A Tale of Four Chinese Service Providers

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    Yesterday’s gathering of Chinese service providers was especially revealing in one regard: The most telling information comes not from the formal presentations — which follow message almost as if they were written from the same template — but from the one-on-one conversations that take place when the camera is pointed a different direction.

    And why not? When your government is an all-seeing, all-knowing central committee that specializes in creating bureaucracy and setting regulations, you’re bound to model that kind of behavior in public forums.

    From the four presentations I sat through (not counting one specifically about a software publisher), I’d be hard-pressed to tell you how one company differed from another. (In fact, one presenter joked that she didn’t really have much to add; we could just take the facts from the previous presenter and apply it to her company.) It was only in meeting the individuals running these operations and having the chance to chat with them offline that their unique selling propositions began to emerge. Over the next several months, I’ll be interviewing the principals. But for now, I’ll give you the abbreviated version.

    The gathering was organized by zPark, whose motto is, “Your mission is Our Zeal.” This 343-acre area hosts about 130 high tech companies in a campus setting outside of Beijing. The roadshow’s purpose was to introduce five of zPark’s client companies to interested people in Silicon Valley.

    First on the agenda came Worksoft Creative Software Tech, Ltd. Executive VP Junbo Liu. With 1,200 people, Worksoft is one of the largest providers in China. Its first project was localization work for IBM about 10 years ago. (As you’ll see, almost everybody appears to be able to cite IBM as a client…)

    In 1997 it began working with Microsoft, and now Microsoft projects employ about 200 people. Other clients include PeopleSoft, HP and Citibank. A hundred people are dedicated to ERP consulting.

    Currently, quality assurance and testing make up 40% of its offerings (I assume, according to revenue); application development and maintenance is another 30%; globalization (read: translation services) is 25%; packaged application development is 4%; and business process outsourcing is another 1%. The key industries are software and other high tech companies, telecom and financial services. (This is another commonality among the companies. Most specialize in IT, financial services and telecom.)

    It has personnel in Beijing, Shanghai, Wuhan, Shenzhen, Dalian, Ireland, the US and Japan. Recently, it acquired Jadosoft, a Java solutions company, which points out another common theme: growth by acquisition.

    The company’s security framework is tight and IP protection taken seriously. Every presentation included at least one slide — sometimes more — on the security and data privacy measures followed by the firm. American companies put their offshore providers through more hoops than the typical American company goes through. Our fears as clients — while not necessarily misplaced — at least have blinders on.

    The growth areas it’s pursuing: application development and business process work.

    One statement that stood out: “Our rate is at the 2nd or 3rd tier in India.” In other words, hiring one of the biggest firms in China’s service space will currently cost you an hourly rate that’s probably 25% below the rate charged by India’s top tier firms.

    So, got those details? IBM (and/or Microsoft) as clients. IT, financial services and telecom as primary client sectors. M&A as a growth strategy.

    Now apply them to Beijing BeyondSoft Co. Ltd., iSoftStone Technologies Ltd., and objectiva software solutions. OK, maybe I’m exaggerating here…

    BeyondSoft was started in 1995 by four college classmates who were fond of a popular band called Beyond. A project for Microsoft 95 was its first paying work. Now it employs around 800 people in Beijing, Shanghai, Wuhan and Xi’an — though that’s expected to grow to about 1,000 by the end of this year. Clients include Autodesk, Computer Associates, HP, Kyocera, IBM and McAfee.

    This presentation, given by Lorinda Li, was interesting in that she talked about training. New employees receive four weeks of orientation and two weeks each year in ongoing training. Plus, the company makes online training and other formats available. Ms. Li said she took training on her weekends — specifically to learn “how to work with clients, how to manage the sales process, business English, how to address questions with clients and how to address things they need.”

    Next came objectiva, with 250 employees in offices in San Francisco, Toronto, Boston, Beijing, Frankfurt, Paris and Carlsbad (where its parent company, Document Sciences Corp., is located). The firm was started by two MIT students, one American and one Chinese.

    “It has always been a Western-facing company,” said VP of Global Business Development Jeanne Beyer. Unlike the other companies, which have gained their toehold by taking lower-level work, objectiva started with product development, catering to start-up companies with more ideas than time or staff. About half of its staff is non-Chinese.

    Current offerings include not just product development, but also technology refresh services, engineering and software maintenance and a bit of localization and QA. Clients include Teradyne, Qualcomm, Microsoft, Motorola, American Express and Kyocera. (Can it be?! This was the only company that didn’t reference IBM as a client!)

    The operation was acquired by Document Sciences, which saw the potential of having a China-based operation to serve the “burgeoning market” of insurance in China with its document management solutions.

    iSoftStone — so named because it’s “hard to find a name in China that’s not already being used," said Senior VP John Peng — was founded in 2001 by a graduate of MIT. Since its founding, it has grown year over year by 50% and expects to have a staff of 800 by the end of this year. Current offices are in Beijing, Shanghai, Wuhan, Seoul and Boston, though — surprise! — it is considering moving that Boston operation to Silicon Valley, since that’s where the action is among high tech clients.

    This firm was the only one that mentioned that it expects to work with small to medium clients — as well as independent software vendors (ISVs) and IT consulting companies. Its current high gross markets are China (domestic work, in other words), Korea and Japan. US and Europe lag. Clients include IBM, Siemens, HP, Motorola and Agilent.

    Mr. Peng, who is based in Boston right now, said that a challenge all China-based providers face is that they’re simply too small for US and European customers. As evidence, he cited these stats: China has 10,000 software companies and employs a total of 500,000 people. That’s an average of 50 employees per company. India has 600,000 people employed by its software firms, but there are only 3,000 of them. Their top five firms all have over 40,000 employees. The largest software company in China is only 2,000 or 3,000 people.

    As he explained, “Everybody wants to double in size. We want to become bigger, faster… If you don’t have the capability, they won’t come. They’ll say, ‘You’re not ready.’”

    So that points out one more theme I heard over and over: Everybody spouted a mission statement proclaiming that it would become the biggest and best service provider in China. We’re going to witness a lot of consolidation among the many players in this arena over the next five years.

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