HONG KONG - China's software outsourcing industry is considerably smaller than
its much-heralded counterpart in India but it is growing fast, and unlike
Indian firms, many Chinese companies are working on cutting-edge product
development for the world's major technology firms, rather than information
technology (IT) projects for back offices.
"We are going to double our size by the end of this year," said Jacob Hsu,
chief executive officer of Symbio, a software outsourcing company based in
Beijing. Symbio has about 1,500 staff and Hsu expects that to grow to 3,000 as
more clients place bigger projects with the company. Symbio has development
centers in China, the United States, Finland, Sweden, Taiwan and Japan. Clients
include many major technology companies, such
as Nokia, Eriksson, IBM, Microsoft and PayPal.
China's software outsourcing revenue from the offshore market (ie work for
overseas clients) will climb to US$6.8 billion in 2013, or 16.2% of the
worldwide market, from $2.4 billion in 2008, according to market researcher
IDC. That is growth of 23% a year, compared with the forecast worldwide average
of 6.2% over the same period.
Symbio is not alone. Beijing-based Vanceinfo Technologies, founded in 1995, has
more then 9,000 staff and plans to more than double its workforce to 20,000
over the next two to three years. Vanceinfo, which is listed on the New York
stock exchange, made $21.5 million profit last year on total revenues of $148.1
million. Its clients include Microsoft, Tibco (a California-based software
company) and Expedia.
IDC ranked Vanceinfo as the largest Chinese offshore software development
vendor for the North American and European markets, with 6.4% market share in
2008. Symbio was ranked third, with 5.4% market share, just behind Hong
Kong-listed ChinaSoft International, which is given the same market share. IDC
estimated Vanceinfo's revenue from offshore outsourcing to be $80.6 million in
2008 and Symbio's to be $64 million.
Price is not the key factor for Western companies to outsource their software
development to China. "Compared with India, in fact, China's rate is not very
cheap," said Hsu.
JP Morgan analyst Dick Wei believes Vanceinfo's bill rates are generally
comparable with Indian firms on its US-based business, although its overall
bill rate is about two thirds that of Indian firms.
In Hsu's view, Western companies come to China to tap a different source of
talent. Most Indian firms work on IT projects for back offices, information
management systems for their various business processes, and the like, said
Hsu. These require people who understand the business practice of the
particular trades, or so-called "domain expertise" - for example, how Citibank
works internally.
India's outsourcing industry grew rapidly in the 1990s when the world's major
companies in . banking, insurance and airlines required software engineers to
deal inexpensively with the millennium bugs. Over the next 30 years, these
companies continue to outsource their IT development to India as a way to cut
costs. That allowed the India firms to learn Western business practices.
"Indian universities are very good at teaching their students about Western
business processes," said Hsu. "If you want to develop some banking systems,
there are many Indian software developers with the right domain expertise."
China's engagement with the world economy is more recent. "They have expertise
in Chinese business processes but not Western," said Hsu. The domain expertise
for developing back-end office systems, say for banks, is not there. Moreover,
the language barrier makes it even harder for Chinese developers to work on
projects involving Western business processing. "Overall, we expect Chinese
firms to face tough competition from Indian IT services firms in this segment,"
said Wei of JP Morgan.
On the other hand, "China is good at basic technology and engineering. There
are many universities training students to be great software engineers," said
Hsu, "Also, China is a big market for technology products, such as mobile
phones, Internet portals, social networks and so forth. There are huge search
engines, like Baidu. Developers here can develop cutting-edge technology
products."
Most of Symbio's projects are for product development, with embedded systems
for mobile phones and web applications a key focus.
"In the past, outsourcing was about low-cost labor, which everyone knows and
has become a commodity," said Hsu. "Now, it is about expertise - how to develop
products with better quality faster and with more innovations. That is why we
have development centers around the world - to tap different talents.
The 400 staff in Finland and Sweden, in particular, are for embedded mobile
software. The two Nordic countries are home to global mobile-phone makers Nokia
and Ericsson.
Vanceinfo is in a similar situation. Research and development (R&D) work
for embedded systems and for software systems implemented in computers
accounted for 63.6% of its 2010 first-quarter revenue. "Vanceinfo primarily
provides R&D services to its global clients that are different from the
service offerings of the Indian IT services firms," said Wei.
In the future, Hsu wants his firm to be a "foundry" for software development.
"Independent foundries, like TSMC [Taiwan Semiconductor Manufacturing Co, the
world's largest chip foundry] make possible a whole generation of fabless
chipmakers, such as Qualcomm," said Hsu, "We want to be the TSMC for software
development and allow technology companies to have no need to hire engineers."
As a foundry, TSMC makes chips for other chip suppliers such as US-based
Qualcomm, a leading wireless telecommunication chip designer and supplier.
Qualcomm does not have manufacturing facilities, or fabrication plants - it is
"fabless" - but outsources the actual chip-making processes to foundries like
TSMC. Qualcomm is the world's largest fabless chip-maker.
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