[news] The "Bangalore of China" (from The New York Times AND the Associated Press)

Tuesday, June 29, 2004

Dateline: China

 

And which city are we talking about?  Dalian.  Let's face it, you can't buy this kind of publicity!!  This is a direct quote from a column which appeared last Thursday in The New York Times ( http://tinyurl.com/3ctnk ; this article was picked up by several newspapers in the States and by an Indian trade, http://tinyurl.com/2hkuz ).  A copycat, but more in-depth piece appeared on the AP Wire ( http://tinyurl.com/3caq4 ) too, as did a related piece in Asia Times (http://tinyurl.com/2wy8c ).  I will be quoting and referencing all three articles in this posting.

 

Let's start with The New York Times column.  "It is not just impressive for a Chinese city.  With its wide boulevards, beautiful green spaces and nexus of universities, technical colleges and a massive software park, Dalian would stand out in Silicon Valley."  True.  And their taxi drivers are polite and decent drivers, and their residents don't spit as much -- a lesson Qingdao -- and several other cities in China -- could learn from (although I'd give the natural beauty of QD a slight edge over DL).  In short, Dalian, with a population of 6 million (although I've learned that population stats in China are not calculated in the same way as they are in the States), is the most prosperous city in northeast China -- although Shenyang and Harbin are hardly serious competition.

 

GE (everybody's favorite company ), Microsoft, Dell, SAP, HP, Sony, Accenture and IBM have ops in Dalian (mostly for BPO), along with nearly 3,000 Japanese companies.  (And the Japanese restaurants in Dalian are superb!!  My comment, not in the column.)  DHC is also mentioned as one of the "biggest homegrown companies" which grew from 30 to 1,200 employees in six years.  Personal observation:  It's also one of the most professional looking companies I've seen in China, not quite as nice as Oracle's main campus, but on par with Microsoft's HQ campus in Redmond.

 

The Times column notes that "Japanese companies can hire three Chinese software engineers for the price of one in Japan, and still have change to buy a room full of call-center operators (starting salary: $90 a month)."  Dalian's mayor is extensively quoted in the Times column and AP feature.  He proclaims that Dalian has 22 universities and colleges with over 200,000 students and that more than half graduate with engineering or science degrees.  He also states, "In the past one or two years, the software companies of the U.S. are also making some attempts to move outsourcing of software from the U.S. to our city."  Hmmm ... he uses the word, "attempts."  Like a variation on the word, "try."  Frankly, the firms in Dalian haven't had much success in IT outsourcing to U.S. clients.

 

The Associated Press piece goes into much greater detail.  First, it mentions that the four-year-old Software Park is expanding by more than five times.  I've seen the plans and they're quite impressive.  My only concern is that the new location is kind of in the boondocks.  The AP feature notes that the city is offering five-year tax breaks and will pay bonuses to the most desirable workers, to the tune of $2.4 million.  Their mayor, Xia Deren, stated that the Chinese government has better management ability than the Bangalore government.  (Let's not get too carried away!!)  However, an official with the Dalian Information Industry Bureau was honest enough to state that the "(i)nsufficient supply of qualified talent is a bottleneck restricting the development of the whole chain of the software industry."  Still, Dalian's software industry has managed to grow 50% annually in the last five years in terms of export volume, reaching $605 million last year.  (Note:  This can't be an ITO figure; it must be mostly a BPO figure.  I know what the top dozen software companies in Dalian are doing, so the $605 million figure must be over 70% BPO -- and the ITO is almost exclusively for domestic or Japanese clients, even at Accenture.)

 

DHC got some more ink in the AP feature.  (Matter of fact, DHC was the only native company to get ink for anything related to ITO.  Neusoft was mentioned, but only for training -- and their HQ is in SY.)  I guess it's now public knowledge that Microsoft has outsourced some product testing to DHC.  (I knew this, but I thought it was a secret.  Stay tuned for more action!!  I know other secrets, too, but I won't tell.  )  And IBM has chosen Dalian to set up its second R&D center in China.  The center, with less than 400 employees now, may employ as many as 5,000 "after IBM shifts some operations from Bangalore."  I've seen the plans for the new IBM building and it's quite impressive.

 

The mayor does come clean on one issue.  He admits that Dalian lags behind Bangalore in one crucial aspect:  Education.  He also admits a lack of English-speaking workers has created a need to bring in as much as 70% of workers in the software industry from outside the city.  I think the AP feature is wrong.  I'm sure it is the lack of educated workers and not the lack of English-speaking workers that has led to the importing of workers.  But it's clear -- at least to me -- that a lack of English-speaking workers is hurting Dalian and gives an edge to south China (which I visited all last week), Shanghai and Beijing.

 

It is also noted that the city's low salaries may attract companies, but have the reverse impact on "much-needed software talent, who would prefer to go to Beijing or Shanghai and earn twice as much money."  Amen!!  Further, the features states that "Dalian's biggest competitor now is not India but other Chinese cities.  A college graduate can earn $1,000 a month at a software firm in Beijing or Shanghai, but might get only half that in Dalian" (and a third or fourth that in places like Qingdao, Tianjin, Shenyang, Jinan, Changsha, Hainan, Harbin or even Zuhai).  A CEO of a software firm in QD once said, "The best engineers in Qingdao go to Shanghai and the best engineers in Shanghai go to the United States."  Skipping the latter part of his statement, there is a definite quality issue in favor of south China (HK/GZ/SZ/ZH), the Shanghai area, and Beijing.  You get what you pay for.  Frankly, I'd rather make the argument from Shanghai that "we" (i.e., SH) have the best engineers rather than making the argument from a low-cost area stating that our engineers are a lot cheaper.  I don't care how many local universities you have, too.  The real issue is whether you can attract good talent.  Let's be honest:  Silicon Valley has only two good universities (and one of them really isn't in Silicon Valley).  But Silicon Valley attracts the best talent.  Ditto for south China and Shanghai.  (Beijing has the best universities, kind of like Boston.) 

 

BTW, my comments in the preceding paragraph are not really directed at Dalian.  I think Dalian provides a nice working and living environment, and Dalian could become the Austin or San Diego of China:  Perhaps not exactly a Silicon Valley (or Bangalore), but a good, respectable place for software firms.  Good talent paid relatively reasonable wages.  And there's nothing wrong with this strategy.  What they need is a non-stop flight from the States -- and that's in the making, too.  (Probably from L.A., although I've made my pitch that it should be from SFO.)

 

I'll close with yet another quote from Mayor Xia (and it's a doozie):  "In Shenzhen, there are so many opportunities that after one does software work for a time he'll think of running off to start his own company.  Northerners (as in northeast China) are better at sitting down and doing research."  Ooo ... ouch!!  I can't believe he really said this.  Of course, there's another way to look at this:  The tech folks in SZ are masters of innovation and eventually decide to stake out their own turf due to their highly creative, entrepreneurial spirit, whereas tech folks in other parts of China are nothing more than robot programmers.   Regardless, Mayor Xia -- and especially the staff of the Software Park -- has done a superb job in building Dalian ... and in creating China's Austin or San Diego.

 

Bottom line:  All three articles point to the fact that Dalian is the best place in China for ITO for Japanese clients.  The jury is still out regarding U.S. clients.  I have warned Chinese companies to avoid Europe like the plague:  Russia, the Czech Republic, Ireland and Israel will win Europe.  Wasting marketing RMB on Europe is just that:  A waste!!  OTOH, for Japanese clients, there is no better plan than ITO in Dalian.  For U.S. clients, Dalian should be considered, especially for software testing and embedded programming.  (There is a migration path for embedded to enterprise apps; fodder for a "Commentary" piece.)  BTW, the columnist and journalist show that they didn't get into very much detail with the local Dalian firms:  None of them mentioned my point about embedded programming.  With a firm spec, an embedded programming job might be well-suited to one of the top firms in Dalian.  Need to know who they are?  Drop me a line ...

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

 

In China, to automatically subscribe click on http://tinyurl.com/388yf .

 

[news] "The Pros and Cons of Software as a Service"

Thursday, June 17, 2004

Dateline: China

 

Not many "cons."  Read it for yourself at http://tinyurl.com/yrtu4 .

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

[news] How to Make an Annual Profit of Over RMB1,000,000 Per Employee!!

Thursday, June 17, 2004

Dateline: China

 

Catchy title, eh?    An article published in yesterday's edition of The New York Times ( http://tinyurl.com/2ec74 ) describes how Infosys and Satyam, two of the largest IT outsourcing firms in India, did just this.

 

Contrary to popular opinion, it is not just low(er)-level programming which is being outsourced.  In the cases noted above, it was "the work of software architects, senior software developers and software developers" that was being outsourced.  And the client?  Microsoft!!

 

Microsoft was billed at $90 per hour for software architects.  This is less than $150-200 per hour that the best independents may charge, and less than the fully-burdened labor rate for full-time employees, but it's still an annualized take of $180,000.  However, "(t)he top annual salaries paid by Indian outsourcing companies to Indian software experts working in the United States are $40,000 or so."  This is a profit north of RMB1,000,000.

 

Bottom line:  Don't expect to see this kind of profit on your average contract.  However, this example points to the fact that billables for work done in the States are astronomical compared to billables for work done for domestic firms in China, Korean firms or Japanese firms.  This begs a strategy of a SWAT team in the States combined with a bunch of code warriors back home in China.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

 

WARNING:  Articles published in The New York Times go to a paid access archive in relatively short order.  If you want to read the article, read it NOW.

 

P.S.--Off to south China for a week ... and meeting all the usual suspects (about 25 companies in GZ, SZ, ZH and HK).  Please note that there will not be any postings during the week of 21 June.

[news] SME Stats in the Enterprise Software Space

Tuesday, June 15, 2004

Dateline: China

 

A recent report analyzed U.S. SME (small and medium enterprise) spending on enterprise software.  (See http://tinyurl.com/2vxpy ; this link opens a MS Word file.)  Total U.S. spending on enterprise software reached $14.6 billion in 2003, with nearly $1 billion spent by SMEs; U.S. spending accounts for over a third of worldwide spending.  Spending by SMEs on enterprise software is growing at 14.3% compounded annually versus 4.9% for spending by large(r) enterprises.

 

10% of small enterprises and 25% of medium enterprises are using CRM or SFA solutions, with less than 5% of small enterprises and about 20% of medium enterprises using ERP or SCM solutions.  However, over 380,000 small enterprises and 27,000 medium enterprises view implementing enterprise software solutions as an important strategic focus over the next year, with CRM and SFA showing the highest growth rates over the next five years.  Hosted, utility computing solutions will gain steam in serving SMEs.

 

Bottom line: U.S. SMEs are both an opportunity and a challenge for China's SIs, as is utility computing.  (In a CSA "Commentary" or in a China Sourcing Monitor posting, I will take a look at utility computing and its relationship to IT outsourcing.)  Working with utility computing companies focused on serving U.S. SMEs and interested in the domestic market in China is certainly one approach worth investigating.  Also, focus on "sell-side" apps, e.g., CRM and SFA.  Although a few wins here and there in the "buy-side" space, e.g., SCM and PLM, are certainly possible, a "sell-side" approach for targeting U.S. SMEs is the better strategy.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

[guidelines] Blogs & Wikis: The Most Important Phenomena Since the Graphical Web Browser -- A How-to Quickstart Guide

Saturday, June 12, 2004

Dateline: China

 

In many ways for better, and is some ways for worse, the blogging phenomena is the hottest thing since the invention of the graphical Web browser.  I'll explain the "whys" and "how-tos" of blogging and Wikis in future messages.  In this message, I want to give a brief tutorial on how to take advantage of this phenomena.

 

Let's begin this process by signing up with a Web-based newsreader.  Trust me, once you start using a newsreader, you'll wonder how you lived without one.  So let's begin, shall we ...

 

1) Go to http://tinyurl.com/2r3pa .

2) Click on the "Files" folder.  (If you're not a member, you'll have to join or update your profile.)

3) Click on "David Scott Lewis' Bloglines Subscriptions -- 12 June 2004".

4) On your toolbar, click on "File", then "Save As" and save this file.

(At this point, it's okay to logout of Yahoo! Groups.)

 

5) Go to:  http://www.bloglines.com .

6) Click on "Register" and following the registration process.

7) In a new window or in Outlook/Eudora, validate your subscription by clicking on the link in the message from Bloglines.  (At this point, you may close your Web-based e-mail or Outlook/Eudora session.)

8) Go back to the window with your active Bloglines session.

9) When you see a link for "Manage Subscriptions", click on it.

10) Click on "Browse" and find the file you downloaded with my Bloglines subscriptions.  If you didn't change the file name, it's "David Scott Lewis' Bloglines Subscriptions -- 12 June 2004".

11) Click on "Import".  You're ready to rock & roll!!

 

12) Give your Bloglines subscriptions a spin:  Click on "China Sourcing Alert".  (Okay, I had to give myself a little plug.)

13) Next, click on "Mark All Read".  If you don't, you'll regret this!!

 

Congratulations!!  At this point, Bloglines will start aggregating news updates for you.  Simply visit your Bloglines account for updates.  BTW, you'll have to edit three folder titles, but that's not a big deal -- and you can tell what they are without editing them.

 

To repeat, once you start using a newsreader like Bloglines, you'll immediately start switching as many e-newsletter subscriptions as you can to Bloglines (or whichever reader you choose to use).  However, I still receive at least a few dozen e-newsletters.  Fortunately, more and more are offering a XML feed option on an almost daily basis.  You can even receive XML feeds of Google News searches!

 

This has been a quickstart guide.  I'll talk about other issues, including a review of over a dozen alternatives and supplements to Bloglines, the battle between RSS and Atom, and how to use syndicated news feeds as a marcom tool, in separate messages.  And, of course, a few words on Wikis.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

 

In China, to automatically subscribe click on http://tinyurl.com/388yf .

 

[news] Lessons from India (Part 1 of a gazillion ...)

Friday, June 11, 2004

Dateline: China

 

I read a lot of stories on my smartphone.  It's a good way for me to spend idle time; besides, I get tired of sitting in front of a computer.  Anyway, I came across an article and it set a new bookmarks record for me:  I have 25 bookmarks for this article!!  (I can set bookmarks for articles I read on my smartphone, just in case you were wondering what I'm talking about.)

 

The article is from the current issue of CFO.  Get it; read it.  It's a special issue on offshoring.  See http://shorl.com/fevytidisodri .)  The specific article, titled "The View from the East," can be found at http://shorl.com/gystabesamysi .  Let's rock & roll ...

 

In the order presented in the article:

 

1) India's systems integrators (SIs) are facing challenges similar to their U.S. counterparts, e.g., currency fluctuations (not an issue in China -- yet), wage inflation (not a serious issue in China), and "public grumbling over jobs moving offshore."

 

2) The biggest threat to India's SIs are the global (mostly U.S.) IT consultancies, such as IBM Global Services (IGS), Accenture and EDS.

 

3) Initial work for India's SIs was writing proprietary software, but they were able to move up the food chain as they honed their project management skills.  (A repeat performance is in store for China's SIs, either domestically brewed or American.)  Today, India's SIs take on everything from SAP projects to IT architecture design to "conducting research and development for new products."  And "(m)ost recently, the Indian companies have added business process outsourcing (BPO) services to their menu of capabilities ..."

 

4) India's SIs were able to grow in "a stealthy fashion" according to a partner in the Delhi office of McKinsey.  This won't happen in China; the U.S. firms are much wiser this time around.

 

5) India's SIs are claiming that their new generation of project management skills will be their competitive advantage.  They think CMM is their salvation.  What's scary is that they really seem to believe this!!  It makes me gag ...

 

6) The mostly U.S. firms are responding by setting up their own centers in India -- and hiring literally tens of thousands of Indian software engineers.  The stated objective is to improve win rates.  (Gee, and they pay better, too.  Hmmm ... who would I work for if I was a IIT grad?)  Trust me, they'll be coming to China, too.  Where?  I'm not going to say just yet!!  ;-)  BTW, If you're a Chinese software engineer, expect a five-fold increase in pay when the U.S. firms get to China.

 

7) Interesting quote from the CEO of Mphasis (an Indian): "The fact that the multinationals are coming to India certainly means that some, if not all, of our cost advantage will be whittled away." 

 

8) The rising rupee is hurting, as is wage inflation.  The average salary for an IT project manager rose 50% in 2003 from a year earlier.  Hey, go to China!  Tidbit:  The labor arbitrage between the U.S. and India has already fallen by 18% in the past two years.

 

9) And things get more interesting:  India's SIs are putting pricing pressure on one another, especially at the low end of the market.  "The traditional offering of Indian vendors -- application development and maintenance -- has become a commodity, and prices are falling."  Survival of the fittest!!

 

10) India's SIs lack domain expertise.  (Think verticals, as one example.)  This is especially critical as they move up the food chain.  "The progress on anticipated growth drivers -- that is, domain expertise, services breadth, and geographical diversification -- remains less than satisfactory for most."

 

11) A benchmark to note:  TCS tries to run their bench at a 78% utilization rate.  What's scary is that when I mention this to China's SIs, they have no clue what I'm talking about -- or why this is necessary.  After all, why not run your bench at 100%?  This kind of thinking is scary, too.  (Trust me, the other 22% are not playing computer games.)

 

12) ABC (activity-based costing) as a financial strategy?  I've long been a proponent of ABC; maybe it has legs in this space.

 

Whew ... a great article.  Well, time to go to sleep.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

 

In China, to automatically subscribe click on http://tinyurl.com/388yf .

 

[news] Filling the HR Gap: A No-Brainer Strategy

Friday, June 11, 2004

Dateline: China

 

Two stories recently appeared in the press based upon findings from my alma matter, The META Group.  (See http://tinyurl.com/2gv55 <Computerworld> and http://tinyurl.com/2xyz6 <The Boston Globe> .)

 

There are several hot areas driving IT compensation higher -- and these, of course, are areas which may be useful for China's SIs as they position themselves for offshore sub-contracting.  The Computerworld article cited as hot areas Java and "networking" (pretty broad topic, don't 'ya think), as well as wireless computing and "information security."  "(R)espondents cited a continuing need for Internet-related skills such as application development and Java application management.  And, just for fun, let's throw in that 20% of the survey respondents are involved in offshoring (but the Computerworld report didn't specify the breakdown between ITO and BPO).

 

The Globe article was a bit more specific and gave "senior network architects or senior database management staff" as examples of skills in need.  More specifics:  "IT professionals who are adept at Java, SAP or Oracle, or who have networking, security, and project management skills, are earning salaries that range from a low of $60,000 to a high of $170,000."  Now this one got me:  "(T)he average base salary for a director of business application delivery -- another term for programmer analyst -- is $172,402, up from $137,191 last year."  At the low end, business app developers with no managerial experience earn slightly north of $60,000.  Another quote:  "People who do enterprise architecture, program managers, people who have multiple language skills are still in demand."  The Globe article cited the offshoring stat and noted that "the majority send jobs to India."

 

Bottom line:  Pretty obvious, don't you think?  No need to spell this one out -- although I kind of did.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

 

In China, to automatically subscribe click on http://tinyurl.com/388yf .

 

[news] Kingdee does it right!!

Friday, June 11, 2004

Dateline: China

 

Well, at least that's the plan.  Frankly, the strategies I've been touting map very closely to what Kingdee is doing -- and why they are doing it.  According to a story recently released over the IDG News Service ( http://tinyurl.com/2sb99 ), Kingdee has taken the following actions:

 

1) They've opened TWO offices in the States.  One in Palo Alto (Go Cardinal!) and one in New York.

 

2) Rather than focusing on selling their ERP and CRM offerings in the States, Kingdee is positioning itself as a consulting partner and outsourced labor provider for U.S. companies.  Their objective is to connect with U.S. firms seeking access to a talented, low-cost labor pool.

 

3) They're touting their strengths in programming (including debugging), maintenance and localization.

 

4) They're targeting software vendors (ISVs) seeking development assistance.

 

5) They're seeking partnerships with American ISVs moving into the Asia-Pacific (APAC) market.

 

6) They plan to leverage their market experiences in the States to help domestic Chinese firms as they expand globally.

 

7) They've developed a relatively strong partnership with Sun, becoming a J2EE licensee in April (believe it or not, this is a big deal for a firm in China) and working with Sun on language localization projects.  (The point is that they're developing a strong partnership with an ISV.  And Sun is a good one to choose!)

 

8) They're talking with a product lifecycle management (PLM) market leader that's looking at the Chinese market; they're also talking with a hosted CRM company -- utility computing strikes again!

 

Wow, let's be honest, this is EXACTLY the kind of strategy I've been touting over the past several months.  My recommendations map about 90% with Kingdee's strategy.  Frankly, I can't fault ANYTHING they're doing, except I'd look at ISVs in other categories:  PLM is continuing to rank near the bottom of CIO priorities in just about every survey.  But it's a great long(er) term play, which might be fine as Kingdee ramps up their offshoring ops.

 

Bottom line:  To all other systems integrators and software vendors in China, take notice.  Kingdee, at the very least, is trying to do it right; if they succeed in their execution phase, they'll be a formidable foe.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

 

In China, to automatically subscribe click on http://tinyurl.com/388yf .

 

[news] BizTalk Server 2004: Go For It!

Thursday, June 10, 2004

Dateline: China

 

Hitherto, IBM, BEA and Tibco have dominated the Enterprise Application Integration (EAI) market, but Microsoft is making it's first credible stab at this market through its introduction of BizTalk Server 2004.  (See http://tinyurl.com/3evgb .)  Microsoft's target is the SMEs (small and medium enterprises) market.  Kudos to Microsoft:  A great product for a great market!!

 

Earlier versions of BizTalk Server simply couldn't cut it compared to competitive offerings, but the new 2004 edition looks like a winner.  It's all about TCO -- Total Cost of Ownership -- and BizTalk provides a comprehensive solution set including features such as human workflow services, business activity monitoring and support for Web services.

 

So why is this important?  Why isn't this just another product release from Redmond?  Two reasons:  First, it's an example of my "building to a stack" strategy.  In other words, build to the Microsoft, Oracle or IBM product stack.  (Let's forget SAP and PeopleSoft for now.)  Second, EAI is where there is the most juice for China's SIs (systems integrators).  What I mean by this is that billables for EAI work are among the highest billables, yet the coding tends to be rather geeky.  This is where China's SIs have a good chance to help SIs in the States reduce their overall project costs on a sub-contracting basis.  Hard core programming in China and higher-level integration from their American SI partners.

 

Two strategies by SIs in India include the setting up of a consulting practice and a center of excellence by Tata (TCS) and a solution built around BizTalk by Cap Gemini Ernst & Young (CGE&Y).  (If you're reading this carefully, you've noticed that I said that these are strategies being used by SIs in India.  Yes, I'm referring to CGE&Y's operation in India.  Take note in China.)

 

Microsoft is relying on the popularity of XML to provide their BizTalk Server 2004 product with a competitive advantage.  Again, take note of this and what's I've been touting:  The XML apps market is hot!!  (You can define the "XML apps market" in your own words.)

 

Bottom line:  I view this as a golden opportunity for China's SIs.  If I was the CEO of a systems integration firm or value-added reseller (VAR) based in China, I'd get on the BizTalk Server 2004 bandwagon ASAP.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

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[news] Are YOU Getting Your Piece of the US$1 Billion Pie?

Tuesday, June 8, 2004

Dateline: China

 

An article published on the 4th in the St. Pete Times ( http://tinyurl.com/2uh8z ) had a quote proclaiming that there is already US$1 billion in outsourcing from China to the States.  (The article implied ITO -- IT outsourcing, but BPO might be included in this figure.)  A little bit of basic math:  This means at least 40,000 person-years of software engineers and programmers are working on projects for the States!!  Okay, let me know when you're done laughing!!  (BTW, the same exec stated that India is pulling in 10x that amount: US$10 billion.  Oh, I forgot to mention that these are figures for last year, not merely projections for this year.)

 

Some of the other quoted figures seem a bit more credible.  First, China is 50% less expensive than India and "Indian wages are rising fast."  Second, "while the average coder in China does not speak English, the managers do."  (Well, I wish this were true.  Perhaps it's better to say that the managers can read and write English.)  Third, there is a five-to-one cost advantage for work outsourced in China; this compares to a three-to-one advantage in India.

 

Recommendations include starting with a simple, well speced project.  Also, agree upon communications modalities.

 

Bottom line:  Even if the figures are way off, I think it's reasonable to assume that there is a tremendous opportunity for China's systems integrators in targeting the U.S. market.  The cost advantages are significant, even when compared to India.  Keep in mind that all PMs (Project Managers) MUST speak English; reading and writing fluency is fine for other senior engineers.  (I realize that there are a lot of good, talented engineers in China who can read and write, but cannot speak English.)  Finally, start with a small, well speced project.  (Frankly, this is probably the only type of contract most SIs in China could initially close.) 

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Qingdao, China & Menlo Park, CA

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[news] Hot Techs: SOAs, Linux and INDIAN offshoring

Tuesday, June 8, 2004

Dateline: China

 

The Enterprise Outlook conference was held last week and today's three hottest trends are Linux, service-oriented architectures (SOAs) and Indian offshoring according to the collective views of the presenters.  (See http://tinyurl.com/2zd28 .)

 

HP's Ann Livermore ranted about Linux and was upbeat about IT outsourcing -- but didn't give away any HP secrets.  This is significant in the fact that HP services is under her charge.  She also sees corporate spending strong in the small and medium enterprises (SMEs) sector.  A BEA exec touted SOAs (no surprise), whereas an IBM exec talked about the need for always on connectivity.

 

Finally, outsourcing product development to India was noted, along with the observation that the outsourcing market is spreading to numerous cities in India due to rising costs in Bangalore.  Cost savings in offshoring to India were cited in the 40-50% range.

 

Bottom line:  Examine how a SOAs strategy fits your capabilities and core competencies.  Remember, the flip side of SOAs is Web services.  Think about utility computing opportunities, but (more importantly) ponder the opportunities in content management and portal development.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

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Packing My Bags in Bangalore -- and Movin' to the US of A

China Sourcing Alert    
Saturday, June 5, 2004

Dateline: Qingdao, China

 

Packing My Bags in Bangalore -- and Movin' to the US of A

 

I came across an interesting article about a company which moved from India to Silicon Valley (yes, you are reading this correctly).  Perhaps it's an aberration, but there may be signs in the tea leaves.  (See http://tinyurl.com/3f4vm .)

 

More specifically, the company moved from Bangalore to Milpitas.  Better yet (for my unemployed friends in the Valley), they have about 20 open positions.  Okay, the reason for moving was to get access to "the right kind of people."  And receiving an investment of $7.5 million from Norwest Venture Partners didn't hurt, either. 

 

Some interesting takeaways:

 

* The company, Epiance, is looking to hire a CTO and CMO (Chief Marketing Officer).  I'm surprised they could raise $$$ without a CTO and CMO.  (However, this fact isn't particularly relevant for China's SIs.)

 

* The article stated that being based in Silicon Valley provides better access to markets in Japan and China than does a headquarters operation based in India.  Reading between the lines, access to markets in Japan and China may be much more highly regarded (at least by American VCs) than access to local markets in India -- and firms in China have better access to their own market (obviously) and to the markets in Japan and South Korea.

 

* A related article noted that it was easier to find space in Silicon Valley than it is in Bangalore.

 

Also, an article recently published in an Indian business newspaper ( http://tinyurl.com/3fo7q ) proclaimed that there is a huge demand for IT professionals in India.  Fact is, it might be easier to hire in Silicon Valley than in Bangalore.  Also, wages in India are going up and there seems to be a bit of job hopping -- kind of like the way things were in the Valley in the late 90's.

 

Bottom line:  The move by Epiance is an anomaly.  But it says something about the labor and property markets in India, and the lack of access Indian firms may have to markets in Japan and China (do with the latter what you will).  The labor situation speaks favorably for China's SIs; the SIs in China have a much lower cost and more stable labor pool.  Frankly, I think the wage differentials are much higher than normally quoted -- and this is a HUGE competitive advantage for China's SIs.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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Is it "Utility Computing" or "Software as Services" or "Software Rental" or ... ?

China Sourcing Alert    
Friday, June 4, 2004

Dateline: Qingdao, China

 

Is it "Utility Computing" or "Software as Services" or "Software Rental" or ... ?

 

Well, whatever it is, it seems to be a hot topic these days.  According to IDC, growth in "subscription" sales will outpace that of packaged software -- and even companies like Siebel are getting religion (see http://tinyurl.com/yqxfy ).  IDC predicts that sales of software sold through subscription licensing will grow at 16.6% annually from 2003 through 2008 to reach $43 billion, while sales of perpetual licenses will see a slight drop each year.  Siebel, in response to the competitive threat from Salesforce.com, has even launched verticalized editions of their CRM OnDemand offering ( http://tinyurl.com/3yo2d ). 

 

Many players have entered this space, including NetSuite, WebSideStory, RightNow, BlueTie, Employease, Salesnet, Atomz, CrownPeak and numerous others ( http://tinyurl.com/2swal ; this URL links to a superb feature titled, "The Second Coming of ASPs?"), including Malaysia-based Entellium ( http://tinyurl.com/2s2hc ) -- and they're challenging the likes of Oracle, PeopleSoft and SAP, although I suspect each with follow Siebel's lead and provide their own offerings (and to a limited extent, they already have).

 

Since there is less up-front revenue and less customization required for an implementation, systems integrators (SIs) in China (or anywhere, for that matter) may be reluctant to enter this space.  This might be shortsighted, however.  The best way for U.S. software vendors (ISVs) to enter the domestic market in China may be through a utility computing model.  For one thing, pirating becomes a moot point.  This provides opportunities for China's SIs to work with U.S. utility computing software vendors to help the U.S. firms penetrate the domestic market in China.  But it also may provide opportunities for China's SIs to enter the systems solutions market in the States without the same level of expertise required for many/most packaged applications.  (I say, "may" because I'm not sure about this.  I think the waters need to be tested.)

 

Also, some of the U.S. players are offering partners 30-50% margins on their solutions over the life of the customer contract.  Now this doesn't sound too bad at all!!  There's also room for adding value through consulting and maintenance.  Finally, many U.S. vendors offer low or no-cost training and certification; many will also mentor new partners through the first couple of sales opportunities.  (See http://tinyurl.com/2pe2x .)  However, vendors are looking for partners with an established customer base and reputation, with a nod toward SIs with experience selling and supporting packaged solutions or consulting services.  And (as always) the more verticals experience, the better.

 

Bottom line:  Utility computing is one of the hottest IT areas, with real muscle as demonstrated by Salesforce.com (among others).  The subject has even garnered a lot of interest by development-oriented academia and industry researchers (and I will be covering this aspect of utility computing futures in China Sourcing Monitor).  China's SIs should investigate the opportunities in this space, being fully aware that the win-win deals will help U.S. vendors enter the domestic market in China and in return, the SI gets free training, quick certification and at least several laser-guided shots at opportunities in the States.  And, for my part, I'll ask Marc Benioff (the CEO of Salesforce.com and a first degree connection of mine on LinkedIn) what he thinks about the opportunities for China's SIs -- but I can't really ask this until after their IPO.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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Embedded Software Development: A Hot, Evolving Market, But ...

China Sourcing Alert    
Friday, June 4, 2004

Dateline: Qingdao, China

 

Embedded Software Development: A Hot, Evolving Market, But ...

 

Although this blog focuses on enterprise apps, the market for embedded software solutions should not necessarily be overlooked.  A recent article in The Hindu Business Line ( http://tinyurl.com/3c5rk ) claimed a world market estimated at $21 billion in 2003, with an expected growth rate of 16% over the next three years.  Telecom and networking applications account for the bulk of the market, followed by apps in the consumer electronics, industrial automation, automotive and avionics sectors.  Although the cited article is about opportunities in India, embedded operating systems (EOS) market share leader Wind River considers India AND China as key emerging markets.

 

Of course, mobile handsets and personal digital assistants (PDAs) are driving a lot of apps, but this is yesterday's news; what is much more interesting is what is happening in the embedded processor space.  I admit, there is much debate among electrical engineers (EEs) regarding the future of microprocessors and the evolution of reconfigurable systems (see, for example, http://tinyurl.com/26e5g ; for a historical perspective, see http://tinyurl.com/2d5vx and for applications to memory devices, see http://tinyurl.com/28kg5 .)  But a quick scan of The Guide to Computing Literature points to a lot of reconfigurable systems R&D encompassing a wide-range of apps, from user interfaces (UIs) to biometrics to handheld supercomputers.

 

Bottom line:  The embedded systems software development market is a potentially lucrative market for China's SIs, and the evolution of reconfigurable systems (see http://tinyurl.com/2c8sy ) presents an opportunity for SIs to stake a claim in what may become the next Gold Rush.  However, there is one catch:  It is difficult to leverage capabilities in the embedded market for capturing opportunities in the enterprise market.  "Migration" from J2ME to J2EE may be one solution, perhaps the only solution, for a company entering the embedded space and planning a later entry into the enterprise space.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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For R&D Outsourcing, Beijing Beats Bangalore

China Sourcing Alert    
Tuesday, June 1, 2004

Dateline: Qingdao, Shandong, China

 

For R&D Outsourcing, Beijing Beats Bangalore

Getting it Right in China:  Microsoft Research Asia -- Lessons for U.S. ISVs

 

Although I have a lot of doubts about Microsoft's overall business strategy in Greater China, there is no question that they're batting champions in their Beijing research lab.  Matter of fact, MIT's Technology Review went so far as to feature the Beijing lab as the cover story in their June 2004 issue; it's dubbed, "The world's hottest computer lab."  (See http://tinyurl.com/3a9o5 or http://tinyurl.com/2z3gc for the PDF.)  "B" -- as in "Beijing," NOT "Bangalore."

 

Today's lesson is NOT for China's systems integrators (SIs); it's a lesson for U.S.-based independent software vendors (ISVs) -- actually, it's applicable to ALL ISVs.  More specifically, it's a lesson for ANYONE considering offshoring their R&D, especially for anyone considering India as their primary offshore option.

 

As I've stated in the past, although India's SIs are further up the food chain than China's SIs (however, this really holds true primarily for the larger SIs in India; the smaller SIs in India face many of the same challenges as SIs in China, which also tend to be small businesses), India does NOT have a competitive advantage over China in R&D. 

 

Take this to heart:  There are more English-language computer science and engineering articles published by researchers in China than by researchers in India.  Scan either of the two primary CS research databases (including the ACM Digital Library), Citeseer, or Thomson:  Fact is, I'm right!!  Frankly, I am sick and tired of hearing about how glorious India is, as if India does everything better than everyone.  This is pure nonsense.  But I digress.

 

A recent article in rediff.com (see http://tinyurl.com/ytxh4 ) was titled, "India to see R&D outsourcing boom."  I almost gagged when I read it.  The article quotes a Frost & Sullivan study (is F&S still around?) estimating that the R&D outsourcing market for IT in India will grow to $9.1 billion by 2010 from $1.3 billion in 2003, which is a compounded annual growth rate of 32%.  Wow, where do I sign up?  If any of this is even close to being true, than the opportunity for R&D outsourcing in China is being overlooked big time.  I don't want to hear a bunch of rubbish about how India has an infrastructure better suited to R&D outsourcing.  Lies, lies, and more lies.

 

The F&S report points out that the best opportunity areas are in computing architecture, encryption and network security (okay, not a win for China), human-computer interface technologies, programming languages and software engineering.  I have to admit, "computing architecture," "programming languages" and "software engineering" is rather vague -- just take a look at the ACM SIGs covering these endeavors and you'll see that the net is cast far and wide.  However, the report is a bit more specific in the telecom field, pointing to IPv6, video servers and wireless sensors as good opportunities.  Finally, the report said that "semiconductors and nano-technologies were to be watched out for."  More stuff to gag on, I guess.

 

Here's a funny point.  The report does mention why India is well positioned for R&D offshoring, but NONE of the points mentioned are specific to India.  In other words, they're the same reasons why China should be the destination of choice.  If anything, China is casting a wider net -- perhaps to an extreme.  As far as "restraints," India and China have the same issues, e.g., the potential for IP loss and low in-house expertise.

 

Bottom line:  When considering R&D outsourcing, absolutely, positively consider China -- and remember that India does NOT have an advantage over China.  Taiwan, Korea and Singapore are viable candidates, too.  Frankly, the country -- or a specific location within a country -- is NOT as important as is the quality of the SWAT team of research scientists and engineers.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

http://www.itestrategies.com (blog) &

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Ahoy, APEC ...

China Sourcing Alert    
Tuesday, June 1, 2004

Dateline: Qingdao, Shandong, China

 

Ahoy, APEC ...

 

I will be speaking at this week's APEC meeting.  Here a several take-aways (pretty much in the order that they will be presented; I'm covering the key points in only the first 10 out of 50 slides):

 

* The billables for sub-contract work done for U.S. systems integrators (SIs) are 3x the rate for prime contract work done for domestic firms (i.e., clients in China) and 2x the rate for sub-contract work done for Japanese SIs.

 

* U.S. CIOs pick China as their preferred place for IT (information technology) outsourcing (a.k.a., "ITO") after the States and India.

 

* The top need is for application development for specific applications (a.k.a., "apps").  The best match is for apps requiring Java development.

 

* China's SIs should build upon their experience with Java, XML and UML.  Think a J2ME >> J2EE strategy.  And think software, NOT systems.

 

* Strategically, a core competency in business intelligence (BI) represents the best foundation for developing the enterprise apps space; tactically, VoIP offers the best near(er)-term opportunities, primarily because it is both an enterprise AND an embedded apps play.

 

And there are many, many other relevant points.  A copy of my presentation will be uploaded to the members-only "Files" section at http://tinyurl.com/2r3pa next week.  A related press release in Chinese and English, with a couple of pithy quotes, in also accessible in the "Files" section.

 

Cheers,

 

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

http://www.itestrategies.com (blog) &

http://tinyurl.com/2r3pa (access to blog content in China)

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In China, to automatically subscribe click on http://tinyurl.com/388yf .