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