Will China become number one in software outsourcing this decade?

Replies to This Discussion

Permalink Reply by Johnson Choi on October 10, 2010 at 1:37pm

Daniel - you are right. I cannot agree with you more.

Permalink Reply by Gabe Morris on October 10, 2010 at 4:44pm

Good points, Dan. Although some of the trends you point to will also work against China. Your argument is predicated on the general assumption that China will (continue to) develop at a faster rate than India. This would also likely mean higher salaries for developers in China compared to India. Or put somewhat baldly, India's weaknesses will in some ways make it a more attractive destination.

Not sure where China and India currently stand in terms of relative salaries for engineers.

The latest I could find (Nov. 2009) suggests India is currently more expensive:
http://www.eetimes.com/electronics-news/4086148/East-West-engineeri...

And this somewhat dated (2005) article suggests the opposite:
http://www.networkworld.com/news/2005/111705-software-developers-sa...

Permalink Reply by Johnson Choi on October 10, 2010 at 5:04pm

See if this information is useful? http://blogs.gartner.com/frances-karamouzis/2010/05/31/china-vs-india/ There are more here http://www.google.com/search?source=ig&hl=en&rlz=1G1GGLQ_EN...

Permalink Reply by Daniel Leuck on October 10, 2010 at 5:28pm

Gabe Morris: Your argument is predicated on the general assumption that China will (continue to) develop at a faster rate than India.

I believe it will because, unless things radically change in the near future, India's growth will be constrained by its infrastructure. They require a massive overhaul of their transportation and telecommunications infrastructure in every major city. I've been reading articles about this in the Economist for years, and heard first hand accounts from many people doing software projects in Mumbai and Bangalore. Additionally, India's development outsourcing market is very mature having been in full swing for over 20 years. China's software outsourcing industry is nascent, so faster growth is likely for some time.

India's politicians seem unwilling or unable to approve the types of major infrastructure overhauls you see happening in China. Part of the problem may be the fundamental structure of the country's government. Perhaps the parliamentary democracy system borrowed from the UK needs a few tweaks to work in a country of 1.2 billion people. India's government is, in many ways, a great experiment.

re: Wage inflation in China

A few thoughts about the article you sent:
1) As the article concedes, wage inflation is occurring in almost all popular outsourcing locations. India's wage inflation is about a third higher than China's, so the delta won't last long.
2) The wages they mentioned are for low end simplistic IT work. A good R&D-type software engineer in Mumbai, Bangalore or Chennai makes a lot more than $10K / year.
3) Companies like Google don't care if they are paying $2,500 / month in India or $3,000 / month in China for R&D developers. They just want good engineers.
4) The Chinese wages they mention are for Beijing. Software development salaries in Beijing and Shanghai are 20%-30% higher than in other major cities like Xi'an (which also has multiple Universities with good comp sci programs.)

I learned quite a bit about these outsource locations during exercises at previous employers where we evaluated offshore options. I've had the pleasure of working with great teams in both countries as well as Russia and Argentina. They each have their advantages and disadvantages. We still do business in Russia and I've kept friends in the other locations. This helps me keep my ear to the ground :-)

re: the Gartner article "China vs. India"

Gartner writer Frances Karamouzis opens with the wrong question - "Is China Cheaper than India?" The right questions is, "Is my software project more likely to be successful in China or India?" When you already have very inexpensive labor, a 15% difference in wages isn't really that important. Its always better to pay the extra buck and get the right people.

Permalink Reply by Brian on October 15, 2010 at 4:24am

They probably will. They're a very large country and are enjoying tremendous economic success right now. Naturally growth is part of that.

I think it's just as important to look at the challenges they will face and ponder how they can manage them in the face of such rapid growth and as well as if/how they can sustain that growth at current pace (and for how long?) - (I'm not just trying to bash China here).

Education - There's a lot more to just 'emphasizing English' in school. If you contrast Japan versus India you see this quite dramatically. Indian English accents (Singapore also) while.. distinct are fairly intelligible to the rest of the world; not so with Japanese who generally have done a lousy job of teaching English in middle/high school. It'll be interesting to see the approach taken in China and how that will unfold.

Pollution - China produces far more (and dumps it into their watershed) than they officially admit. In 2007 for example the official report was that water pollution had decreased 3%. In reality it at least more than doubled. This will cause significant quality of life, public health, and agricultural issues and is unlikely to improve substantially in the near-term. They're dumping several times more waste than their watershed can handle without creating anoxic lakes/rivers. While they have been trying to embrace 'green'; there is still a lot of corruption there (like any country) and the bottom line is that balancing rapid growth & pollution are - in consumption-oriented paradigms - essentially opposite goals.

Human Capital - While I recognize there are cultural differences that I do not fully understand; I still believe there is fundamentally some incompatibility with the prevailing domestic liberty situation in China and creating a culture of high tech R&D where pure & applied research can thrive. While there has certainly been an improvement in the last 10-20 years, China is still very reliant on essentially copying foreign designs whether legally through open source research, licensing or technology exchange or through industrial espionage/questionable technology exchanges.

Food & Energy - Not going to get into this in-depth as it's a whole discussion unto itself, but it's certainly obvious that energy & food security are critical to the ongoing success of China's amazing growth. How will they tackle this? The massive droughts of 2009 is a great example of their risk exposure here. China has the same problem the American west has. The arable land isn't in the same place the water is!

Reality Check - How good is it really? I'm putting this list as I feel there's unlikely to be any substantial 'gotcha' but certainly a lot of the numbers that come out of China are pure nonsense. Examples include the Chinese military budget (grossly understated), fisheries production (grossly overstated), car sales, etc..

Permalink Reply by Johnson Choi on October 15, 2010 at 1:55pm

I agree if you are to compare China to the USA standard, yes there are much improvement need to be made.

But we also have to look at things from a historic prospective.

When United States and Europe expand rapidly after the Second World War, China was a agriculture in ruin after a century of financial ruin done by the western power (by selling opium to the Chinese) followed second world war and civil war. The entire country was on food rationing.

Early 1980, China had started with market economy on agriculture and that start turning the country around. Today, China is putting abundance of food on the table feeding 1.3 billion people. If you look at our own backyard in Hawaii, our Rotary Club has to contribute money to the Food Bank to provide home lunch to the students at one of the elementary schools in the Kalihi district on Fridays so the kids will have food to eat during the weekends.

I think one of the best way to find out if China the way you see it through the lens of Washington DC is to take a trip to Asia such as Hong Kong, Taiwan, Singapore and China to spend a little time with our fellow Americans. Using Hong Kong as an example, there are 100,000 American working and living in Hong Kong. Hong Kong is smaller than the Island of Kauai. It is easy to make the connection. A high percentage of the American live and work in Hong Kong travel to China for business on a weekly or monthly basis.

Less than 6% of American travel to Asia, use Hawaii as an example, we take 500,000 trips to Las Vegas each year, I was told Hawaii citizen took less than 50,000 trips to Asia.

I have a half dozen of UH friends in high tech in Hong Kong doing Apple Apps. I did ask if they are afraid of the IPR issues in Hong Kong and China. The simple answer is if people go to Asia do their homework and be prepared, there could only be opportunities.

The Chinese character of "danger", if you split the word, it meant "risk = opportunity".

I am hoping you will take advantage of the opportunities and manage the risk accordingly. Thanks.

Permalink Reply by Brian on October 15, 2010 at 3:32pm

I haven't had the opportunity to go to mainland China yet but I have been to Taiwan some years ago and if I could describe them in one word it would be 'hungry'. Not in the literal sense, but rather hungry for growth, hungry for opportunity, etc.. Kinda like how America was 50-100 years ago - now I think we're too 'comfortable'. I just got the feeling that people were really eager to seek out opportunities rather than waiting for things to be given to them.

One of the things I find really fascinating about China is that.. they have (for the most part) an essentially unbroken cultural heritage that stretches back thousands of years. While I am far from an expert, I believe this contributes to more of a long-term strategic approach to challenges rather than short-term "quick fixes" (which seldom are quick or fixes). It is my hope that as they grow and develop their economy/infrastructure they can address the challenges I've listed (and others that I haven't).

Anyway I completely agree that more Americans need to travel abroad. This is a whole discussion piece unto itself. Even just getting information from american media is dangerous.. it's so imbued with nationalism you really get brainwashed into forgetting that other countries are capable of greatness.

Ed: @Dan, sorry I realize this has little or nothing to do with your topic ;)

Permalink Reply by Daniel Leuck on October 15, 2010 at 6:55pm

@Brian - All good points. China has its challenges, but I think they have a bright future. I've noticed the younger Chinese generation is more environmentally conscious than their parents. Chinese lawmakers are starting to pass more aggressive environmental laws. Its slowly getting better. A 4,000 year old country with 1.3 billion people can't turn on a dime :-)

Anyway I completely agree that more Americans need to travel abroad. This is a whole discussion piece unto itself. Even just getting information from american media is dangerous.. it's so imbued with nationalism you really get brainwashed into forgetting that other countries are capable of greatness.

Yep. We should require students to do a year abroad. We are cooking in our own juices.

Permalink Reply by Truman Leung on October 20, 2010 at 1:26pm

Here's an interesting article about how China is building railroads into Nepal while India's infrastructure development in the region is lacking.

Permalink Reply by Johnson Choi on October 20, 2010 at 4:37pm

Truman:

Do you think a bunch of Tech folks like you want to collaborate and explore business opportunities in China through Hong Kong?

Speaking of trains, I would also like to try taking the train from Beijing to Tibet or the speed train from Shanghai to Beijing in 4 hours.

Take a look at this article about http://www.hkchcc.org/hongkong-china.htm Automated Systems Holdings (Oct 22ND under Hong Kong). They start it small in Hong Kong, later provide service for Hong Kong Government, now providing service for the largest airlines in China.

I am thinking the best way to help bring Hawaii to the 21st century is to encourage more people to venture out, hopefully they will return to Hawaii way before retirement age. It is a dream many parents with smart and educated kids have had for years. But it seems to drift farther away as year goes by!

I have even talk to Hawaiian Airlines to fly to Macau. Since we take more than 500,000 trips to Las Vegas each year. If we have 100,000 of us going to Macau and some taking side trips to Hong Kong, Singapore, Shanghai and etc. They may see the world is so much more advance than Hawaii and Las Vegas, hopefully something positive with change.

Permalink Reply by Kevin Folan on October 21, 2010 at 11:19am

Perhaps anecdotal - an article from Bloomberg

Facebook Game Makers Kabam, Zynga Turn to China for Talent
By Bloomberg News - Oct 20, 2010 Facebook Inc. game developers Kabam and Zynga Game Network Inc. said they will increasingly turn to Chinese software designers to make games for the website, tapping engineering talent in the Internet’s largest market.

Kabam, maker of the Facebook game “Kingdoms of Camelot,” set up a Beijing studio in May that has two unannounced titles under development, as many as are in progress at the company’s U.S. studios, Andy Lee, Asia managing director for Redwood City, California-based Kabam, said in an interview yesterday. Zynga, maker of the “FarmVille” and “Mafia Wars” games on Facebook, said it wants to harness China’s faster pace of innovation.

“China is very important to us,” Lee said. “We see ourselves aggressively expanding in the region with multiple studios in China. This is a large part of our international strategy, and my task is to manage that growth.”

The Asian nation has the world’s biggest Internet market by users, with 420 million online, creating a large base to stimulate the development of talented software designers, Lee said. After becoming the largest exporting nation making computers, toys and clothes sold at Wal-Mart Stores Inc. outlets, China is moving into software development as the Internet’s center of gravity shifts to the country.

“China is moving up the value chain from low-margin, high- volume manufactured goods into the realm of design,” said Duncan Clark, chairman of Beijing-based technology consultant BDA China Ltd. “The value is in design, and that is where China wants to head.”

Betfair, Canaan Backing

Kabam has 35 employees in Beijing, its first international studio, compared with 100 workers in the U.S., Lee said. Over the next few years, the number of employees in China will likely exceed the U.S. workforce, he said.

Closely held Kabam, which changed its name from Watercooler in August, has raised about $9.5 million from London-based Betfair Group Ltd. and Canaan Partners in Westport, Connecticut.

To attract cost-conscious consumers, fight off pirates and survive in China’s competitive market, software developers “have to work harder” than those in the U.S., leading to a large body of talented engineers, said Andy Tian, head of Zynga’s Beijing studio.

San Francisco-based Zynga has set up shop in China to take advantage of the country’s growing software prowess. Zynga in May announced the acquisition of Beijing-based social-gaming company XPD Media, the company’s first step into the Asian market. XPD then had 40 employees, including co-founder Tian, who Zynga said would immediately be integrated into its global workforce to focus on engineering and product development.

Harder Workers

“People here are innovating in terms of business model faster than they are doing in the West,” Zynga’s Tian said on Oct. 18 at a Stanford University-sponsored conference in Beijing. “China is a leading area of innovation. It’s big already, but growth is continuing.”

Facebook is inaccessible in China, so games developed by Kabam and Zynga specifically for that site won’t be accessible in their country of origin.

Closely held Zynga has raised $360 million from investors and says it has 360 million active monthly users.

Chinese software-development companies, many with only a handful of employees each, have cornered about a 10 percent share of the revenue from Apple Inc.’s App Store, estimates James Ding, managing director of GSR Ventures, a Beijing-based venture capital fund.

“China has a market potential not only to follow the U.S.; it can become a home market for new applications,” Ding said at the Stanford University conference this week. “A lot of things in this part of the world are being tried for the first time that can be used in the U.S. and global market. We’ll see more and more of these types of applications in the future.”

At Kabam, the China growth can be seen in the company’s expanding studio, Lee said. After only five months, Kabam is moving to a new office that will be triple the size of its current office at Beijing’s eTower, he said.

“China is one of the most important places for game innovation,” Lee said.

http://www.bloomberg.com/news/2010-10-20/facebook-game-makers-kabam...

Permalink Reply by Johnson Choi on October 24, 2010 at 4:55am

A China government body has released its own online mapping service, designed to compete with Google Earth's popular satellite mapping service, that could spell more trouble for Google’s services in the mainland. Google and China have been at odds since last year, when a serious hacking attack originating from China prompted Google to ultimately withdraw its search service from the mainland. “Map World” was unveiled by the State Bureau of Surveying and Mapping on Thursday, and can be accessed via www.tianditu.cn. The home page features an expansive view of the Great Wall of China, capped by clouds in the shape of the continents.

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