China Outsourcing Summit - Days Three and Four

Days Three and Four

The final blog entry from my trip to the Gartner China Outsourcing Summit has hit a number of sequential delays.  First, I was struck with the news of the terrorist attacks in Mumbai.  Then, I was in a deep stupor having partaken of the traditional Thanksgiving feast last week.  Most recently, I've been frantically preparing, and last night delivering a one hour talk on outsourcing in China, entitled "China's Century, Hype or Hope?"  (more on that later...)

That out of the way, I thought I'd go through my notes and summarize days three and four of the summit.  These were spent in session with Gartner analysts, and in boardroom sessions with vendors.  I generally don't mind these 30 minute sessions, because they really are more "executive briefing" than sales pitch, and I learn a lot about the companies in question, as much based on their professionalism and presentation materials as based on their slide ware content.

The odd twist in this summit was that the presenters were a mix of companies and provincial government officials. I already explained the CCIIP - China Inc's PR and VC arm.  These presentations were by regional affiliates from the target cities supported by the 1000-100-10 Project, in Chengdu to tell people like me about the relative merits of Xian as compared to Shenzhen.

My quick summary of both the vendors and the officials is that there is very little to differentiate one company from another (they are all roughly the same age, roughly the same size, and they say roughly the same stuff about themselves), or one city from another (they are all large and new and populous and beautiful and harmonious and filled with the ephemeral goodness of harmonious socialist state).  That said, there are a few companies to watch, and there is a significant cost differential in China as you move away from the coastal cities.

Gartner highlighted the following companies as "top 10" by size.  I'm not going to list the sizes here, or for that matter the URLs to the companies, since you can find this info easily if you're interested, and the Gartner stats on headcount were already significantly out of date.  Here are the ten "largest" Chinese IT Outsourcing companies today:
  1. Neusoft
  2. DHC
  3. SinoCom
  4. Hisoft Technology
  5. Chinasoft
  6. Vance InfoTech
  7. Achievo
  8. Insigma
  9. iSoftstone
  10. Beyondsoft

My short list of "companies to watch" is:

  • DHC - These guys impressed me by talking about what they could do, instead of flashing up a bunch of Visio diagrams of network architecture and OSI stacks.  They understand how to talk to buyers, which means (I think) that they understand something about business.  I think they'll be successful, if they can continue to manage their service delivery.  They have also secured significant venture investment from their customers, which I take as a good sign.

  • Beyondsoft - These guys are big (tenth largest) and have staffed US-based service delivery with US-resident Chinese staff who understand how to do business with Americans, and just as importantly, how to get business done in China.  

  • Freeborders (11th in size, they are the first I've seen to develop significant American-Culture sales and marketing in the US.  They followed up with me within two business days from the end of the summit, and have already gotten me scheduled for a lunch meeting to continue relationship building.  These guys "get it" in a way that will win them new business in the months and years to come.

Now... about the cities...

As I said, they have all invested in IT Outsourcing infrastructure and capacity.  The big difference I see is that the inland cities, such as Chengdu, enjoy a 30% cost-of-living reduction over Beijing and Shanghai. If you're going to China to be cheaper, you may want to head inland past the big port cities, and find a partner in Chengdu, Xian, etc.

A bit about the economics...

China is cheap.   Not as cheap as Vietnam, but much more massive, and probably in possession of a more educated workforce.  It's really tough to get a straight answer about this from anyone, but as near as I can tell, an entry level developer will pull in an equivalent of $US 12,000 a year. That's compared to about $US 20,000 for the same talent in India, and about $65,000 in the good old US of A.  As you get into the senior talent pool for development, the percentage of US scale is even more favorable.  But (there's always a but) there is a significant differential in cost of leadership experience (as in India), and good verbal English language skills.  As already mentioned, the coastal cities are more expensive than the inland cities.  Adding to this advantage are the tax incentives that the 11th 5-year plan has put in place to encourage growth in the IT Outsourcing Industry.

All in, China can certainly deliver Cheaper, if you can manage your vendors or your captive to ensure either parity or improvement in quality and productivity.

I got out into Chengdu both evenings after the conference let out.  I found the city beautiful and safe by night, bustling but not in a New York kind of way... I didn't really have much sense of being in China though.  It was modern and cosmopolitan. The people were stylish, and "western" in dress.  The cars were European brands.  I felt, to be honest, more like I was in Vancouver on a Saturday evening.

I did get to eat some genuine (I was told) Sichuan food.  It was spicy, in a way I've never experienced in the USA.  The "Ma", or numbness from the Sichuan peppercorns, was just amazing.  And apparently growing up in the south is good global training for spicy food.  I was eating with Chinese and Taiwanese Americans, who were breaking out in sweat over the spice in the food.  I was just enjoying it.  So either I'm the Rambo of the Mala Chicken scene, or they were giving "the white guy" different food...  Either way, my local Chinese takeout joint will  never be the same.

Sichuan Tofu Pot - Very spicy...

The trip home was a slow-motion rerun of the trip there.  Lots of airplane terminals, departure lounges, a fog of Yan Jing beer, and, 31 hours later, a car ride home from Logan airport.  
3 days of travel for 4 days of being there.  I'm not sure I'd do it again, but it was a great trip.  I learned a ton, and made some business connections I suspect I'll nurture and grow in the coming years.  Thanks Gartner, and thanks CCIIP for putting this on!

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