This is China! blog

During the summer of 2007 I visited a couple of IT Outsourcing companies to get a feel for how and where in China the industry is developing and how China as a launch-pad is serving their purposes. Satyam, one of the Big 4 Indian Outsourcers, is based just outside Shanghai city, in Zhangjiang Hi-tech Park. The other company, Shanghai SAFE, is based in downtown Shanghai. The executives of both companies were cordial hosts, and took several hours in each company explaining to me the make-up of the operations, their plans for development of the outsourcing market in Asia, and showed me around their departments, introducing me to various managers and programmers.

Several impressions in particular struck me strongly about the two companies – one a globe-straddling Indian foreign investor in China, and the other a home-grown, very Chinese operation: 1) I am allergic to cubicles; 2) the Indian operation was surprisingly global and international; 3) the Chinese operation was surprisingly Chinese – ie, NOT international; and 4) the IT Outsourcing industry is definitely NOT manufacturing. IT Operations in China seem averse to buying or serving their guests lunch.

The IT industry is genuinely the new sweatshop for white collar workers. (I’ve also heard tell the moniker “silver collar”, indicating some sense of greater value professionals in IT- and Business Process Outsourcing (BPO) – impart shareholders). That is, it’s cubicle city. Lots and lots of cubicles with Bright Young Things heads-down at the computer. If you come to these sorts of places at or near lunchtime in China, you will also see heads-down ON the computer, taking a nap. Which is fine, since this is China and I try to sneak in a nap myself when the opportunity presents itself. It is difficult, though, to escape the sense in ITO shops of the component-ization of work taking a logical step forward in the way the shops are organized by Team, each Team working on one project for one customer. In both instances, one has to pass through doors that are locked with key cards to gain access to the Team.

Upon entering these secure domiciles however, one gets a distinctly different feel for the cultures enfolding the organizations. The Satyam environment has an IBM-feel to it, quite corporatized. There’s even guys wearing ties there! They’re the financial people, who have to show they’re serious. The SAFE house, on the other hand, felt more like a college study hall, with long rows of tables at which young Chinese guys and some women played at their computers. Now, it was lunch time at SAFE, and so the atmosphere of course would be a little relaxed; but it was also near lunchtime at Satyam, as well. Satyam staff pretty much seemed glued to their desks, some snoozing, some dreamily typing away at some odd program.

Satyam impressed me deeply as a truly international company. I did not get the feeling during the half-day orientation of it being a specifically Indian company; that is, the women were not dressed in saris, the men were not lounging about in baggy pants and shirts, and there were no cows in the corridors. Instead, the Business Development manager Michael Su, a Singaporean, organized a highly professional introduction for me. His boss, Sushil Asar – practice head for the Business Intelligence & Data Warehousing division for Greater China – personally delivered the presentations about the global practice and the China-based development plans. Satyam followed up the talks with a presentation by a Mainland Chinese engineering manager on projects in their Offshore Development Centers (ODC).

Something I appreciated about Satyam’s approach to meeting customer requirements is that the country draws relevant experience from its Asian operations. Mr Asar gave me the example of an automotive customer in Japan: Satyam used industry specialists from India and Japan to develop the business requirements and Japanese-proficient project managers and programmers in Dalian to implement the project. Most professional staff around the world has opportunities to work from offices and on projects in other countries, extending the breadth and reach of the company itself as well as the individuals.

Satyam is well aware of the labor costs and high turnover rates of staff in the Shanghai area, so has invested hugely in a campus in the Nanjing High and New Technology Development Area. The campus is 70,000square meters large and will ultimately support a labor force of 2500 professionals. It will be the largest campus of its size Satyam has outside India.

Shanghai SAFE is clearly a successful company with some 1200 staff, all in China. However, stepping into their conference rooms and offices gave me the same feeling I always have when I visit the offices of Chinese local government agencies: the labyrinthic corridors, the dingy walls, the same clunky dark wood conference tables with the big whole in the middle to justify the purchase of microphones so your counterpart can hear you. Ms Liu Jia Liang delivered the hour-long presentation about the company. Over 90% of their customers are Japanese. Their major shareholder is NEC, the Japanese corporation. I think having a major investor like that is a blessing and a curse: it’s great from a cash flow point of view in the regional markets; it’s a drag on developing a truly global presence, especially in the West. They want to break into the American market, but are unsure of just how to go about it, strategically and tactically. Though they have programming staff in Shanghai, they know to “outsource” many projects to less expensive and more stable locations (in terms of staff turnover) in Chengdu and Dalian.

Despite being a “foreign” investor, Satyam has the clear advantage of the two in exploiting the Chinese market for its labor market, its geographical position, and for the potential size for ITO for companies operating in China. Though SAFE is a Chinese company, it could be argued that it, too, is foreign-invested, by a Japanese mega-corporation. The intent of Satyam’s investor and SAFE’s investor, though, determines the true trajectory of the companies: Satyam comes to China with operations already established throughout Southeast Asia and the West in order to use China as a platform to further address the international market.

NEC invested in SAFE as a job shop to specifically to serve the pedantic Japanese market. The NEC investment will make it difficult for SAFE to break out of the North-Asia orbit and establish beachheads in North America and Europe. The Japanese are high-maintenance, as it were, both technologically and culturally, and so will require resources and obligations that a budding company with a different kind of investor would be able to use in developing markets outside its immediate neighborhood. That’s not to say SAFE will not be able to develop business in other countries; it will just be a lot more difficult than if they did not have the Japanese legacy-projects and -investment.

I believe SAFE is representative of many domestically grown ITO shops that did not start as global players – as Satyam has. The North Asian markets are so close geographically, culturally and historically, it is easier for Chinese start-ups to get up and running with regional business than it is trying to obtain customers from the States, for example. The proximity of North Asian markets will stunt business development efforts in the West and reinforce the perception that Chinese companies will not be global, but instead, regional players, unless they outright acquire Western assets. However, acquirers will still have a difficult time convincing Westerners of their credibility in managing the assets to international standards.

Within the domestic Chinese market, as well, companies like Satyam will have more credibility working with the thousands of Western companies that have set up shop in China than will home-grown Chinese companies. A Satyam will likely already be hosting services for a Western company through its India centers. And if not, a Satyam is more disposed than a SAFE to be able to speak the Western company’s language (business-process and corporate-cultural). Companies like Satyam – and the other big Indian players – will eat home-grown players’ lunch in China.

Which brings me to my last observation: I left both operations hungry. Not hungry for more information, but hungry for lunch. At least Satyam put a plate of cookies in front of me at the start of the 10am meeting. I was able to make the butter cookies last until 2pm, by which time I was taking tiny nibbles from the remaining morsels. Never have butter cookies tasted so good. Didn’t even get that at SAFE, which was truly unusual for a Chinese company.

I am so used to being wined and dined by Chinese manufacturers and government officials I have become spoiled. I admit it. I don’t expect lunch at an American operation, and am pleasantly surprised when offered even a box lunch or a trip to the cafeteria by my fellow countrymen. But in China it is the rule for the hosts to invite guests to their company to lunch.

But not in the dog-eat-dog world of IT Outsourcing, I suppose, where productivity trumps civility.