The Dao of Outsourcing

With the year ending, thoughts turn to next year and analysts weigh in with 2009 predictions.  I was recently searching my electronic library for historical statistics on software services revenues for India and China and discovered a Gartner Symposium ITXPO report from 2002 entitled, “Going offshore to globally source IT services”.  The report included predictions for China and India’s software services industry growth and expert analysis from six years ago.

It was interesting reading because predictions around India were accurate while predictions regarding China fell short substantially.  The discovery of this report changed the focus of this post from future predictions to a historical look at the offshore software services industry progress in the past decade.

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China daily recently reported Indian outsourcing giants are aggressively acquiring smaller Chinese outsourcing companies, including more than 40 local outsourcing companies in Shanghai.   Indian tier 1 outsourcing companies have been operating in China for years, but traditionally have built development centers rather than growing through acquisition.  There are several reasons for this significant shift in Indian outsourcing companies China market entry strategies.

Economic crisis – As sales slow or decrease in America and Europe, Indian companies need emerging markets to increase revenue.

Opportunistic acquisitions – A previous post on how the global economic downturn has affected Chinese outsourcing companies, mentioned that many smaller Chinese outsourcing companies are experiencing cash flow problems making them prime targets for acquisition.

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Last night I was introduced to a potential software developer in the Chinese software outsourcing industry.  His English name was Dragon (a very popular name among Chinese men, I have met several Dragon’s over the past couple of years), and he is a 30 year old medical doctor.  Dragon recently decided to change careers and has left the medical profession and returned to University to study IT.  My perception of Dragon was very positive and he came across as professional and well educated, as one would expect from a doctor.  It seemed he spoke decent English but it was still more convenient for us to communicate in Chinese.  In the west, a physician is considered a prestigious career, so I was interested in his reasons for making the switch.  Dragon had a very different perception of his chosen profession as he explained his frustrations with the bureaucracy and inefficiencies of the Chinese medical system and desire for a faster paced career with more opportunities for advancement.

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So, you go and talk to Gartner and they say that after India, China or Mexico are the next best options for software outsourcing. Great, now what? Well before you start contacting vendors, here are 5 things to think about before investing any more of your time, or money in considering China. If you decided to go with China as an offshore software development destination you will come to terms with these 5 eventually, so why not start now.

1. This is China - China is not India, Mexico, Ukraine ….
This statement may seem so obvious that you can’t believe you wasted your time in reading it. However, the number of people who have said, “but it worked when we did it this way in <insert second world country name here>, why didn’t it work in China” would amaze you. Plan time to adjust approaches and strategies (often substantially) for China.

2. Communication will be a problem
No matter what the vendor tells you, how many English teachers are on staff, or if you have native Chinese speakers you have at your company, communication will be a challenge.  Plan for increased ramp up time of the offshore team.  If a key success factor is speed to setup the offshore engagement then China may not be your best option.

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