Global Economics

China: The Next Software Center?


Leonard Liu has spent most of his career working for some of the premier tech companies in the U.S. and Taiwan. He's been a top executive at IBM (IBM) and Acer and has also been in charge of Advanced Semiconductor Engineering, the world's leading semiconductor packaging company. After accumulating so much experience in the hardware business, now Liu has his sights on the software industry.

And he's focusing on building a business in an unlikely place: China. Liu is the CEO of Augmentum, a three-year-old Silicon Valley company with 1,000 employees—almost all of them based in Shanghai and Beijing—working on outsourcing projects for U.S. multinationals.

China may be world's manufacturing power, but it's hardly renowned as a software center—which Liu is determined to change. "The world is going to need [software center] alternatives to India" he says. For one thing, wages are rising in India. And it just isn't smart for companies to rely too heavily on one country. "Only China has enough human resources, enough human capital, to be able to make a difference," Liu argues. "China is the only place."

BLUE BACKGROUND. Like many IT execs from Taiwan, Liu has roots in the U.S. and China. He was born in 1941 in the southern province of Hunan and spent his early childhood in Changsha, the provincial capital where Mao Zedong got his start before leading the Communist army. In 1949 Liu and his family fled to Taiwan with the Nationalist government of Chiang Kai-shek.

After graduating from National Taiwan University in Taipei, Liu got his doctorate in electrical engineering and computer science from Princeton and joined IBM ((IBM)) in 1969. He worked for Big Blue for 20 years before returning to Taiwan in 1989 to become president of Acer, the island's leading PC maker. Liu also was president of Advanced Semiconductor Engineering, the Taiwanese company that is the world's leading chip packager, for four years before launching Augmentum in 2003.

When he started the new company, Liu decided there was a software opportunity in China that had yet to be tapped. "India had proven it could do a very good job" in software, he says. Liu saw China as "the next region doing that." Today, Augmentum counts among its customers Motorola (MOT), Microsoft (MSFT), and Intel (INTC). Liu's Chinese engineers have worked on developing software for Intel chips, for instance, and have also done systems integration work for Microsoft's Hong Kong office.

KNOWLEDGE TAKES TIME. Although many boosters of China's software industry have been talking for years about the country as the next India, so far there's no Chinese company that can come close to rivaling Indian powerhouses such as Wipro (WIT), Infosys (INFY), and Tata Consultancy Services. Liu says that people who predicted a quick rise for China's software industry didn't understand the business.

While it's easy to build up a manufacturing base, creating a knowledge industry takes a lot more time, he says. "Software experience is nothing that you can get very quickly," Liu points out. "You can rebuild a TV factory that you had in Japan, because most of the work is automated, and workers can be trained very quickly. However, software is a knowledge effort and it takes time for team members to form."

How long will it take for China to get the experience necessary to be a player in the software industry? Liu doesn't think the Indians have reason to fret in the short term. "Within five years, it's unlikely," he says.

Liu predicts China will need between 10 and 20 years, although he thinks that his own company will be able to move faster than the rest of the industry. "As long as I can find young Chinese who are willing to work hard, we will be able to catch up and compress the time," he says. "In 10 years time, I will build a world-class team."


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