. Further, they are doing everything that we can to ensure that they have great engineers to truly add value to clients.

Technorati Tags:  China, China Outsourcing

We have all been trying to figure out how the software outsourcing industry was going to evolve.  Currently, there seem to be well over a thousand firms providing some sort of software / IT outsourcing in China.  These range all the way from a couple of folks in an apartment up to the really big players, like ChinaSoft and Neusoft.  In short, the industry is very fragmented, and even the “big” players previously referenced haven’t really emerged as industry leaders.

I’ve been asserting for several years that China wouldn’t become one of the world’s leading outsourcing hubs until at least a few companies emerged as leaders that could drive the rest of the industry.  As I see it, there are three primary paths that a given group could follow to become an industry leader (I dismiss pure organic growth as a viable path to leadership):

• Raise external capital and grow both business and capacity through domestic acquisitions
• Merge with a western outsourcing company and effectively become a resource base for the western consultants
• Get acquired by an Indian company

Without some sort of strategy for gaining industry leadership, I’m afraid that the Chinese companies are kind of sitting ducks for the multi-national outsourcing vendors to come in, set up captive labs in China, and simply mine the resources.  Although this has been a problematic path for outside companies in the past, they are getting better at it.  I saw this in a recent post on the “Economic Times“, an India Times site.  According to the article, Tata Consultancy Services (TCS) currently has a captive lab in China with 1000 resources.  TCS is currently planning to open it’s third IT center, and commits to having 5000 resources within the next couple of years.  So that’s one threat.

I’ve also heard a lot of talk recently that a few of the more successful Chinese outsourcing vendors are hurtling towards initial public offerings.  According two the rumors, a couple of the companies are close to completing listings on the NASDAQ, while others are working towards the Hong Kong or Shanghai exchages.  One has to assume that these companies will use some of the money raised in their public offerings to accelerate their growth through acquisitions.  I predict that we’re going to see some very interesting developments through the next several months.

Technorati Tags:  China, China Outsourcing