The competition between China and India in software outsourcing industry has just begun

fighting

The competition between China and India in software outsourcing industry has just begun [Copy link]

Whether China's software outsourcing industry can become a rival to India depends on how it recognizes and makes good use of its own advantages.

Will China's software outsourcing industry become a rival to India?

As the hottest sector for venture capital this summer, it may be too early to discuss this issue now - but people are increasingly seeing the potential. The amount of venture capital flowing into software outsourcing companies has approached $100 million so far this year.

On July 24, Dalian's HiSoft Software (International) Group announced the completion of its second round of financing, with seven venture capitalists led by Granite Global providing it with a total of $30 million in funds. At the same time, Beijing's VanceInfo Innovation Software Technology Co., Ltd. also completed its second round of financing, and they received $30 million from Lenovo Capital, JAFCO and Sequoia Capital. In addition, Xiamen's Southeast Finance received $20 million from the US Tiger Fund, and Inspur Investment received $5 million from Japanese financial institutions.

Sinosoft Software Group Co., Ltd. (Hong Kong Stock Exchange Code: 0299) was successfully listed in 2004, and Lenovo's investment of HK$24 million received a return of more than six times in just one year. This is the goal that this round of venture capital is trying to emulate. However, China's software outsourcing industry has undergone a dramatic change in the past two years: at that time, most companies were still in Dalian, and software outsourcing to Japan was the main business; what surprised the new round of venture capital was the "rise of Beijing", and the software outsourcing market for European and American companies - this is the most important market - is growing rapidly.

Why China?

Lin Xingjun is an important contact person for this round of financing for HiSoft. In May 2004, when this Malaysian who had worked at Boston Consulting Group decided to join HiSoft as vice president, HiSoft was just a Dalian company with more than 500 employees.

HiSoft started out as software outsourcing to Japan, and to this day, Japan's business is still the majority. The rapid development of software outsourcing in Dalian is related to Dalian's geographical and cultural proximity to Japan. When Japan needed to outsource software due to high wages, Dalian naturally became a choice.

Japan ignited the first fire in China's software outsourcing market. Li Jiaqing, executive director of Lenovo Investment, said that the outsourcing market to Japan is very special, with a considerable market space, and does not constitute competition with India. But until now, outsourcing to Japan is still in the early stages of development. Although China is the leader in the Japanese market, it only accounts for 1% to 2% of the market share, which adds up to only several billion yuan.

The seven venture capitalists introduced by HiSoft also show that HiSoft attaches great importance to the Japanese market. Among Granite, JAFCO, IFC, Intel, Mitsubishi, Sumitomo, and DFJ, JAFCO, Mitsubishi, and Sumitomo have Japanese backgrounds.

Although the software outsourcing market in Japan is huge, Japan is accustomed to subcontracting at various levels. Usually, when it reaches Chinese companies, it is already the third or fourth hand, and the technical content is relatively low. Zhou Zhengning, director of JAFCO, said, "Unlike European and American companies, Japan will not give everything to China. It would rather send a job to ten companies."

In addition to Dalian, another software outsourcing center that is rising is Beijing. The seventh street in Zhongguancun Software Park in the western suburbs of Beijing is known as the "Software Outsourcing Street". Software outsourcing companies such as VanceInfo, Beijing Boyan Technology Group, Inspur, and Softcom are located here. They are mainly engaged in software outsourcing business for the European and American markets.

VanceInfo's first project was to work for IBM in 1995. In the past 11 years, VanceInfo has become IBM's largest software supplier in China. In 1997 and 2001, Microsoft and PeopleSoft also became VanceInfo's clients, mainly doing software localization business.

After 2003, VanceInfo also established R&D centers in China for PeopleSoft, Citi and IBM. This also became an important reason for Lenovo Capital to choose to invest in VanceInfo. Li Jiaqing, executive director of Lenovo Capital, said, "China's software outsourcing business cannot simply copy the Indian model, because there are great differences in culture, language, human resources, the history of the formation of the outsourcing industry and the industrial environment. However, China has a good local market, and European and American companies need to establish offshore development centers (ODC) in China to serve the local Chinese market. The ODC outsourcing model may help VanceInfo scale up in the short term and develop into a core business."

Driven by large companies such as Microsoft and IBM, European and American software outsourcing began to turn to China, becoming a huge trend. In 2005, 49.8% of Beijing's software outsourcing industry was from Japan, 45.5% from Europe and the United States, and 4.7% from India and other countries.

Wang Bin, CEO of Boyan Technology, believes that Microsoft has taken the lead for other European and American companies. They manage outsourcing companies by certifying and issuing qualification certificates every two years. In the past, European and American companies had great concerns about the protection of China's intellectual property and trade secrets, but now they have learned the solution from Microsoft.

The important driving force for European and American companies to choose the Chinese market is strategic diversification. Wu Jian, executive vice president of VanceInfo, said, "Americans cannot put all their bets on India. The next target is obviously China." Zhang Tao, vice president of VanceInfo, believes that India's labor costs are rising rapidly, and the telecommunications infrastructure and power supply are not sound, which also affects the competitiveness of India's software outsourcing. As

European and American customers begin to turn to China, the rise of China's software outsourcing industry has become a reality. Chen Lifeng, chief operating officer of VanceInfo, said, "This year, many European and American customers have come to us to transfer their business to China." More and more European and American customers are visiting China, and their levels are getting higher and higher. Two years ago, a manager-level person was already an important figure, but now everyone who comes is at least a vice president.

He believes that by 2010, HiSoft's employees can grow to 10,000. Wang Bin, CEO of Boyan, is equally optimistic. He believes that Boyan's employees "have the opportunity to grow to 10,000 or 20,000" within three to five years. The number is now 1,800.

"Guerrillas" and Regular Army

However, in terms of sales, China is still at the level of India ten years ago.

India's software outsourcing exceeded $1 billion ten years ago, and in 2005 it was $13.3 billion, while China's was only $920 million; although China's software outsourcing industry grew by 45.3% in the past year, and there are forecasts that China may exceed $7 billion in 2010. Whether the above forecast can become a reality depends on whether Chinese companies can explode with stronger growth capabilities.

India has been in the European and American software outsourcing market for 20 years, and "software outsourcing" has almost become a synonym for India. Famous Indian software companies such as Infosys have a scale of 52,000 people.

Indian outsourcing companies are occupying an increasingly high-end position in the value chain. India also started from ITO (information technology outsourcing, i.e. partial technology outsourcing), and now has reached BPO (business process outsourcing, i.e. service outsourcing). ITO is to undertake part of the business of IT software development companies, while BPO has much higher requirements, and the service may be the whole set of processes of traditional companies from human resources to bill processing; so much so that there is a joke that if Indians do not go to work, Americans cannot pay their salaries. The high-end business of Indian companies such as Infosys has posed a threat to IBM.

Li Jiaqing, executive director of Lenovo Investment, told Caijing reporters that offshore BPO for overseas customers requires a good understanding of the customer's business process and a clear understanding of the customer's needs. In this regard, India has a clear advantage. Indian companies are more easily integrated into European and American companies from the language to the culture, and their understanding of their business processes is significantly better than that of Chinese.

Software outsourcing business is highly concentrated in India. The sales of large-scale enterprises engaged in ITO business can reach 2 billion to 3 billion US dollars, and the sales of large-scale enterprises engaged in BPO business can reach 700 million to 800 million US dollars. In contrast, there are more than 10,000 software companies in China, which are extremely scattered. Small companies may have only 20 to 30 people. The largest software company in China has only 2,000 people. "We are a scattered guerrilla force." Lin Xingjun said. Li

Jiaqing said, "Outsourcing is a gradual industry. It must have the accumulation of capabilities and scale. From the team, organizational structure, business process, cost control, customer relationship and other customer maturity, it takes a process; in addition, the maturity of the customer itself and the formation of outsourcing strategy also need a process. Managing a company with tens of thousands of people is absolutely different from managing a company with 2,000 people."

Lenovo Capital is still looking for new investment targets after investing in Zhongxun Software and VanceInfo. In the view of Executive Director Li Jiaqing, Chinese software enterprises have three advantages: China has three unique advantages: one is the outsourcing market in Japan; the second is the local business of European and American enterprises in China; the third is the outsourcing opportunities generated by China as the world's factory, such as logistics, embedded systems, etc.

"China has a huge and complete industrial system and local market, which is our advantage. Many industries, such as logistics, can generate abundant, huge, advanced and diverse outsourcing service business opportunities. In this regard, India should be a defective deformed child, because its own industry is not good. We should also learn from India's experience with an open mind, but there is no need to completely imitate India." Li Jiaqing said.

After the end of the transition period of China's financial industry opening to the outside world at the end of 2006, the momentum of foreign financial institutions entering the Chinese market will be more intense, which will also generate a lot of demand for service outsourcing. For Chinese enterprises, mastering the operation process of financial business is the premise of seizing these opportunities. They don't have much time, and these opportunities are not just for Chinese software enterprises. India's Tata company has already laid out in China, and Infosys has also announced that it will invest 65 million US dollars in the next few years to recruit 6,000 engineers in China to expand its outsourcing business in China. The battle has just begun.