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Converting crisis into opportunity

By Diao Ying and Wang Xing (China Daily)
Updated: 2009-01-12 07:56

For these outsourcing companies, opportunities can also come from within the country. The business can come from the large-scale infrastructure construction initiated by the government and the upgrade of domestic industry.

According to Liu of Neusoft, domestic companies would need outsourcing companies to help them improve productivity as they strive to stay competitive amid or after the crisis. "Many Chinese enterprises will die, and those who survive would definitely buy medicines to strengthen themselves," said Liu. "They will have to improve their efficiency and this in turn would have a positive impact on IT industry development in China," he said.

Peng of iSoftStone, on the other hand, sees the potential of the domestic market from industry upgrade. For instance, the banking sector in China used to be centered on accounting from the very beginning, but tailoring to the needs of client is its core business now. "They need to upgrade their system to compete with foreign banks," said Peng, and the upgrade means hundreds of millions of investment for companies.

"We see more opportunities than challenges," said Chen Yuhong, of Chinasoft International. Chen sees vast opportunities in sectors like railway transportation, agriculture, social welfare causes, and food security.

The crisis is also an opportunity for many of the outsourcing companies to rework their long-term strategies.

Liu of Neusoft sees more chances of roping in senior talent from abroad to strengthen his team. Neusoft plans to make more use of the overseas talent to expand its international business. The company has four offices in its main market, Japan, with 100 employees and intends to double this by the year-end, said Liu.

Survival of the fittest

Experts also see this a time of consolidation for the industry. There were only 112 software outsourcing companies in China in 2001, and the number has since soared to over 2,400 by last year. But most of them are small. An outsourcing company with over 1,000 employees is considered big in China, compared with companies of tens of thousands of employees in India.

"Some will have to die, and the rest will survive, grow up, and grow strong," said Chen of Chinasoft. "For the past two years, the industry has seen a rapid increase, they need the time to settle down," he said.

Industry insiders feel that Chinese outsourcing companies are now in the same situation that India was in 2000. According to Fang of Neusoft, China still has some advantages compared with India, where outsourcing is one of the core industries. For instance, labor costs in China though increasing are still 25 to 30 percent lower than that of India.

The country also has a large talent pool to choose from for its outsourcing sector. Statistically, China churns out some 600,000 undergraduate engineers annually compared to the 70,000 in the US and 350,000 in India. Better infrastructure like highways and telecommunication equipment along with support from the government could further benefit the outsourcing industry in China.

In fact, some Chinese companies have already started getting clients from their Indian counterparts, or even much larger opponents.

VanceInfo in 2007 got an offshore project of TIBCO, a US-based banking middleware company, from a major Indian outsourcer. The Indian outsourcing company could not meet TIBCO's offshore project staffing needs in a timely manner, while the staff is more stable in China, said Ken Schulz, marketing director, VanceInfo. The TIBCO operations now employ over 200 in China.

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