How to select Chinese software outsourcing companies

Advice for selecting a Chinese software outsourcing company

Many companies have internal experience and best practices for choosing outsourcing vendors, few have experience working with Chinese software outsourcing companies. Here are 5 key areas to consider when looking at China as a global services delivery location.

Choosing a Chinese software outsourcing company should not be a yearly task. However, many American companies are forced to go through the vendor selection process more than once which is time consuming for managers and defeats one of the main advantages of offshoring, to allow managers to focus on core business activities. Below is a list of five selection criteria that are often neglected or forgotten causing the need to switch to a new vendor.

What is the vendors financial stability?
Without naming names, there are more than a few Chinese software outsourcing companies going through tough times financially. Over the past three years most companies competed on price with India which resulted in margins that were raze thin. These companies have gone through tough times over the past year with the appreciation of the RMB causing cutbacks and even layoffs. Check the financials of your chosen partner to ensure they will be in business for the length of the contract. This is not easy as most local vendors are not public but if you build a good relationship with the vendor through the sales process they will normally share this information with you.

Is there a commitment to offshore outsourcing?
Related to financial stability is the commitment to offshore outsourcing. With financial presures come re-evaluation of strategies. I have talked with more than one Chinese software outsourcing company that are reevaluating their strategy to service the American market, and are looking to focus more on local work. Even more conserning is that some companies are considering moving from outsourcing to software product development.

What is the domain and technical expertise on the bench?
Due to the lack of middle and senior managers available in China, Chinese software outsourcing companies often have very junior bench teams. If the vendor needs to hire from the open market for your contract it will add extra time to the offshore team ramp up and the cost to retrain the team will often come out of the clients pocket.

How much offshore outsourcing experience?
It is good to take into consideration the ratio of onshore to offshore work. A company doing local outsourcing may not have the experience in global delivery because they mainly focus on local projects. A good practice is to only to consider offshore work and references when choosing a vendor.

Does the vendor have western China development centers?
China, being the worlds factory, is growing at an amazing rate. With growth and international trade gaps comes wage inflation. Major cities like Beijing and Shanghai are seeing fairly signifiacant wage inflation, especially for technical talent who can speak English. Multinationals like HP and IBM are investing heavily in building development centers further west in cities like Xi’an, Wuhan, Chongqing and Chengdu, make sure your propective partner is doing the same. It will take about 2 years for these centers to become fully productive and then you will have the ablitility to move your offshore development center west two years down the road to decrease your costs.

Obviously, there are a lot of other selection critera than those above, howeve these are the most commonly missed. Include these when analyzing your choices for a vendor to increase your odds of reaching your companies long term offshoreing goals in China.