I just heard that DarwinSuzsoft has recently(?) changed its name to “Dextrys“.  I’m sure that they have a good rationalization for the new name, but it sounds like a sugar substitute to me.  I also notice that the senior management team seems to be largely new since the old Darwin days.  I guess that the US$48M from Francisco Partners came with some strings…

As I was poking around on their site, I got a kick out of seeing that I’m quoted in the first item listed in their “News & Events” page.  It is truly a small world.

Technorati Tags:  China, China Outsourcing

Let me state for the record that I am not an anime fan.  Actually, I don’t really care about the art form one way, or the other.  I’m much more intrigued that globalization is causing the Japanese anime industry to perceive itself as being “in danger.” Asahi reports that:

“Yet, for all its success, the world of Japanese animation is in danger. One reason is that it is a labor-intensive process. Because of this, there is a growing trend to outsource production to Asian countries.

Concerned that Japan’s animation industry is hollowing out, possibly leading to a dry spell of human resources, the central government is working on a project to educate and train a new generation of animators.”

The article goes on to explain that:

‘… much animation production work being outsourced to South Korea and China. Some say that, today, as much as 90 percent of “Japanese anime” is actually produced overseas.’

While one never wants to underestimate the creativity of the new media Chinese artists (check out the portfolio of Symbio Digital Entertainment), it’s hard not to chuckle a bit about Japanese anime actually being “made in China.”

Technorati Tags:  China, China Outsourcing, Anime, Globalization, Japan

There was an intriguing story (sorry, subscription required) in the San Jose Business Journal regarding a new Chinese outsourcing company that is focusing on “geotechnical services and expertise” for the oil and gas industry.  This news is interesting for a couple of reasons:

First, I continue to be fascinated that venture capital companies are so willing to invest in Chinese outsourcing companies.  I still wonder where the leverage to generate VC type returns will come from.  Maybe this investment was made by the private equity side of Trident Capital.

Second, (this is specifically addressed to my outsourcing friends in Houston, Denver & Dallas - you know who you are) I’m intrigued by the narrow focus that Tiandi will be addressing.  Given the price of oil, we all see huge opportunities in energy exploration, but this laser-like focus is interesting.  I wonder if there is room in the industry for some of my aforementioned friends to develop similarly focused specialty firms.

‘Friday, February 22, 2008 - 12:07 PM PST
Trident Capital leads $2.5M funding for outsourcing company in China

Trident Capital said Friday it co-led a $2.5 million first round of funding for Tiandi Energy Ltd.

Palo Alto-based Trident said its investment partner in China, Mustang Ventures, also joined the lead funding.

Tiandi Energy is a new China-based outsourcing company targeting the western oil and gas industry with specialized geotechnical services and expertise.

“Oil and gas is a very attractive market for outsourcing services, driven by the escalating demand for hydrocarbons and the aging western geoprofessional workforce,” said Don Dixon, Trident’s co-founder and managing director.

Tiandi Energy is a spin-out of Englewood, Colo.-based IHS Inc. (NYSE:IHS), a provider of information services to the oil industry in well production data.’

There are several aspects of this enterprise that appeal to me:

• I am gratified to see VC / PE money flowing into Chinese technology service companies.
• If they plan to use a model where the from IHS feeds business to Tiandi, they could be building a very powerful operation.
• The narrow focus could allow them to really become “best in breed.” I think that the “we’ll take on anything that comes in” approach of most Chinese outsourcing firms is not a recipe for success and happy clients. 
• They specifically mention targeting “the western oil and gas industry.” That’s probably consistent with a model of starting out by funneling business through IHS.  However, a strong organization in China could just as easily target the country’s domestic industry, which is rapidly expanding to have a global presence and will certainly need to acquire services like these.
• It’s a relief to notice that IHS seems relatively unconcerned about giving China based resources access to what I’m sure is extremely valuable geotechnical information.  This is one more bit of evidence that a knowledge based organization can operate safely in China, as long as it takes proper precautions.

It sounds like Tiandi Energy Ltd. could be a great success.  We’ll keep watching them.

Technorati Tags:  China, Energy, Oil, Gas, Trident Capital, China Outsourcing

Here’s an interesting twist on the competition between India and China in the software outsourcing business.  NIIT (formerly the National Institute of Information Technology) will be establishing IT training centers and offering training in Wuxi.  The Business Standard’s story reports that:

“As part of the agreement, NIIT will work closely with the Wuxi provincial government to develop human capital for the emerging IT industry in the region.”

Since NIIT has both a training business and a delivery business, the skeptic in me can’t help but wonder if it is actually the case that they are getting paid by the Wuxi provincial government to train workers which can then be deployed on projects for the firm’s delivery arm - NIIT Technologies.  Given the current tight market for IT professionals in India, and the relatively greater appreciation of the rupee vs. the dollar, paying trained Chinese workers in RMB could be very attractive to an Indian company.  Of course, their biggest challenge will be overcoming the cultural issues that cause many Chinese engineers to avoid working for Indian companies.

The Business Standard goes on to say,

“A memorandum of understanding (MoU) to this effect was signed in the presence of Yang Weize, Communist Party general secretary of Wuxi region and G Raghavan, president (individual learning solutions), NIIT, at the Wuxi-Bangalore business seminar on service co-operation today.”

While my experience in China has clearly shown that an MOU carries about as much weight as telling someone, “I’ll give you a call sometime…” The article goes on to suggest that Wuxi is putting their money where their mouth is.

“The Wuxi government also announced the appointment of Raghavan as chief consultant for Wuxi city. Raghavan will work closely with the local government to help them identify and build the requisite IT infrastructure in the province.”

I probably shouldn’t comment on the wisdom of retaining the president of a company that will be providing services to you as a consultant, but it does demonstrate a level of commitment from Wuxi.

Wuxi seems to be aggressively courting Indian companies.  The Economic Times reported on some of Wuxi’s efforts.  According to the story:

‘MUMBAI: China has invited Indian IT and business process outsourcing companies to set up more units in its IT parks and build them up at par with those in cities like Bangalore, Chennai and Pune.

A delegation from Wuxi, an emerging economic zone in the Yangtze river delta, met representatives of software industries here and expressed a desire to convert their district into a “Bangalore of China”.

Yang Weize, secretary of Wuxi Municipal Communist Party of China Committee, said: “If China is the factory of the world, India has become the ‘office of the world’. This is what we want to do for ourselves. That is why we are here.” Weize pointed out that currently Wuxi has 50 Indian companies.’

So, if China is the “factory of the world,” and is setting a course to become the “office of the world,” what role will be left for India?  I’m just asking because the Indian companies seem awfully eager to help China build its IT/software outsourcing industry….

Technorati Tags:  China, India, Wuxi, China Outsourcing

Following up on my earlier post regarding SMIC, I noticed this bit in EE Times Asia.  They’re covering an IDC report suggesting that China’s domestic semiconductor market will hit $28B in 2011.

While the whole article is interesting, I was particularly drawn to their analysis of the segments contributing to this figure:

“Based on its forecast and analysis for the China semiconductor market, IDC said that the computing segment will account for over 62 percent of the total China semiconductor market in 2011, with growth driven by portable PC and server markets. The digital consumer semiconductor segment will continue flourishing driven by DTVs, digital STBs, game consoles and handheld gaming, added IDC. Finally, the 3G launch in China is touted critical to maintain market momentum in the mobile phone arena.”

I am a bit surprised to note that the computing segment will account for the majority of the China market in 2011.  Prior to reading this report, I would have guessed that either mobile communications, or digital consumer products would have been the dominant demand drivers in China’s rapidly expanding consumer markets.

I wonder how much of this demand will be met by SMIC’s in-country fab lines.  Does the Taiwanese government still prevent companies like TSMC and UMC from building foundries in China?  If so, I’m afraid that Tiawan’s pure play foundries will be at a serious competitive disadvantage when it comes to getting a share of this $28B.

Technorati Tags:  China, China Outsourcing, Semiconductor, SMIC

Dan Harris over on the China Law Blog (one of my must read blogs) has an outstanding post regarding the issue of why so many Chinese companies have been disappointed in their ability to achieve success in the west(Dan’s list is towards the bottom of the post). Dan’s post is so good that I won’t editorialize beyond just saying that he nailed it and that I’ve run into every one of these in working with Chinese companies.

“…a good list of why Chinese companies are having so much difficulty making it in the United States. Here’s that list:

1. Chinese companies focus on a Chinese consumer, not an American one.

2. Chinese companies fail to realize that one reputation damaging mistake in the United States could doom them forever here.

3. Chinese companies fail to realize it will take time for them to make an impact in the United States and they are unwilling to spend the time and money necessary to do so.

4. Chinese companies focus too much on the end result (making money), and by doing so, they sacrifice the professionalism that would allow them to achieve long term success.

5. Chinese companies tell users what they want instead of listening to users.

6. Chinese companies focus too much making money in the short term, rather than on building the quality necessary to sustain themselves in the long term.

7. Chinese companies fail to understand how beauty and design might distinguish their product from that of their competitors.

8. Chinese companies rely too much on phone calls and face to face meetings instead of email.

9. Chinese companies fail to use “simple and elegant designs.”

10. Chinese companies fail to realize their need to hire MBAs and those with local knowledge.”

If you’re interested in doing business in China you really should follow the China Law Blog!

Technorati Tags:  China, China Outsourcing

Leaving the world of software outsourcing for a bit, I’ve been watching a series of articles in EETimes covering the evolution of Semiconductor Manufacturing International Corp., affectionately known as “SMIC” (rhymes with “stick”).  I’ve never been sure how seriously to take SMIC, since developing processes and running efficient foundries are among the most complex operations that modern technology undertakes.  To me, things this hard seem best left up to the real professionals like TSMC and Intel.  My own suspicions notwithstanding, I was a bit taken aback by the title of the most recent article, “Red scare: China churns out fabs”

According to EETimes:

‘Despite persistent losses at SMIC and a slowdown in the chip industry at large, the Shanghai-based foundry provider continues to announce new fabs at an alarming pace.

Last week’s bombshell announcement that SMIC plans to add separate 200- and 300-mm fabs in Shenzhen had some observers puzzling over the maverick foundry’s motives.

Revelations that several Chinese municipal governments, including Shenzhen, have largely or fully funded a number of SMIC facilities as part of a “virtual fab” strategy has further raised eyebrows. Under the approach, a municipality owns the facility and SMIC manages it, garnering fees and a share of the profit for its troubles. (Though it may receive some government funding for the fabs announced last week, SMIC apparently will own them.)’

There is some discussion about whether tapping local governments for development capital gives SMIC an unfair advantage.  On the surface, at least, I reject this assertion.  While the magnitude may be larger, it seems conceptually indistinguishable from the San Jose city council deciding to subsidize BEA’s headquarters (apparently in jeopardy thanks to Oracle), or Google receiving local subsidies to build data centers (up to $260M for the operation in NC).

Last week EETimes reported that SMIC had:

“…struck a deal with the Shenzhen municipal government under which the foundry provider will build new and separate 200- and 300-mm fabs in that region.”

“The 300-mm fab will use 45-nm technology, which was recently licensed from IBM Corp. The company will break ground on the site in the first half of 2008.”

Apparently, these fab lines will be right in the mainstream of process technology:

“The 200-mm fab will be capable of processing wafers at line-width geometries from 0.35 to 0.13 micron when it moves into production in late 2009. The 300-mm fab is expected to tap the 45-nm process licensed from IBM. SMIC did not divulge a timetable for the 300-mm fab or the R&D center.”

The article continues to mention that:

“In 2005, SMIC set up a 200- mm wafer fab, Cension Semiconductor Manufacturing Corp. Based in Chengdu, that venture is managed by SMIC and backed by investors.”

Chengdu is my favorite city in China, so I applaud SMIC for this move.  Helping the economy of inland Sichuan province is nothing but good in my book.  They also note that SMIC is establishing an operation in Wuhan, using a slightly different model:

“In 2006, Shanghai-based foundry chipmaker SMIC begun construction of a 300-mm wafer fab in Wuhan East Lake New Technology Development Zone, Hubei Province, China — but not for itself.

This fab, the first in Central China, is being paid for by the local authorities with SMIC being asked to manage the facility.”

Assuming for a moment that SMIC can actually bring these foundries up with current processes and achieve yields at reasonable levels, I wonder, as does EETimes whether the added capacity will cause a glut on the global market (I picked some choice bits to share here, but the original article is well worth a read.)

“… a spate of quarterly losses have prompted fears that SMIC, having set the stage for a capacity glut, may kick off a price war. That would be bad news for the foundry industry, which is projected to log 15 percent growth this year, coming off a flat 2007.”

“Despite some strengthening in the market for foundry services, top pure-play foundries Chartered Semiconductor Manufacturing, Taiwan Semiconductor Manufacturing Co. Ltd. and United Microelectronics Corp. have reined in their capital spending plans for the year in response to recessionary fears and the seasonal IC lull.

SMIC has another game plan: It expects to boost capacity about 31 percent by year’s end, to 267,000 wafers per month from last year’s monthly capability for 185,000 wafers.”

“SMIC has built China’s most-advanced fabs and is the prized pillar of the nation’s effort to get its semiconductor industry off the ground. But market watchers say the foundry’s eye-popping ascendancy has come at the expense of its bottom line. Analysts note that the company has never made a profit on a fiscal-year basis and that it reported losses in three quarters last year.”

Some of us have questioned whether SMIC was really a serious player in the global foundry business.  I guess that we’ll have to stow that line of thinking.  The original article reports that:

“…It [SMIC] claims to be in production with its own 90-nanometer process, and to have a 65-nm process in qualification. And it has cultivated an impressive customer list, including such high-profile names as Broadcom, Qualcomm and Texas Instruments.

Late last year, SMIC licensed a 45-nm process from IBM Corp. The technology provides the foundry with a migration path from the 65-nm node and buffers it from further allegations of IP breaches.”

The point is, a combination of government assistance, aggressive capitalism and some very smart technologists seem to be establishing a mainstream foundry business in China.  There are a number of reasons for the rest of us need to keep a close watch on SMIC.  My primary worries include:

• SMIC is positioned to dominate in producing chips for the domestic market.  We’ve seen that China is willing to blaze its own path on standards, so they have a mandated local market that may not be readily served by non-Chinese companies.  Further, they are locating some of their foundries near manufacturing centers which may help with logistics.
• With so much government backing, they won’t be “allowed” to fail.  If needed, they will be able to get tariffs and subsidies to ensure their success.
• If SMIC’s executives are smart enough to build up a robust design services group, they’ll have a significant edge by being able to source chips both designed and fabbed in China.  If I was part of their management team, I’d be pushing hard to develop internal design capabilities that domestic firms could leverage to develop state of the art semiconductors.
• The last time that we needed to send some communications equipment to China, we encountered all sorts of restrictions on the types of semiconductors that could be exported to the country.  Presumably, the U.S. government’s intent was to keep us from sending anything that supported sophisticated encryption and/or had possible military applications.  If SMIC is able to set up high capacity 65-nm and 45-nm fab lines in China, what’s to stop them from manufacturing essentially unlimited quantities of these sorts of chips?  Of course, there are many ways for Chinese companies and government agencies to get the design data. They can design in-country, they can reverse engineer designs, or they can just “borrow” designs from western companies.  It seems like it would be much easier (and cheaper) to get the design into China as data files, then retarget it to SMIC’s processes, than it would be to actually try to import controlled semiconductors, but perhaps I’m just paranoid.

I believe that SMIC has the potential to significantly impact the global semiconductor industry and I think that everyone should be thinking about how SMIC’s success might influence their own strategy.

Technorati Tags:  China, China Outsourcing, Semiconductor, SMIC

The New York Times reports that the U.S. Olympic team will be importing 25K pounds of “lean protein” for the U.S. athletes.  According to the article:

‘COLORADO SPRINGS — When a caterer working for the United States Olympic Committee went to a supermarket in China last year, he encountered a piece of chicken — half of a breast — that measured 14 inches. “Enough to feed a family of eight,” said Frank Puleo, a caterer from Staten Island who has traveled to China to handle food-related issues.’

That’s some chicken breast!  I wonder what the live bird looked like…

“We had it tested and it was so full of steroids that we never could have given it to athletes. They all would have tested positive.”

Is this comment true?  Can you really test positive from eating chicken with steroids?  Wouldn’t a human’s digestive processes break down the steroids?  I thought that steroids had to be injected to have any impact on performance.  Does the testing done for he Olympics really detect animal steroids that have been eaten by the athletes?

“In preparing to take a delegation of more than 600 athletes to the Summer Games in Beijing this year, the U.S.O.C. faces food issues beyond steroid-laced chicken. In recent years, some foods in China have been found to be tainted with insecticides and illegal veterinary drugs, and the standards applied to meat there are lower than those in the United States, raising fears of food-borne illnesses.

In the past two years, the U.S.O.C. has tried to figure out how to avoid such dangers at the Olympics. It has made arrangements with sponsors like Kellogg’s and Tyson Foods, which will ship 25,000 pounds of lean protein to China about two months before the opening ceremony, but will hire local vendors and importers to secure other foods and cooking equipment at the Games.”

I guess that the team won’t be getting much fresh meat, but I’m sure that they are better safe than sorry.  I often wonder about the food that I eat in China, but I’ve decided to just not let it bother me.  Some of my expat friends, especially those with young children, do face this as a constant concern.  I haven’t heard of a good solution, since they can’t really import their food from the U.S..

I couldn’t help smiling over the concept of “high security food.”

‘In preparation for the Olympics, Tyson will ship beef, chicken and pork to China. When the food arrives, customs agents will review the shipment — the U.S.O.C. has budgeted 10 days to complete this process — before it is delivered to U.S.O.C. representatives and taken to a holding site at Beijing Normal University. The food will remain there for about three weeks until athletes arrive.

“The security is so tight that there is pre-screening before it even gets to me,” said Terri Moreman, the U.S.O.C.’s associate director of food and nutrition services.’

Technorati Tags:  China, China Outsourcing

I couldn’t help but chuckle at this story carried by Reuters.

‘Less spitting, better queuing and cleaner streets show Beijing has become more “civilized”…’

The first time that I visited Beijing, all of the guidebooks warned me to never set anything down because all horizontal surfaces would be covered with a sludge of spit and human/animal waste.  My wife was so upset about the potential contamination that she insisted on throwing away all of the luggage and shoes that I’d used on the trip.  Anyway, I’m glad that things are improving, at least a little.

‘In the drive to reform behavior, Beijing has instituted the 11th of every month as “voluntarily wait in line” day, distributed millions of etiquette pamphlets and threatened to detain boorish fans at sporting events.’

I’d love to see “voluntarily wait in line day.”  The unorganized rush to board public transportation and to reach other services has been one of the most challenging things for me to adapt to when I visit China.  I guess that my mother taught me too well to “wait for my turn.” I’m slightly skeptical regarding whether all of these behavior changes in the name of etiquette will actually take hold for the Olympics, but I’m consistently amazed by what China can accomplish.

Technorati Tags:  China, China Outsourcing

Although the reference applies to the pharmaceutical industry, rather than directly to software, I thought that the comments from Radiant Pharma & Tech were both generally applicable, and quite disturbing, at least from a U.S. perspective.  According to the Radiant spokesman:

“China [was] suffering from brain drain for many, many years, until recently” explained Radiant co-founder and general manager, Fei Zhang, at last week’s Informex trade show. This situation changed after the September 11th bombings:

“Because of tightened US immigration policy, people cannot stay. [Combine this with] the booming Chinese economy, [and there has been an] increase the number of Chinese elite choosing to return from the United States to where they really belong.”

There was a time, not so long ago, when the U.S. was a magnet for the world’s best scientists and engineers.  Through a combination of idiotic immigration policies and an equally shortsighted unwillingness to invest in research and development, we’ve managed to create an environment where elite foreign-born professionals are encouraged to “go home.”  Longer term, this is great for the outsourcing industry, but it is not so good for the continued pre-eminence of U.S. research and development.  As I said previously, “I guess that we can all become lawyers.”

Technorati Tags:  China, China Outsourcing