Catchig Up The Outsourcing China
outsourcing business because of increased competition in their original industries and new opportunities in the services market.
The result, noted a report by International Finance Corporation (IFC), is that “in many cases, the largest, most well known software groups in China will conduct several (or perhaps all) of the above IT business lines along with software outsourcing, displaying little focus compared to IT companies in more mature markets.” Using Digital China as an example, the IFC report critiqued the “giant with revenues of RMB 15 billion (USD .8 billion)” to “lack a clear business focus.”
The IFC report also questioned the ability of companies primarily skilled in product-oriented software development processes to transition smoothly to service-oriented software outsourcing.
Then, there is always a danger of conflict of interest when a company is not a pure-play outsourcing vendor. There is more risk of intellectual property infringement if a vendor is also in the business of building and selling software.
Still, it is not mission impossible to find a good medium sized service provider. Affiliated Computer Service, Inc. (ACS) outsources application development to I.T. UNITED, which currently has 125 employees. ACS, which is itself a large business process and information technology outsourcing player, says it is happy with the work I.T. UNITED has done.
In fact, with more media attention and effort on the part of the Chinese government to promote the industry, it has become easier to identify some of the better and larger players.
For example, Managing Offshore newsletter and NeoIT, an offshoring advisory firm, identified a “Top 10 to Watch in China” in its first Offshore 100 study. It also included six China-based service providers on its “Meet the Offshore 100″ list.
However, not every company on the list is actually ready for English-speaking foreign business. For example, Sichuan Yinhai Software Limited Liability Company, number seven on the list, was unable to answer inquiries from this writer because there was — we were informed — no one ready to communicate in English. (The company Web site, Yinhai.com, is entirely in Chinese).
Zhonghua Qu and Michael Brocklehurst, coauthoring a paper published in the Journal of Information Technology, titled, “What will it take for China to become a competitive force in offshore outsourcing? An analysis of the role of transaction costs in supplier selection,” concluded that the search for the right service provider and subsequent due-diligence can be incredibly time consuming “It is also very difficult to find trustworthy information about Chinese suppliers, particularly in English through the Internet or other media,” the authors wrote. As compared to India’s NASSCOM, the government-managed China Software Industry Association provides little helpful information for offshore customers.
The good news: The seeming difficulty of finding a service provider can well help you separate the chaff from the wheat. RedPrairie Corp., a global supply chain software solutions company, sent five RFPs when it was looking for a company to help set up and manage a 100-person offshore development center. Only one replied. The CEO and founder of Bleum Inc., Eric Rongley, recounts the story with a chuckle of how his then-young company clinched the million contract: “Because only we were ready to do business.” The relationship is on-going.
A Questionable Talent Pool
Another risk factor is the talent pool available in China. Though the supply of workers is abundant, the quality of this supply is, in fact, still questionable and hence something to consider before outsourcing to China.
Bleum, one of the top IT outsourcing services firm in China, alludes to it on its Web site. “As an emerging market, it is hard to find employees with ten years experience, however, what a developer might lack in experience is made up for in intelligence and work ethic.”
Joseph Hsu, chief executive of Symbio Group in Rockville, Md., which has operations in Beijing and Wuhan, put the number of architecture-level IT engineers in China to just 1,000 and compared that to the 200,000 currently working in India. Far Eastern Economic Review reported “only about 10% of China’s IT workers have experience in complex programming tasks. Organizational ability is another stumbling block.”
It is an issue that is acknowledged as potentially deleterious to the development of China’s software outsourcing industry. For example, a 2004 article in the English language weekly Beijing Review reported: “The lack of capacity to explore the high-end market and the absence of senior software project managers could hamper rapid development of Chinese software exports, experts observed at the two-day Global Outsourcing 2003 held in Shanghai on Oct 14.”
But the lack of experienced project managers isn’t the only skills gap, if an experiment done by GCiS is any clue. The company tested over 400 programmers over four months in Unix operations, Unix programming, C programming, C++ programming, Java programming, Oracle operation, Oracle programming, component design, and documentation practices.
GCiS had three people — one American, one Swiss and one PRC national — averaging over 15 years of software development and management experience each design the tests. The programmers were tested with basic, intermediate and advanced questions in all of the subjects. The programmers were asked to take the test that corresponded with his or her resume.
Not a single programmer passed the intermediate or advanced Unix tests and — according to Mr. Brizendine — “only a very (very) few have passed the advanced C, C++, Java and Oracle tests.” Forebodingly, Brizendine also noted that “component design mystifies the vast majority and documentation practices are horrible.”
GCiS doesn’t claim the experiment is scientific, but it was conducted in Beijing, where the better engineers presumably reside. The company concluded that Chinese programmers are short on technical skills.
It’s also extremely difficult to find individuals with experience working on specific business applications such as PeopleSoft, SAP, or Siebel Systems, according to Marc Herbert, executive VP of Sierra Atlantic, a Fremont company specializing in offshore software development.
This is not to say that China is a complete wasteland where talent is concerned. Where’s the silver lining? Though Chinese programmers are short on technical skills, they’re long on intelligence. The trick, said Mr. Rongley, is to know how to “discern what is the cream,” and then to train them, which is what companies — the good ones — often do.
The cream, according to Mr. Rongley, is astoundingly good. “What amazed me when I first came to China and to Capital One was the pool of geniuses out here. They can catch up really quickly if you can get the top of the talent pool.”
However, this kind of a landscape means that “China is right now better at projects where experience does not matter a lot and where raw intelligence is everything.”
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