This little post caught my eye for a couple of reasons.  First, hiSoft announced the CEO change nearly two years ago.  They also announced the appointment of a new Chairman earlier this year.  I’m not sure why this shows up as news in a story datelined today.

The main reason that I’m mentioning this, however, is the reference to a claim from a “source within hiSoft” that:

“…following the company’s March [Note: This refers to March of 2007] acquisition of the US IT solutions firm Envisage Solutions, a split appeared within senior company management as to which strategy the company should adopt. The company’s outsourcing market has gradually transitioned from Japan to Europe and the US, and its center of operations is also moving to Beijing.”

This is certainly possible.  The folks from Envisage are pretty much the smartest guys in the room, and they could be exerting a great deal of influence on the company’s direction.  However, I’m more incline to suspect, that the investors in hiSoft’s most recent round of financing (Granite Global Ventures, Draper Fisher Jurvetson ePlanet Ventures, Mitsubishi UFJ Securities (HK) Capital Limited and Sumitomo Corporation Equity Asia Limited) were responsible for the change.

One can’t help but imagine that the new owners wanted to bring in leadership with more global seasoning and experience doing business with Western organizations.  It’s interesting to observe that the news of the investment and the appointment of Mr. Loh Tiak Koon to succeed Mr. Li Yuan-Ming as CEO were contained in the same press release.  This might serve as another warning to our friends in China that are in the process of seeking external investments for their outsourcing ventures.

Technorati Tags:  China, China Outsourcing

It’s always tough to write about a tragedy, especially when one has personal ties to the event, but I feel compelled to say something, so…

I’m a strong believer in Chengdu’s role in China’s outsourcing and technology industries.  It’s my favorite city in China, and an area where I have a number of colleagues.  Due to my ties to the area, I was concerned well beyond general compassion for human suffering when I heard about the earthquake in Sichuan province.

While I was trying to find out how my former coworkers were doing, I came across a first-hand report from Gunar Kasimir.  Gunar describes his experience and also gives an account of the days immediately after the event.  It’s well worth a read for anyone trying to get beyond the traditional media coverage.

I’m relieved to see that the P.R.C. government, and the world, are responding quickly to help the survivors.  I trust that rebuilding will proceed quickly and that the area will continue to play a key role in global technology strategies.

Technorati Tags:  China, China Outsourcing

As I’ve commented frequently, getting accurate information about the staff size and financial performance of Chinese software outsourcing vendors is a real challenge.  The effort isn’t helped any when you have groups like the IAOP providing lists that don’t explicitly acknowledge that they are a pay-to-play organization.  I tried to find the source data for this on their website, but I eventually got frustrated and gave up, so I’ll just quote from IndiaPRWire:

“China’s largest outsourcing companies by number of employees are: Achievo, Beyondsoft (Beijing), Bleum, CompuPacific International, Dalian Hi-Think Computer Technology, hiSoft Technology International, Inspur, Longtop International, Neusoft Group and VanceInfo Technologies.”

Well, it looks to me like the list is in alphabetic order, rather than in order of staff size.  Even so, it neglects to include some of the largest companies, including (in alphabetic order): Augmentum, Chinasoft,
Dextrys (formerly DarwinSuzsoft), Freeborders, iSoftStone and Longtop Financial (LFT).  I don’t know how to account for this oversight.  However, the IAOP’s past policy was to only include companies on their list that were IAOP members, or sponsors, so we might want to consider their list with some skepticism.

When we’re comparing staff sizes for Chinese vendors, it is often important to dig a little beneath the surface.  Some questions that you might want to ask when selecting a vendor, include:

• Does your count include employees of partner companies, associated companies, companies in your “network”, subcontractors, or does it truly represent your actual employees?
• Does stated size of your resource base represent the number of technical staff members that are actually available for outsourcing, or does it include your internal IT department, developers that work on your products, etc.?
• Are you giving me the actual number of engineers, or are you including administrative staff and non-technical resources in the count?
• Does this headcount accurately reflect the potential pool of resources for my project?  If your vendor’s primary client base is within China, they may have a very limited resource base that is suitable for Western projects.
• Do your figures include staff with “non-traditional” credentials, or does it count only your degreed engineers?
• Are you including interns, staff in training, and/or probationary employees in your stated headcount?
• Is this the count of actual employees at this time, or is it your projected headcount for some point in the future, or is it what your headcount would be if you had no attrition, or…?

If the size of your vendor’s resource base is an important part of your decision process, you’ll be well served if you muck around a little bit below the surface.

Technorati Tags:  China, China Outsourcing

Helping Chinese Software / IT Outsourcing firms present themselves to western clients is a key component of my consulting practice.  Unfortunately, I face a constant challenge in leading my clients to understand the importance of differentiating themselves from their competitors.  Years ago, just being a Chinese software outsourcing company was enough - not anymore!

The Guardian had a great article about the failure, to date, of any company in the industry to truly emerge as a leader.  They present an interesting analysis of some of the major players, so the article is well worth reading.  The key bit for this discussion, however, is their estimate for the size of the industry at “up to 3,000″ outsourcing firms.  It’s extraordinarily difficult to get accurate counts, especially if you include the Chinese equivalents of “garage shops” (more properly “apartment shops”, I guess).  However, I suspect that this number is low.  I’ve heard some people claim that there are more than 5K outsourcing operations distributed throughout China.  In any event, let’s assume that only 30% of the companies are interested in western business (the others are probably pursuing domestic opportunities, or working with Japan/Korea).  I believe that the actual percentage interested in western business is higher, but it’s easy to do the math in my head with this figure.  Such estimates would suggest that any individual Chinese software / IT outsourcing firm has at least a thousand competitors with varying degrees of competence and aggression.

Within this competitive milieu, most of these companies will probably either fail or get acquired.  The firms that are willing to do the hard work, make the investment to differentiate themselves, and seriously pursue western business will be able to rise above the swarm and truly lead the industry.

Sadly, many of the current crop of Chinese outsourcing companies simply do not believe that marketing is worthwhile.  Unfortunately, this conviction does not serve them well in the current hyper-competitive environment.  As the companies become more sophisticated, and raise more external money, we can look for a dramatic change, at least at the top of the leader board.

Technorati Tags:  China, China Outsourcing

According to an article in today’s Wall Street Journal (sorry, subscription required), The Carlyle Group has cooked up a deal with the government of Shandong that will provide access to deals in the region.

“… the Washington private-equity firm is investing in a relationship with a local government that it hopes will turn into a pipeline of deals.

Carlyle has signed a memorandum of understanding, to be announced Wednesday, on investment with the government of Shandong province. Carlyle says the relationship will give it first look at deals in China’s No. 2 province by economic output, after Guangdong province. The coastal province of Shandong, south of Beijing, is a powerhouse in industries ranging from chemicals to household appliances to beer.

Private-equity firms like Carlyle, TPG and Blackstone Group LP are scouring China for investments to capture the growth potential of the nation’s companies, as the U.S. market becomes more difficult for buyout firms.”

Perhaps it’s just a coincidence, but late last year, Symbio announced an agreement with government entities in Shandong to establish software training institutes and research centers in Weihai, a key city in the province.  The article continues:

“Carlyle hopes the MOU will help it land more deals in China, a country where local governments play an important role in industry as a shareholder, regulator and promoter of local companies. Carlyle’s agreement is with the province’s Department of Foreign Trade and Economic Cooperation, a division responsible for connecting local companies to foreign investors and promoting the province’s enterprises overseas. Carlyle’s agreement includes plans to help Chinese companies based in Shandong in their efforts to expand overseas.”

I’ve generally heard that the folks at Carlyle are smart operators.  I sure hope that they know what they are getting into when they make investments in China.  Otherwise, they may find that things work in a slightly different manner from that to which they are accustomed.  Based only on unconfirmed rumors regarding some of their prospective targets, I can’t help but wonder.

Technorati Tags:  China, China Outsourcing

Freeborders mentioned me in a press release this week.  I’m impressed by the changes that they’re making.  Congratulations to Ms. Cholka and her team!

Technorati Tags:  China, China Outsourcing

The revolving door to Dextrys‘ executive suite continues.  Al Perkins, who founded the company, is now just on the Board.  The current rumors regarding Bruce Ferland’s whereabouts suggest that he has an executive role with iSoftStone’s U.S. operations.  Although he’s not included on their Management page, Mr. Ferland has been listed as a contact for iSoftStone in their press releases.

Now, Brian Keane, most recently the CEO of Keane, Inc., has stepped into the top job at Dextrys.  As I commented earlier, Francisco Partners is clearly cracking the whip to generate some returns on their investment.  Good luck to Mr. Keane and Dextrys.  The competition in the China software / IT outsourcing industry is really getting interesting!

Technorati Tags:  China, China Outsourcing

This has been all over the news for the past several days, so I’ll just quote some choice bits from the New York Times (registration might be required).

“BEIJING — A fast-spreading viral outbreak in China has killed 22 children, sickened nearly 3,600 others and caused panic among parents in an impoverished corner of Anhui Province, government health officials said Friday.

All of the fatalities, from lung problems and other complications, have been in children younger than 6, with a majority of them under 2.

The outbreak, caused by a particularly strong intestinal virus, enterovirus 71, or EV-71, has been spreading in the city of Fuyang, in east-central China, since early March. Provincial health officials, however, announced the outbreak only this week, raising questions about whether they had been trying to conceal it.”

The article continues…

“The virus begins with a fever and often leads to mouth ulcers and to blisters on the hands, feet and buttocks. Commonly known as hand, foot and mouth disease, it has no relation to the foot-and-mouth disease that infects livestock.

There is no vaccine or cure, but most patients recover in a week without treatment. In severe cases, brain swelling can lead to paralysis or death. Cleaning surfaces with bleach and washing hands significantly reduces the spread of the pathogen.”

This sounds pretty unpleasant.

I had an opportunity to visit Beijing and Shanghai right at the end of the SARS scare.  I’ll never forget the surgical masks.  Do you remember filling out the departure health cards and getting your temperature checked at the airport?  How about returning to the U.S. from China and being told to, “work from home for a few weeks, just in case…?”  The biggest challenge will come if we start encountering travel restrictions, as happened during SARS.  Business in China still requires direct personal contact, so obstacles to travel will slow everything down.  As others have noted extensively, the government is already doing its best to clamp down on visas.

Beyond getting there (and leaving), I always worry that tragedies like this could damage the popular perception of China, especially in the U.S.  Sadly, many of us are not particularly globally aware, and we tend to seize on these types of stories as evidence that China is somehow not really a player on the world stage.  This naive view will just hurt all of us over the long term.  Finally, it’s just a matter of time before we start worrying that goods exported from China might be contaminated by the virus. …sigh…

Technorati Tags:  China, China Outsourcing

I’ve been watching both Longtop Financial (LFT) (Initially priced at US$17.50; reached $35.22 during the second day of trading; closed this week at $19.81) and VanceInfo (VIT) (Initially priced at US$8.50; immediately jumped to $9.50 when it opened; closed this week at $8.79) to try and get a sense of how the markets were valuing the Chinese outsourcing firms.

It’s good to see that both companies are trading above their initial offering price (this hasn’t always been the case over the past few months).  I wonder if the relative stability of the valuations will encourage some of the other vendors (hiSoft and iSoftStone) to take the plunge.  iSoftStone, in particular, has been beefing up their senior management team, and could be making preparations for some sort of an event.

Technorati Tags:  China, China Outsourcing