David on IT Outsourcing in China: 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.

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