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UPDATED: July 19, 2008 NO. 30 JUL. 24, 2008
Scaling Beyond
Chinese service outsourcers are scrambling to grab market share from big Indian companies

Strategic international investors have extended a hand to help Chinese outsourcers build up their workforces. For example, a Sino-Japanese investment fund and Synapse Co. Ltd. jointly invested $6 million in Beyondsoft in 2006. The capital infusion enabled the company to maximize the value of its outsourcing work from lucrative industries such as pharmaceuticals and finance, Wang said.

Other Chinese outsourcers have adopted a strategy of quick expansion through mergers and acquisitions. Chinasoft International Ltd., a Beijing-based outsourcer, is one such company. In 2006, it bought Hunan-based Powerise International Software Co. Ltd. for $55 million, ushering in a tide of mergers and acquisitions in the industry. So far, the transaction has been the largest of its kind in the industry. When the deal was done, the combined company had 3,500 employees and was the country's third largest outsourcer by employee numbers.

But Wang pointed out that mergers and acquisitions do not automatically increase a company's service delivery capabilities, because corporate integrations take time and energy. A significant number of employees at acquired companies would resign after a takeover, which can deal a deadly blow to the acquiring firm, he said. A single-minded chase of scale yields little, while a more effective expansion strategy will rely on strong recruitment measures and staff training, Wang said. Beyondsoft, for instance, started recruiting on campuses in 2006. It has hired more than 1,000 college graduates who all must complete a six-month training program.

Other domestic outsourcers are doing the same. Jiangsu-based VanceInfo Software Technology Ltd. recently hired more than 100 recent university graduates in one month, and Neusoft set up its own training school to meet surging demand for its services.

China's outsourcing industry also is benefiting from its growing pool of highly qualified English-speaking professionals. The country had a total of nearly 5 million college graduates last year, including more than 100,000 information technology majors. By comparison, Indian outsourcers have been handicapped by acute shortages of professionals in the wake of the country's 50-percent literacy rate, according to a report in the Economic Observer.

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