Chasing the China outsourcing market

Posted by: Bruce Einhorn on June 30, 2006

Is China ever going to be a threat in software? Building a software industry that can rival India’s has been a goal of Chinese leaders for a long time. So far, of course, the Indians don’t have much reason to worry. There’s no Chinese company that can even approach what Indian outsourcing powerhouses Infosys, Satyam, TCS, and Wipro have accomplished. One company that believes China has what it takes to be a force in software outsourcing is Freeborders, a San Francisco-based company that has a development center in Shenzhen. The city across the border from Hong Kong is best known in IT circles as the home of telecom equipment makers Huawei and ZTE, but Freeborders has been trying to make it a Chinese answer to Bangalore. Yesterday, Freeborders announced that it is expanding its headcount in Shenzhen, from 700 now to 2,000 by the end of next year.

That’s still puny compared to the tens of thousands of engineers the Indian biggies employ, though. China-focused companies like Freeborders are probably betting that China’s big home market provides them with an edge. Freeborders cites research by Analysys International, a Beijing research house, saying China’s software outsourcing services market reached $323 million in Q1 2006, 44% higher than Q1 2005, and a prediction by International Data Corp. that China will account for 24% of IT spending in Asia-Pacific by 2010, “making it the largest IT services market in the region.” And the other day Brian blogged here about how IBM, EDS and the Indians are looking to places like China for business. that’s not a secret to the Indians. That’s why the big Indian companies are aggressively pushing into China. (For instance, see this story in BusinessWeek about Satyam, TCS and Infosys from a few months ago.)

The Chinese pattern in other industries has been to invite in foreigners, learn from them and then build up local companies to compete with them. Chances are, that’s the game plan for software services too. I’m not sure where that leaves a company like Freeborders, though. For all of its focus on China, it’s still an American company. There are others in outsourcing that have more Chinese roots that probably have the edge.

Reader Comments

Mitchell

July 3, 2006 1:21 PM

At this point, I do not think china would care if you are a chinese company or US company. What they really want is to have the base that can attract outsourcing jobs over there. China has a huge of pool of talents waiting for being utilized. Unfortunately, China is still in the baby step to learn how to pack itself and present in a elegant way for outsouring business. Many Engineers are not proficient in communicating in English though they can produce high quality of software. So far, no company has made visible success. China is scrumbling to find way to crack the nuts: What are the right steps to take to win business? China Software,in particular in the outsourcing industry remains fragemented, and there is no leadership that set up a succesful model others can follow. Second, China has a huge market,many companies do not feel the urgency to go out. The Chinese software associaiton made a number of attempts without much fruit. There is no clear leadership or strategy.


It is too late to compete with likes of Wipro, InfoSys, the tier-1 market has been devided among IBM, EDs and India conglomorates. China needs to take a different approach by providing niche service to small-medimum company. Building small success and move up the value chain gradually.

Unlike manufactoring where specicifcation of product can be spleed out in great detail and the quality can be assured as the process is followed. The software application demands more communicattion, more effort to unconver some unwritted requirement. Sometimes, client have a a vague idea where they want to go, it is a software comapny's responsibitlity to work with client to clarify and define the requirements and feature sets. Such process can be a duating taks for average chinese Engineer.

Hopefully Freeborder can play a positive role that breaks the cycle.

China Law Blog

July 4, 2006 1:18 PM

I always have a tough time comparing China with India because I do not have a very good grasp on India. However, I concur with Mitchell that one of the reasons China is behind in software outsourcing is simply because Chinese industry is so hierarchal. For example, the typical Chinese manufacturing facility is quite good at meeting clear and explicit specifications, but simply terrible at coming up with suggested improvements. Seems this will need to change if China is going to become a power in software outsourcing.

Glenn

August 9, 2006 12:45 PM

China also needs to totally end the production of pirated goods ranging from software to golf clubs. Wondering what would be %% of pirated goods compared that with India. What if India decides to produce as much pirated goods as China. Any debate??

asiawebmedia

July 19, 2007 3:11 AM

That's true In india are best place for outsourcing Offers ASP/PHP Programmers hiring,SQL/MySQL development,software outsourcing, Offshore software development,PAYPAL Integration, Joomla

softare_outsource

October 19, 2007 3:27 AM

I can't agree with you. Best ratio cost/quality we can find on Russian market.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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