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.