David on IT Outsourcing in China: [news] An "Olympic Gold" for Shenzhen + RMB 4,000,000,000: Easy Come, Easy Go ...

Wednesday, August 25, 2004

Dateline: China

Back in the blogging biz after a week in SH and HZ. (Lots to say, albeit not until September. See my "Casting a Wider Net" section which follows.) Also encountered a "slight" computer problem upon my return to QD. (More in "Entering the Twilight Zone".) This posting may seem a bit schizophrenic: I'm reading several trade articles, reviewing my Bloglines updates, scanning a few newly-published ACM proceedings, and writing this posting simultaneously, so don't be surprised when you see that my perspectives are all over the map. I already have 51 items for my urls update, so I'll mostly focus on commenting on some of these items.

An "Olympic Gold" for SZ

I've been waiting for the right time to do a write-up on SZ. Since the Zensar and Broadengate deal is now public knowledge, this is as good a time as any. (BTW, I'll be providing much more in-depth coverage of SZ/GZ/HK in a future "Letter from China", including a take on Accenture's expansion plans in South China.)

The most interesting business model I have encountered during my visits with over fifty SIs (systems integrators) all throughout China is the Zensar and Broadengate model. There has been a lot of press about the deal, although I didn't notice any in the American trades. (However, articles about this announcement might still be scattered among my Bloglines subscriptions; as I stated in the opening paragraph, I'm still in the process of reviewing articles and postings published early last week since my Bloglines feeds are LIFO.) Two of the better articles were published by Xinhuanet ( http://tinyurl.com/4y5xe ) and rediff.com ( http://tinyurl.com/48eo6 ). I've been privy to this deal for a couple of months; I was even invited by an exec with the SZ Software Park to speak at their announcement, but it was a bit too rushed and I was in the final prep phase for my SH and HZ trip.

Here's what I can say on the record: The deal between Zensar and Broadengate portends a fascinating future for those SIs with a "Golden Triangle" (U.S., India, China) strategy. The Xinhuanet and rediff.com articles provide some details, but I'll cut to the chase. What is most significant about this deal is NOT the way it is structured, but the way it is being implemented. In fact, here's the scenario.

What China's SIs lack the most are experienced PMs. Of course, they also have no clue how to sell into the U.S. market. This deal solves both problems. Zensar already generates sales in the States, something that virtually all SIs in China lack (and ALL domestic SIs do it poorly at best). Looking beyond this particular deal, many SIs in India (and, of course, in the States) already sell to U.S. CIOs and LOB managers. With this kind of deal, the sales channel problem is somewhat resolved. (I say "somewhat" because I'm not convinced that the way sales are generated is optimal. Alas, addressing this issue is best served in another posting. I'm still not convinced that many Indian SIs -- and American SIs, for that matter -- really understand the difference between and the need for new business development AND global account management.) The other problem is also solved, i.e., the lack of PMs. And this is where the Zensar strategy shines brightest. The "trick", so to speak, is to use experienced Indians as PMs and bright (but generally inexperienced) Chinese software engineers and programmers. Over time, Zensar will train their Chinese engineers to be PMs; this is NOT an "Indian master, Chinese slave" relationship. It simply addresses the short(er)-term need for experienced PMs in China ... and finding experienced PMs in China is next to impossible except at places like BearingPoint, IGS, ... (see a thread developing?). And trust me, I know it's not easy for them, either.

I expect to see a lot more deals like the Zensar and Broadengate deal. And what I hope to see are a lot of deals between American SIs and Chinese SIs, especially among the American SIs which have already ventured into India. (Nat, are you reading this?) I'm not convinced this will happen, but I'm hopeful that it will. BTW, unless an American SI is one of the largest (e.g., a VARBusiness 100), I'd suggest a partnering strategy in China; don't try to copy IGS, Accenture and B'Point. An interesting little twist on this was published earlier today in EE Times; see http://tinyurl.com/68ao8 . BTW, another reason that the Zensar deal will shine rests with Zensar's CEO, Ashish Rahinj. I have no doubt that he will turn the Zensar and Broadengate deal into a phenomenal success. However, since he can't be cloned, a "Ashish Rahinj" strategy cannot be duplicated ... and, let's face it, stating the need for a superb CEO like Ashish is stating the obvious. On a related note (and a bit higher on the food chain), also see an article published in The Star (Malaysia); http://tinyurl.com/6x3uh .

neoIT Slams China Again: The Philippines Takes The Number Two Slot After India

They must be comped at neoIT for slamming China. (Actually, it's more like dissing China.) A recent posting in Offshoring Digest ( http://tinyurl.com/6g2gg ) quotes neoIT's CEO stating that the Philippines is India's most formidable competitor and goes on to make a lot of claims, often citing ridiculous sources. To be fair, I find no fault with Offshoring Digest; I'm simply attempting to correct some of the flaws in the posting. First, the salaries quoted are NOT comparing apples to apples. US$15,000 is true for Shanghai, but certainly not in most other cities in China. Also, there's a skill set difference between the engineers in SH and in lower cost places in China. The objective is to find an appropriate mix, which is what a lot of domestic SIs are attempting to do. LCW (a Langchao company) is doing just this with a Shanghai op-center facing the U.S. market coupled with their largest development center in Jinan (and a smaller center in Qingdao). Look at payroll figures and it becomes obvious why this makes a lot of sense. When put in proper perspective, a software engineer in China does NOT make US$15,000 per year -- not even CLOSE!!

Computerworld Special Report on Web Services

Not much to say except, "READ IT!!" Includes a couple of book excerpts, too. The Table of Contents (of sorts) can be found at http://tinyurl.com/5s3e6 . A glossary is at http://tinyurl.com/62d4v . A book excerpt and introduction to Web services is at http://tinyurl.com/59skq . Another book excerpt with a look at when to use Web services can be found at http://tinyurl.com/4laot . Great stuff!! Not part of the Special Report, but also from Computerworld, some Web services myths at http://tinyurl.com/5tbqh . And a couple of other superb articles on a related topic, service-oriented architecture. One was a cover story in CRN; see http://tinyurl.com/6rbsg ; the other, a feature in Portals Magazine; see http://tinyurl.com/4eg2k .

IT Tidbits

Wipro tells the truth: It's not so much about GDMs (global delivery models), even if their press releases say so. (See http://tinyurl.com/5jaqs .) It's really about customer evangelists. That's it, folks!! See http://tinyurl.com/7xog9 .

"RIP" R.I.P.: In other words, Russia-India-Philippines, your fate is at hand. I was going to write a lengthy piece about this, but I'll capsulize instead. Bottom line: Not afraid of terrorism? Then by all means, feel free to do your offshoring in the "RIP" countries. Russia is having their own problems (see http://tinyurl.com/53l5m ) as is India -- and India's latest threat is from a political force (see http://tinyurl.com/6bj5f ). Definitely, no outsourcing in Hyderabad or Delhi!! Good 'ol political terrorism almost sounds like a relief, but it's certainly a serious issue. And there's no need to talk about terrorism in the Philippines, is there?

Financial Services Not Leveragable: Brief comment. As firms in SH, HZ and even in QD have found, although the financial services sector is the hottest for ITO, the practices of financial institutions in China are too radically different from the practices of financial institutions in the States to be truly leveragable as a vertical market. This may change over time, especially with WTO, but it's a hard sell right now. Game over, NO; game delayed, YES.

RMB 4,000,000,000: Easy Come, Easy Go ...

EVERYBODY with a pulse knows about the Google IPO last week. The real news, however, was the P2P decision. But first I'm going to take a stroll down memory lane. (Certainly feel free to stop reading here. Except for a bit on the P2P legal decision, the balance of this posting is mostly personal stuff.)

Back in early 2000 I was interviewed by Google for a position which was ultimately filled by Omid Kordestani. (Google was still on University Avenue, near Stanford and in downtown Palo Alto.) At that time I had just started the interviewing process with the PSO group at McKinsey and I was pumped-up for a shot at a partnership with McKinsey (albeit starting as a Principal or Associate Principal). Well, when I checked a couple of days ago, Omid's stock was worth RMB 4,000,000,000 (yes, nine zeros), that's US$500,000,000 (see http://tinyurl.com/3jeqq ).

Frankly, I was NOT (and I'm still not) enamored with the way Google does search; I've been a fan of specialized search engines and databases for over 25 years since I first learned to use Dialog, Orbit, BRS and DTIC. However, I admit that a guy like me who enjoys reading SIGIR proceedings is not your average searcher. I was also not too thrilled by their revenue model. I have nothing against their model, but I couldn't see how I was able to add value in their game -- and I guess that they couldn't see it, either. (I didn't have a second interview.)

I'll never know how close I was. Was I a close second ... or a distant 32nd? (I certainly hope I wasn't a close second!!) From what I best recollect, Google's VCs brought in their own hand-picked choice. However, I also recall that Omid had much better qualifications than yours truly. I even had a chance to read his CV; Larry and Sergey had it face-up on the table opposite of me. But as a biz dev guy, I had long ago learned to read upside-down documents across a table. Well, on to the truly important IT news for last week. Not as exciting as Google's IPO, but much more significant to the industry as a whole. (In reality, the Google IPO was a statistical outlier.)

The "big" news, IMHO, was the decision by the U.S. Appeals Court in favor of P2P vendors and providers. The Industry Standard had one of the best features on this decision; see http://tinyurl.com/5dkoq . Why is this so important? Because P2P is key to the future of computing. From search to grid computing, P2P provides a foundation for a host of solutions. I'm been a P2P fan for a long time, although I don't use it much for consumer apps. Matter of fact, I don't use it very much at all. However, I see the potential -- and I've seen a lot of research in this area. For example, it's hard to find an ACM magazine which has NOT had a special issue on P2P; P2P pervades many computing domains. For those readers who haven't played with P2P, try using the Deepnet browser. Matter of fact, if you use IE as your primary browser, I suspect that you'll like Deepnet a lot. Deepnet features a Web browser (in essence, sitting on top of IE), an XML feed reader, and P2P file sharing. See Deepnet at http://tinyurl.com/56gm7 . BTW, it looks pretty safe, especially by the way they handle BHOs. Your mileage may vary ...

Entering the Twilight Zone

I came back from SH & HZ only to find my computer in the CCU. I guess the good news is that it wasn't in the ICU -- or the morgue! I'm still getting it up and running. Starting in early September, I'll be off to the US and BJ (and possibly SZ and HK) for much of the following six weeks. Suffice it to say that this blog will be dark most of the next two months. Too bad my smartphone is tied to Sprint's CDMA network in the States; it's nothing more than an overpriced PDA in China. Assuming I can get my hands on a new Explorer series Pocket PC when I get back to the States or in HK (the first PDA with VGA *and* '03 SE) and that I can find an unlimited cellular data access plan for nationwide use in China (probably with a S-E 900 series unit), at least I'll have a back-up if/when my PC goes into cardiac arrest.

Actually, I still hope to publish twice a week: One urls list (albeit with as few as five annotated selections) and a commentary culled from one of my Bloglines "MASTER" sources (e.g., Computerworld, <IEEE> Computer), each posted every ten or so days. The twilight zone, allegorically and metaphorically. To round out the publication schedule, there's something new on the horizon.

Casting a Wider Net

As of next month I will be writing a fortnightly/bi-weekly or monthly (TBD) column for the AlwaysOn Network, Silicon Valley's premier online executive network. Specifically, I will be one of the two columnists for their "Letter from China" feature/e-newsletter. Each column reaches several hundred readers through the AO Web site and an additional 16,000 newsletter subscribers, plus an estimated several thousand XML news feed subscribers. Each AO column will also be distributed through my ITO blog and e-newsletter.

My first column will critique Shanghai -- from a myriad of perspectives: A look at what's possible (and advisable) in contrast to what's merely wishful thinking. The second (and possibly third) columns will examine Sino-American cultural differences, including differences which may be unique to the IT industry.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

e-mail: click on http://tinyurl.com/6xeue

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