Revisiting the China Alternative

Posted by: Steve Hamm on January 15

In recent years, corporations have adopted the mantra of geographic diversification of off-shore services. Still, about 90% of this work is done in India. China has been slower to develop than people thought. Ditto Eastern Europe. The Satyam scandal will likely force corporate leaders to think again about diversification, and some may do something about it. There’s growing evidence that the capabilities in China, in particular, are developing nicely. For instance, with Softek’s acquisition of I.T. United, the Chinese operations are taking on global disciplines. Another bright spot in China is Symbio, a Beijing-based product development outsourcing specialist that has been growing rapidly over the past four years. In fact, I think Symbio could be a model for how the nascent Chinese software industry could leapfrog India.

The company, which was launched in 1994, took on its current strategy in 2004 and has been refining it since then with good results. It raked in $65 million in revenues last year and, in spite of the economic malaise, December was its strongest month ever, says Jacob Hsu, the company's CEO. Hsu, a 10-year veteran of the company who took the CEO job in 2007, models Symbio on the Taiwanese ODMs (original design manufacturers) who design standard laptop PCs and other electronic devices--and then modify the designs for PC makers and other electronics outfits, speeding the products to market. Symbio is building up a library of reusable software assets that it can combine and modify depending on a customer's wishes. "We're moving beyond the classic labor arbitrage value proposition," Hsu says. "We're focusing on creating our own intellectual property, and on innovation and thought leadership."

The company had only 40 employees when Hsu joined after leaving a Wall Street job in 1999, but now it has 1,700--mostly in China. In addition to having offices in Beijing and Shanghai it has larger operations in the second-tier cities of Chengdu and Hangzhou, where the costs are lower. Customers include IBM, Microsoft, Cisco, and AOL.

When I talked to Hsu this morning, he told me that corporations have begun to look at alternatives to India in earnest. That was one of the reasons Cisco came to Symbio. Another example: Trapeze Networks, a startup that has since been bought by Belden, started with a trickle of work at Symbio two years ago and has since shut down offshoring relations in India and consolidated all of its work in China with Symbio. Concerning the Satyam scandal, he said: "If anything, it may be an accelerant on what's been happening in the past two years."

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