×

Warning

JUser: :_load: Unable to load user with ID: 3667
Monday, 10 October 2011 18:02

Chinese offshoring gathers pace

By

Telstra and the Victorian Government have both signalled their willingness to take a punt on the emerging Chinese offshoring market. Last month VanceInfo Technologies which employs around 12,000 technology workers in China and 40 staff in Australia, announced it had been accepted onto Victoria's eServices panel. The company is already engaged on development projects for Telstra's cloud services.

For the last decade the international offshoring marketplace has been largely dominated by Indian giants such as Tata and Wipro, but according to IT analyst Gartner for the last five years the Chinese government has been pursuing a strategy to encourage the development of Chinese offshore service offerings. In a report authored by analyst Tina Tung and released in June, Gartner noted that there were now more than 12,000 China based service providers, with a total employee count of more than 2.3 million people - more than 70 per cent of whom had a bachelor's degree or higher.

VanceInfo Technologies, while listed on the New York Stock Exchange, and not State owned, clearly identifies as a Chinese organisation headquartered in Beijing and with 90 per cent of its 14,000 employees based in China. The company set up shop in Australia late last year and now employs 40 people locally with ambitions to grow that to 50 by the end of this year, and 150 next year.

According to Trey Zagante, the company's local sales and marketing director, the plan is to 'go up the value chain' in Australia hiring client facing consultants, business analysts and project managers who can act as the conduit between local clients and the 'engine room' of developers in China.

While he acknowledged lingering concerns among some companies about China's reputation with regard to security, privacy and intellectual property protection, Mr Zagante pointed to the company's track record with long term clients such as Microsoft and Citibank as evidence that these concerns could be overcome.

'With Microsoft we have been working with them for 14 years and they are obviously very prudent about IP rights and data security,' he said. VanceInfo meanwhile performs all the core testing of Citibank's core banking systems in China he said.

With regard to VanceInfo's Australian clients, of which only Telstra and the Victorian Government have so far been named, Mr Zagante said that 'we are not looking to take sensitive data offshore.'


The company - which is one of the first Chinese based outsourcers to set up shop in Australia (it has offices in Melbourne, Sydney and Brisbane thus far) - is however looking to take business off incumbent offshorers.

Mr Zagante said that although China currently ranked second behind India as the most popular offshoring venue, China was able to access a larger skills pool more inexpensively than Indian companies which were seeing their 'cost base increasing.' He claimed that companies such as TCS and Wipro were increasingly setting up offices in China to supplement their talent pool.

Whatever the ambitions of the Chinese offshorers, Gartner analyst  Rolf Jester believes they will face similar challenges to those the Indian companies faced a decade ago in terms of proving their bona fides and winning the confidence of clients. However he acknowledged that the challenges Chinese companies would face may not be as acute as Australian companies are at least now more comfortable with the concept of offshoring.

Even so; 'There is likely to be a certain amount of market resistance while people decide if it is safe to buy from the Chinese,' he said. Having Telstra and a State Government as foundation clients can't but help the Chinese case.

When announcing its success on the Victorian e-services panel last month Victor Li, the managing director of VanceInfo's Australian operations noted that; 'Inclusion on the Victorian Government eServices Panel marks the opening of a new chapter in VanceInfo's public-sector ICT service offerings, and opens the door for the Company to continue strategic expansion in the Australian ICT services market,' adding that; 'This recent certification by the Australian government demonstrates our commitment to earning the trust and business of local governments not only in Australia, but in each local market we serve.'

Mr Jester said that three or four years ago Chinese outsourcing companies were little more than 'wannabes' with 'great skills but no idea about marketing.' He said internationally they had pursued a strategy of working closely with ICT companies, effectively becoming the backroom software R&D arm of ICT companies, and also had been successful in Japan where a crippling skills shortage has forced companies to look offshore for technical talent, but that it was only lately that Chinese companies seemed to be marketing their services directly.


He warned though that Chinese companies should not aim to simply emulate Indian outsourcers but should seek to differentiate themselves, perhaps as providers of high tech R&D services. 'Being a me-too and saying 'yes I do it too and do it cheaper' is not always a good thing to do,' said Mr Jester.

It may also not prove a sustainable strategy.  Concerns have already been raised about the possibility of wages blowouts in China, as highly educated Chinese IT professionals seek wages at least approaching parity with their oversees peers.

Nevertheless internationalisation will be critical to Chinese IT services business according to Ms Tang's report which found that although China's IT services market was worth $US10.1 billion in 2010, third only to Australia and South Korea in the region, local (Chinese) demand for IT services was still limited, with many Chinese IT services companies forced to look overseas for growth opportunities.




CHIEF DATA & ANALYTICS OFFICER BRISBANE 2020

26-27 February 2020 | Hilton Brisbane

Connecting the region’s leading data analytics professionals to drive and inspire your future strategy

Leading the data analytics division has never been easy, but now the challenge is on to remain ahead of the competition and reap the massive rewards as a strategic executive.

Do you want to leverage data governance as an enabler?Are you working at driving AI/ML implementation?

Want to stay abreast of data privacy and AI ethics requirements? Are you working hard to push predictive analytics to the limits?

With so much to keep on top of in such a rapidly changing technology space, collaboration is key to success. You don't need to struggle alone, network and share your struggles as well as your tips for success at CDAO Brisbane.

Discover how your peers have tackled the very same issues you face daily. Network with over 140 of your peers and hear from the leading professionals in your industry. Leverage this community of data and analytics enthusiasts to advance your strategy to the next level.

Download the Agenda to find out more

DOWNLOAD NOW!

VENDOR NEWS & EVENTS

REVIEWS

Recent Comments