Chinese Outsourcing Worth A Try

On October 29, 2011, in Raw Materials, by Tan Yinglan

Outsourcing Service Locations

This is a guest post by Shiva Venkatraman. The author has over 20 years of software outsourcing experience across India, China, Singapore, S. Africa, Ireland, Australia, and Canada.  The author serves on the advisory boards of Siloon Software (http://www.siloon.com) and as a strategic consultant to Brainleague (http://www.brainleague.com) and lives in India.

How entrepreneurs can take advantage of software outsourcing from China

A major issue that software entrepreneurs from various western markets is how they can launch their product or service into global markets without taking a huge impact to their bottomline costs. Frequently, entrepreneurs create a small direct team, find customers that are local and try to find local businesses to outsource services that they need from their local businesses in their area. Most of them cite convenience, ease of finding businesses to outsource to and trust as a factor in doing so. No doubt, it is easier to work with local contacts than find someone reliable across global boundaries. This article describes some of the well known facts that entrepreneurs in the software development area face when building their businesses and outsourcing to India and China and highlights how entrepreneurs can take advantage of China as a geographic source of outsourcing services.

Entrepreneurs will be leaving a lot of money on the table if they don’t utilize major labor pools of talent in China to develop their software products/services.  Many entrepreneurs wonder whether they should even look outside of India at it is already an established brand when it comes to software outsourcing. The Forbes article Offshore outsourcing the 24 ways to compare India and China

Compares India and China on 24 different factors and concludes somewhat favourably towards India.

Yet, there are many advantages of China that entrepreneurs should keep in mind:

  1. Cost: China is still cheaper by at least 15-25% when it comes to developing software on similarity of skills and productivity. Also, the Chinese currency has been not allowed to float and will continue to be so for a while, creating an advantage for foreign customers.
  2. Service mentality: Chinese companies have a tendency to go the extra mile to please customers. Chinese developers want to be “wanted” and they love to try hard to please customers. While this is also present in India, your Chinese entity may go the extra mile “just to keep doing business with you”. Chinese companies are also hungrier compared to their Indian counterparts and this is a point that foreign customers should leverage to their advantage.
  3. Quality of talent: For the same skill base and cost, you are likely to find better quality of talent in China. The same quality standards that apply in manufacturing goes into recruiting talent in China and companies generally hire good quality talent at entry levels.
  4. Wage increases: Chinese companies are less likely to re-negotiate contracts citing wage increases compared to India as the wages in China for software developers are not as high as in India.
  5. Localization of software into Chinese (mandarin), Chinese (Cantonese), Japanese and Korean: Chinese companies offer language advantages for localization projects as they have a language advantage over their Indian counterparts for oriental and far eastern languages. It is a well known fact that many Japanese firms prefer to outsource software development to China versus India.
  6. English no longer a barrier: English is becoming more prevalent in China than it was thought to be. While Chinese developers still lag behind their Indian counterparts, they still manage to communicate in good English with their customers. Also nowadays, many Chinese companies have founders who are fluent in English as they have lived in a western environment and have leaders in the company who have western work experiences.
  7. IP protection: Intellectual property is not a major concern for companies if they structure the agreement in such a way that there is a foreign intermediary involved or they sign an agreement with a parent company where the IP laws are strong.
  8. Process Maturity: Chinese business owners are using English proficiency and team structure to overcome and mitigate perceived process maturity barriers as compared to their Indian counterparts.
  9. Infrastructure: China has very good infrastructure in terms of roads, airports and internet availability. The physical infrastructure in China is better than that of India.
  10. Improving Transparency: Since Chinese companies are hungry for IT outsourcing projects, they will be very flexible to adjust to customer needs so that they are perceived to be transparent and accountable to foreign customers.

The best way to engage with outsourcing companies in China is to find one through a trusted contact and execute a small pilot project using a fixed cost mechanism so that the risks are highly minimized.  The contract should also include tight IP protection and payments linked to milestones. The results of this might end up being pleasantly surprising.

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