Computer Sciences Corporation (CSC), one of the global leaders in IT outsourcing recently announced its intention to open two new data centers in the Tianjin area.  According to Michael Laphen, CSC’s president & CEO:

“Strengthening our global delivery framework and expanding our presence in Asia are key elements to our multi-year growth strategy.”

Mr. Laphen continues:

“China is an important location for us, and we’re committed to expanding our capabilities here.”

This strikes me as a particularly smart move for CSC.  Not only will they present themselves as a key player in China and, by extension, the rest of Asia, but they also will be able to provide data services inside China’s firewall.  Finally, they’ll be providing a mainstream hosting solution for organizations that want to set up mirrored servers in China, “just in case…”

Technorati Tags:  China, China Outsourcing

An associate forwarded a link to this post.  I haven’t heard anything to substantiate this, so please take this with a grain of salt.  It’s apparently from a Suzhou based Dextrys person.

“I was told about a week and a half ago that they were eliminating the marketing department at Dextrys since there is nothing for us to do during these times of economic crisis.”

I’ve heard anecdotes about growth slowing down for some of the Chinese software outsourcing firms, but this is the first thing that I’ve seen about outright staff reductions.  Of course, being a Chinese company, the first thing that they’d cut is marketing.

Technorati Tags:  China, China Outsourcing

The only rational justification, both for and against, offshoring is getting your work done as efficiently as possible.  When all of the factors are taken into account (availability of appropriately skilled resources, transportation costs, infrastructure, communications issues, cultural challenges, labor costs and etc.), you have to identify the location that gets the work done with the maximum performance against the criteria that you value (quality, timeliness, cost, etc.).  In other words, you need to find the best place to do it.  As this is an election year, we hear a lot of platitudes about bringing jobs back to the U.S.  The reality is that we’re competing in a global economy and we simply have to perform better than other businesses.

I’ve heard some chatter about companies moving work back onshore, which could absolutely make sense for those specific cases.  The fact that some tasks are better performed here is not, however, a repudiation of the notion of world sourcing.  It’s simply a recognition that the best efficiency, for those tasks, is achieved here.

There’s an interesting take on this up on the strategy+business site.  They provide a good deal of background and explanation, but the salient point seems to be:

“As the concept of offshoring matures and settles, companies and vendors can expect a natural rebalancing as they determine what work can best be performed where. The U.S. will, no doubt, gain and lose some ground in the process. Indeed, companies have begun to rethink their offshoring decisions in a way that ultimately will render “offshore” and “onshore” no longer meaningful or relevant. Instead, companies are making choices about the best place to do a given piece of work — be it offshore, onshore, or nearshore.”

I agree with their conclusion that the stories about work coming back to the U.S. actually represent a trend towards true world sourcing, not a reversal of globalization.

Technorati Tags:  China, China Outsourcing, Worldsourcing, Globalization

I saw this story in the Washington Post (sorry, free registration might be required), but it was also covered by several other outlets.

“Wal-Mart Stores Inc., the world’s largest retailer, said Wednesday it will set new quality standards for its suppliers, following a series of scandals involving Chinese-made products, which account for a major portion of the company’s sales.”

That’s great, but Wal-Mart is legendary for bullying their suppliers to provide goods at unthinkably low prices, then continuing to push for even lower prices.  It seems to me that the company’s drive for ever lower supplier costs is in direct contradiction to their new push for higher quality standards.  Of course, it’s all in how Wal-Mart enforces its new policies, so I eagerly read the rest of the story to see what kind of effort they would make to ensure compliance.

“We have to ask all our suppliers to take full responsibility,” Duke [Mike Duke, vice chairman of Wal-Mart Stores Inc.’s international division] told The Associated Press. “Not … just the factories or final production, but to go all the way upstream to look at any products, any raw materials that go in the products.”

and

“Essentially, we expect you to ask the tough questions, to give us the answers and, if there’s a problem, to own the solution,” [Wal-Mart] told suppliers at the [Wal-Mart sponsored] conference [on sustainability and manufacturing in Beijing].

I sincerely hope that they are planning on stronger enforcement measures than these, but this story doesn’t make Wal-Mart look very sharp.

A few friendly words of caution to all clients / buyers who plan on putting China based suppliers between a rock and a hard place:  Your vendor is probably smarter than you.  They are at least more familiar with their environment than you will ever be.  If you push them hard enough, they will find a way to be profitable while giving you the illusion that you’re getting what you want.  Of course, simply asking them to “take full responsibility” and “ask the tough questions” isn’t really boxing them in too tightly, but it also isn’t likely to get Wal-Mart’s suppliers to comply with higher standards.

Technorati Tags:  China, China Outsourcing

Our old friends at Dextrys, formerly DarwinSuzsoft and Darwin Partners before that, just announced a nice piece of business from Avid.

“…[Dextrys will] provide the company [Avid] with product engineering services from China. By leveraging its client facing front-end in the United States in conjunction with its world-class engineering talent in China, Dextrys is delivering product development, enhancement, testing, and localization services to Avid as it seeks new market opportunities. The agreement increases Avid’s overall engineering output capacity, flexibility and operational efficiency.”

Clearly, Dextrys has positioned itself as a true software development outsourcing organization.  This is an interesting contrast with a number of its competitors that have chosen to follow the IT outsourcing path.  I’m very glad to see that real technology companies, like Avid, are increasingly willing to do significant development in China.  This is a testament to the rapidly growing competence and maturity of the resources available in the region.

Technorati Tags:  China, China Outsourcing

Trapeze Networks (now part of Belden) is one of the success stories in leveraging China based R&D teams.  Apparently they liked it so much that they went back for a second helping.  From their press release:

“Trapeze Networks continues to invest in China for three important reasons,” said James Reeves, vice president of product operations. “China — and the entire region — is a huge market for Trapeze Networks so we want to ensure we’re developing the right product with the right features for this market. Second, we think that tapping the wealth of world-class engineering talent in China is giving us a competitive edge. Finally, having a Mandarin-speaking team in Hangzhou working with our manufacturing partners in Taiwan will accelerate our time to market.”

Given their recent win in Hangzhou, this move makes perfect sense.  Congratulations to Mr. Reeves and his team.  I still have very fond memories of the time spent in Pleasanton convincing Trapeze that opening a development center in China would be a wise strategic step.

Technorati Tags:  China, China Outsourcing

Clearly, the “Golden Triangle of IT Outsourcing” (Beijing, Shanghai and Dalian) receives much of the mainstream attention in our industry.  However, other regions are eager to develop into ITO centers in their own right.  Faithful readers might remember that I’m a huge booster of Chengdu, the administrative center of Sichuan Province in western China.

A recent piece written by China Business Solutions, Ltd. highlights this trend and plugs some of the secondary areas.

“During the six days that our party had to explore this fast-evolving development zone [note: Their conference was held in Nanjing, the administrative center of Jiangsu Province], the message was clear that both political leaders and business groups are working together to migrate from old industries that cause pollution, and that are wedded to a labour-cost arbitrage business model, to new collections of knowledge-centred clusters that can support many different types of outsourcing customer, including both domestic as well as international users of IT services.

Mr Zhu Ming, Director of the Department of Foreign Trade of the Jiangsu Provincial Government, explained the different character of the region’s cities, with Nanjing being seen as particularly strong in software development, as the city seeks, in his words, “to become China’s Bangalore”.  Elsewhere, areas such as Wuxi and Nantong focus on general services outsourcing, which, whilst including some software development, also encompasses telephony, helpdesk and business services.  Suzhou, already a high tech manufacturing centre of some repute, is leading a drive into financial and accounting outsourcing services.”

The clear message is that clients should thoroughly evaluate their vendors’ strategies for leveraging the talent available in the “secondary” cities.  The best vendors have already established significant delivery centers outside the “Golden Triangle.”

Technorati Tags:  China, China Outsourcing

I reported last year on Insigma Technology Company’s increasing involvement in Wicresoft.  I couldn’t find this latest bit documented on any public sites, so we’ll have to just treat it as “likely to be reliable” rumor, at least for now.

According to the aforementioned sources, Insigma is adding US$14.81M to its stake in Wicresoft.  I can’t help but wonder whether they’ll use some of the new funds on their long delayed U.S. marketing push — Call me guys!

I’ll try to keep looking for official confirmation.  I’ll update this post if I see something.

Technorati Tags:  China, China Outsourcing

We’ve often speculated about when some of the Chinese software / IT outsourcing companies would break out of the pack to assume true leadership positions in the industry.  VanceInfo (VIT) has long been one of my favorite candidates to make a run at it (I’m not just saying this because I have good friends really hammering away at making the company successful).  This week their management made it clear that they’re willing to be even more aggressive in their quest for growth.

[The acquisition will allow VanceInfo to] expand its onshore delivery capabilities and enhance its business development forefront. It will also bolster VanceInfo’s position in outsourcing services for the fast growing mobile sector.

I’m not familiar with the target, Wireless Info Tech, Ltd.  However, this seems like a really smart move for Mr. Chen and his organization.  Testing and development for mobile platforms is sure to be one of the fastest growth areas in technology for the foreseeable future.

Congratulations to the smart folks at VanceInfo!

Technorati Tags:  China, China Outsourcing

The Zero2IPO Group published an extremely informative report on the success that players in China’s software, IT and business process outsourcing industries have had in establishing credibility and attracting investments (Note:  direct quotes are highlighted in italics.  I chose not to make any edits for grammar / wording and I also decided not to spread [sic] throughout the quoted text).

“Serveice outsourcing industry in China only started some ten years ago, but thanks to its high added-value, high labor force absorption capacity, high growth and high development rate, the industry has been receiving strong support from all levels of governments and gathering much attention from many VC investors since its birth. Data from Zero2IPO Research Center shows that, from 2005 to June 2008, there were 78 VC investment cases happening in the service outsourcing industry, with the total amount of investment up to US$784 million . Moreover, as the social division of labor deepens and the enterprise cost increases, the scope of service outsourcing will be further expanded, bringing more investment opportunities.”

The report covers a lot of ground including some background and a current state of the industry report.  Perhaps the most useful information in the whole paper is included in “Table 2  The general financing conditions of service outsourcing industry from 2005 to June 2008.”  It’s worth browsing over to the article just to get a look at what appears to be a fairly comprehensive survey of the recent investments into the industry.  I really encourage everyone who’s interested enough in the subject to read my humble rantings to take a look at the report from Zero2IPO.

Technorati Tags:  China, China Outsourcing