Even if you disagree with him, you have to acknowledge that Thomas Friedman’s notions of globalization are fully incorporated in the debate (if, indeed, there still is a serious debate).  As an aside, “The Lexus and the Olive Tree” played a significant role in my thinking about how business operates in the early 21st century and how I might make my humble contribution.  In any event, Mr. Friedman recently wrote a bit in the New York Times regarding China’s recent progress towards its new role on the world stage.  He uses the different trajectories of the U.S. and China over the past seven years to highlight his points.  Anyone pondering where China will be in ten years relative to where we’ll be should read this Op-Ed piece.

“Just compare arriving at La Guardia’s dumpy terminal in New York City and driving through the crumbling infrastructure into Manhattan with arriving at Shanghai’s sleek airport and taking the 220-mile-per-hour magnetic levitation train, which uses electromagnetic propulsion instead of steel wheels and tracks, to get to town in a blink.

Then ask yourself: Who is living in the third world country?”

Having recently suffered through multiple blackouts in Silicon Valley (the last one due to poorly maintained power lines along Central Expressway) along with dodging potholes in US-101 that are bigger than my Honda car, I get his point.

Technorati Tags:  China, China Outsourcing

As the global software/IT offshore outsourcing leaders face slower growth rates, they are looking for ways to move higher on the service value chain.  Infosys Technologies Ltd. (ADS) (INFY) has placed a big bet by offering to acquire Axon Group PLC for more than US$753M.  The move brings Infosys both a higher end SAP consulting practice and increased access to European markets.  According to an article in the Wall Street Journal (sorry, subscription required; Reuters also covered the story):

“Infosys Chief Executive Kris Gopalakrishnan said the company wanted to increase its consulting business by adding to its client base. Axon confirmed the offer and said its board recommended shareholders approve it.

Indian technology companies have long depended on basic tech servicing, such as programming applications and maintaining computer systems, to make money. However, rising wages and increasing competition for the country’s engineering graduates have made it difficult for them to keep hiring enough people to grow at the same rates they have before.

Now, Infosys and its competitors are looking to grow through higher-value areas like consulting, which bring in more revenue per employee. Consultants potentially bring more business as they work through problems that involve other parts of the company.”

These sound similar to the explanations that we heard for hiSoft’s acquisition of Envisage (also mentioned here and here).  Established outsourcing companies see the demand for higher end consulting, appreciate the stronger margins for consultants and believe that the consultants can “pull” additional services.  By all reports, this is working very well for hiSoft.  The contributions from the former Envisage team are helping hiSoft to emerge as a leader among the Chinese IT outsourcing companies.

Technorati Tags:  China, China Outsourcing, Worldsourcing

One of the big obstacles to selling offshore IT outsourcing is the perceived negative impact on U.S. IT jobs.  Many people rely on the conventional wisdom to conclude that offshoring causes net job loss here.  We try to arm our sales team with counter points including:

• Leveraging the offshore team will allow you to focus on more interesting work
• Take advantage of the expertise among the offshore resources to fill in gaps in your in-house skill set
• Let your onshore staff concentrate on core projects, let the offshore team handle other tasks
• Enable the onshore team to expand their skills to include distributed project management
• Use the offshore testers to gain better coverage
• Outsourced teams are often valuable to manage spikes in resource requirements and they can be scaled down when the demand goes back down

Across all of the projects that I’ve sent over to China, I have never been aware of a single case where a U.S. layoff resulted from the offshore work.  I suspect that some clients may have delayed hiring to fill a position when the work could be performed offshore, but I’ve yet to see a company reduce existing technical staff as part of shift to China.

In spite of my best efforts, we still encounter resistance to the idea of outsourcing based on the fear of job losses.  With this in mind, I was delighted to see Ann All’s post on her IT Business Edge “Straight to the Source” blog.  Ms. All cites recent studies that show:

“…that offshoring has only a minor impact on U.S. jobs and that job losses are offset by increasing sales of U.S.-produced goods and services in countries such as India and China.”

and

“…that jobs lost to offshoring are only a problem in the absence of job gains. Hires continue to outweigh job losses in the United States, he notes. He also mentions strong growth projections for IT jobs, especially for high-skill positions like systems analysts, database administrators and system software engineers.”

In the spirit of full disclosure, and perhaps a bit of shameless self-promotion, I should acknowledge that Ms. All has quoted me here and here in her previous work.

The bottom line is, at least for software and IT outsourcing, resources in China do not display U.S. technologists.  Instead, they complement the activities underway here.

Technorati Tags:  China, China Outsourcing

The Wall Street Journal presented a story discussing the challenges facing India’s first tier outsourcing providers (sorry, subscription might be required).

Apparently, the issues that we’re encountering in the U.S. and Europe are finally starting to have an impact on the rate of growth for the Indian companies:

“Now that growth is slowing sharply. The credit crunch and spending slowdown in the U.S. are hurting the companies’ biggest market, while a cheaper dollar shrinks their profits. Longer-term problems are surfacing. Competition is rising from other low-cost nations, ranging from Eastern Europe to the Philippines and Vietnam. And India’s own success has raised labor expenses, cutting into the companies’ low-cost advantage just as their revenue growth is slowing.”

The story continues with a set of statistics that suggest that growth is slowing and profitability is falling.  After some discussion about how the vendors are trying to move up on the service value chain, it gets back to the bad news:

“The industry’s biggest blow came last summer, when the meltdown in the U.S. subprime-mortgage industry and ensuing credit crisis froze new business from global banks and other financial institutions, which bring in close to half of the industry’s revenues.”

It seems that China outsourcing dodged a bullet here, as most of our companies were less dependent on big financial institutions (sorry Bleum).

Towards the end, the story loops back around to how the big Indian vendors are attempting to adjust their businesses.

“The tech companies also have been expanding into consulting, where they say revenue per employee is higher than in outsourcing. But they’ve struggled to break into the market, which is dominated by well-known names such as International Business Machines Corp. and Accenture Ltd., finding many of their own clients prefer to take advice from those companies rather than the Indian ones better known for their outsourcing. In the year ended March 30, TCS’s consulting business contributed 3.4% to the company’s total revenue — the same as in the previous fiscal year.”

It might be interesting to speculate on why the article makes no mention of China, although it does refer to

“other low-cost nations, ranging from Eastern Europe to the Philippines and Vietnam”

as potential competitors for India.  Perhaps the Wall Street Journal believes that the situation in China is similar.  If that’s their rationale, they are wrong.  While the slowdown is definitely having an impact on the Chinese firms that have weaker management, the strong companies continue to grow very fast, with many still seeing 50%+ growth (albeit from a smaller base).  I’m cautiously optimistic that these challenges will actually be good for China outsourcing as they will weed out the companies that can’t really compete.

Technorati Tags:  China, China Outsourcing

I’m a fan of CNReviews.  They regularly provide good insight into what the movers and shakers in China are really thinking.  Today, in particular, James Feng has written a compelling post that urges us all to take a step back and try to appreciate the other perspective.  I guess that I’m especially receptive because I’ve been seeing so much outrage over things like the lip-syncing during the opening ceremony and the age of the Chinese woman gymnasts.  To me, at least, the salient point of the post comes when Mr. Feng counsels:

‘My advice to all those have negative views about China: “Go to China, live there for 6 months, don’t be a shut in and close your mind.  Open your mind and really experience the culture, and then come back and tell me you still hate it.” That’s the very first step.’

Read some of the comments to see a good illustration of Mr. Feng’s points.

Technorati Tags:  China

Long Circle arranged to get some blushingly positive coverage in SDTimes.  Considering their recent contribution to China Success Stories, they are getting more “free” publicity than most of the leading Chinese outsourcing companies.  Clearly Mr. Hong understands how the game is played.  Not only did they present themselves very well in some excellent coverage, but the journalist seems to think that he received special privileges.  Very nicely done!

I’m telling you, this is a company to watch.

Technorati Tags:  China, China Outsourcing

I had a chance to catch up with Philip Lew, the founder and CEO of XBOSoft, yesterday.  Since I first wrote about the company, it has continued grow in both new clients and headcount.

Mr. Lew attributes much of the success to focus.  XBOSoft avoided the trap of trying to be all things to all clients.  Instead, they continue to build on their reputation as dedicated quality assurance experts.  They are testing specialists.  XBOSoft has also insisted on hiring staff with the right mix of technical expertise and client service orientation.  Finally, the company emphasizes developing tools and processes that enable them to test more effectively.  As a result of this focus, XBOSoft is able to deliver what they promise and provide measurable value to their clients.

Apparently, it’s working.  Mr. Lew reports that all of their clients have become repeat customers.  Beyond that, his satisfied clients are providing referrals to new opportunities.  You really can’t ask for better validation than that.

XBOSoft distinguishes itself from the vast majority of the current crop of Chinese outsourcing companies by maintaining a laser like focus on testing services and satisfying their clients.  I’ve long believed that China is the ideal destination for outsourcing testing and XBOSoft’s success reinforces my confidence.  You should keep these folks in mind to help with your testing efforts.

Technorati Tags:  China, China Outsourcing

I saw this blurb on a news feed.  There really isn’t enough information for me to make an intelligent comment, so I’ll just share the story.

“China arranges fiscal funds to back service outsourcing

Released : Wednesday, August 06, 2008 4:07 AM

BEIJING, Aug 06, 2008 (Xinhua via COMTEX News Network) — Chinese Ministry of Finance and the Ministry of Commerce have jointly announced that they will arrange fiscal funds to mainly support construction of public platforms and development of enterprises in China’s service outsourcing base cities to spur the change of growth mode of trade.

China will mainly support service outsourcing enterprises in China’s service outsourcing base cities and China service outsourcing demonstration zone fixed by the Ministry of Industry and Information and the Ministry of Science and Technology and enterprises in the list of key service outsourcing enterprises of the Ministry of Commerce.

China will support public service platform equipment purchase and operation, and service outsourcing enterprises to gain certificate applicable on international market.”

I hope that this is true, and that some of the companies that we work with will garner some benefits.

Happy 08.08.08!

Technorati Tags:  China, China Outsourcing

Information Week posted an insightful article on the maturation of global IT outsourcing.  The discussion leads off with a great quote:

“The concept of offshore outsourcing will continue to dissipate, and we’ll focus on globalization.”

As one might expect, the article reports that, while still important, price is no longer the only driver for offshore IT outsourcing.  Instead, companies are leveraging worldsourcing to support the globalization of their overall business.  In addition, companies are taking a more active role in collaborating with their vendors.  Some even go so far as to help with retention issues and trusting the vendor with mission critical work.  Of course, along with this closer relationship, clients are demanding that vendors accept a higher level of accountability for the success of the efforts.  The examples provided of how far some clients have gone to partner with their vendors are pretty compelling.

One interesting issue raised by the coverage is how companies will develop senior internal IT staff, if an offshore vendor performs significant portions of the actual work.  This apparent break in the IT career ladder is going to be a real challenge for future CIOs.

They even touch on one of my pet peeves with our industry:

“Many companies found they didn’t realize the promised savings once management time and rework costs were factored in for products that, while coded to specification, didn’t meet expectations.  That’s leading to outsourcing contracts based less on the input–number of engineer-hours worked–and more on the output, measured by the project’s success in terms of generating revenue from new products, meeting system uptime requirements in an IT infrastructure support agreement, or the number of customer policies processed in an insurance company BPO contract.”

I highly recommend this article both to companies considering their outsourcing strategy and to vendors interested in better understanding the reasons that their clients are outsourcing (Hint: Being “low cost” isn’t enough anymore).

While India is the focus of the article, at least in terms of the discussion, most of the assertions also apply directly to China.

Oh yeah, the comments are pretty funny, too.

Technorati Tags:  China, China Outsourcing, Offshore Outsourcing