Indian reporter Venkatesan Vembu published this weekend an excellent article in a daily newspaper called “DNA India” and titled “India Being Bangalored By China.”

Since there is not much written in India about China challenging their leadership in the IT outsourcing industry, I am thankful to Vembu for his well-balanced and documented article.

I am talking every day to CIOs and VPs Engineering located in the Silicon Valley, and many start questioning the overall quality of the work delivered by their Indian outsourcing providers. This does not usually concern the top Indian suppliers but rather the myriad of smaller size companies, which are literally flooding the US market.

India is suffering from the relative anarchy of its outsourcing industry. By many aspects, it is similar to the “dot com” era in California, with some of its unfortunate effects: attrition rate well beyond control, and salaries following the same path, two threats which can potentially disrupt the entire Indian outsourcing industry.

I do not know how India can introduce some regulations or deontology in its outsourcing industry, but something has to be done and the sooner the better.

While China is likely to take overall leadership of this industry, it is indeed critical for the entire IT outsourcing industry, including China’s, that India remains a very strong contender.

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Terresa mentioned a record sale of contemporary art that took place in London in February 2007. The auctions totaled $ 578 M excluding the various commissions.

This proves my point again. The globalization is a unique chance for our planet. For the first time, we can establish peer-to-peer relationships between economies, cultures and more generally people. It is no longer one getting wealthier at the expense of another, but the entire group benefiting from the connections they establish among themselves.

The time has come to focus our energy inventing all these new jobs that are now possible, thanks to the flattening of the world. Retaining our overall leadership will depend at which pace we will be able to move on this new challenge.

And I would like to close with the comment made by Daniele Girardi, one of the painters and panelists: “investment in art is an investment in oneself.” What a wonderful closing remark!

To learn more about the panelists:
Matteo Bergamasco, painter
Daniele Girardi, painter
Kit Schulte, co-Director, MM Galleries
Mark Wolfe, Director, Mark Wolfe Contemporary Art Gallery
Silvia Girardi, art importer and dealer

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Steve Zavestoski (the curious stall) and I traded emails about the recent argument that China’s labor pool was drying up and India’s youthful population was therefore poised to take over the lion’s share of work.

Here is my position on this topic.

China has currently the largest population in the world followed by India, but the Indian population grows at a faster pace, since China has enforced for years the one-child policy. However, the effects of this policy will start to be seen more than 40 years from now, and has therefore no short-term impact on the relative workforces.

It is also important to note that China’s current labor force in services (not only IT but all services in general) is twice as big as India’s. According to the CIA world fact book, the labor force in services was of 230 millions in China for 114 millions in India.

In addition, today, China is the largest producer of engineering graduates in the world, with some 600,000 coming out of its colleges and universities in 2005. India follows with over 450,000 engineering graduates in 2005, of which almost 30 per cent were computer engineers. Both India and China have over 2,000 colleges and Universities.

Compared to India and China, the United States produces only 70,000 engineering graduates every year. All of Western Europe produces just over 100,000.

Duke University in the USA recently released a report that looked specifically at all computer science and information technology degrees from four-year schools, Duke’s initial study came up with 137,437 engineering graduates for the U.S., 112,000 for India and 351,537 for China.

China is therefore the country that produces today the highest number of IT engineers, by far, more than India and the USA together!

While China produces the highest number of graduate students every year, there are also a fast growing number of Chinese students graduating from foreign universities.

The Open-Door-policy in China had as one of its effects that hundreds of thousands of young Chinese got the opportunity to study abroad, mainly at American universities. For instance the fall 2003 class at Yale alone had 297 Chinese students. Moreover, Chinese Americans represent a significant percentage of undergraduate and graduate students in the USA.

The last element to consider is the Diaspora, i.e. the people living abroad, and their influence on their country of origin.

According to statistics provided by the Overseas Chinese Affairs Commission of Taiwan, the Chinese Diaspora (Chinese people leaving outside Mainland China and Taiwan) represents today 35 million of individuals – the largest in the world.

The Russian Diaspora is probably the second largest one: about 20 million Russian people live in the CIS-countries (the former republics of the USSR), including 8 million in Ukraine, and another 10 million living in foreign countries.

India has the third largest Diaspora with a little over 20 million individuals living abroad, according to the Indian Ministry of External Affairs.

As a conclusion, I would say that whatever the angle taken for comparing the 2 economies, China is likely to benefit from the comparison.

In the next 10 – 15 years, China is likely to become the world leading economy, and we better get accustomed to this idea. In fact, the real question is not whether India can effectively challenge China, it is how much the two countries are willing to cooperate together, to create the highest level of stability and harmony in the region.

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Their article on extreme outsourcing got my undivided attention, since I am faced with a challenge similar to CIOs’, but from an outsourcing vendor perspective.

I would like to share the following story with you. We recently acquired a new client, a software company based in Palo Alto, CA. Instead of trying to get their entire business — which would have been the traditional “BPO” approach, we considered their engineering department as a supply chain, identifying the various processes and defining how/where they would be best handled. We ended up with the design team in Europe (not us), the production team in China (that’s us working with advanced techniques like Scrum, Ajax, Flex, etc.), and QA in Central America (not us). We helped define the overall communication system, based on Blogs, wikis, and more traditional tools. It might mean less upfront revenue for us, but I am betting that on the long run, we are creating a satisfied customer, thus an active reference.

In fact, to share some background, I am working for one of the largest Chinese outsourcing companies, leading their efforts in establishing a direct presence in the USA.

As we all know the first thing to do when entering a new market is to find a positioning that would help set the company apart from its competitors.

While we have been very successful over the years serving large corporations like HP, IBM, Honeywell, Sony, etc., I have to admit that we found very little in our track record that would make us truly different from the other vendors.

Hence our decision to develop a brand new commercial offer adapted to today’s US customer challenges and expectations.

A significant part of this offer consists of approaching IT differently, or as the article rightfully points out, as a supply chain where the assembly of various services enables to provide the best response to the end users’ needs.

I was so glad to see in reading this article that our approach was supported by an industry trend.

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I just watched a fascinating series telling the story of Chris Jobin, a New York computer programmer whose job was outsourced to TCS in Bangalore, India. During the episode, we follow Chris to Bangalore, as he looks for a job and then work at a call center company for 30 days.

“30 days” is a show created by Morgan Spurlock for Fox News, and known for the “Super-Size me” episode, during which Spurlock eat all his meals at McDonald’s for one month (which leaves him in poor shape!). The concept of this show is to immerge a volunteer for 30 consecutive days into an environment where his/her core beliefs are likely to be shaken.

Two major thoughts occurred to me, after watching this episode.

The first one is a reflection of something I personally experienced when outsourcing to India. While in Bangalore, Chris and Sonny, his host and co-worker discuss outsourcing. Sonny is totally convinced that jobs are outsourced to India only because Indian programmers are better than their American counterparts. He has a hard time acknowledging economic factors are the key drivers.

The second and major observation has been told many times; it is the poor country infrastructure and the poor distribution of wealth, two fundamental issues facing India. In the article published in April 2007 by CIO magazine “why their infrastructure troubles will become your problem”, Kris Gopalakrishnan, The President of Infosys notes that ‘India’s infrastructure has not kept pace with its growth, (…) and is a bottleneck to our growth.”

This infrastructure problem is likely among the major reasons why China is going to claim global leadership over India: the Chinese infrastructure is way ahead, and developing more rapidly, widening the gap between the two countries. And while China is facing major challenges, like the unequal distribution of wealth between the Eastern and Western regions, their political system enables them to move rapidly and with little opposition. In contrast, the conflict between traditional culture and modern life styles render the problem even harder to tackle in India.

On the same subject, they are two articles worth reading, both written by people who are passionate about India.

• The first one is from Mark Hillary and about some recent decisions taken by the government of Karnataka, the Indian state where Bangalore is located. (read here)

• The second one is a great comment on the above mentioned episode of “30 days” written by a professor at the University of San Francisco. (read here)

India is becoming a world leader of today’s global economy, and it is certainly no good news for anybody including China, if India does not address its infrastructure issue as soon as possible. I would even say that it is paramount for the entire outsourcing industry that the conditions are created for India’s outsourcing business to continue to flourish.

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Mark Hillary, a European outsourcing expert recently reported on his blog a chat we had about comparing China and India (read his May 4’s post). One of my points was the price advantage that Chinese companies usually offer over Indian ones.

While agreeing with me, he commented that prices were usually not the major decision factor; “India may be getting more expensive in the software development sector, but it’s all part of a complex mixture where cost remains a factor in sourcing decisions, but cannot be considered the primary driver. Low-cost services are useless if they don’t deliver, so some of the management maturity that is developing in India could be the silver bullet those firms seek when trying to consider how they market themselves against other regions in future.”

Mark is right when he says that price is usually not the major decision factor. I would even go further: from a vendor perspective, when price is the determining factor, it is a serious warning about the financial stability of our prospect.

However, I disagree with Mark on the alleged advantages of the maturity model, at least when it comes to small and mid-size businesses.

Simply put, I believe that when applied to smaller companies, this CMM stuff is hype used by the outsourcing vendors to charge more. OK I said it, my apologies guys, but it is my opinion.

Let me elaborate on this. The CMM models do not yield to a better quality, mostly because most of the smaller companies are not even equipped to provide their offshore suppliers with the required inputs in terms of specifications, validation, etc.

In fact, my observation here in the Silicon Valley is that customers are looking for solutions tailored to their own needs and constraints. The relationship I am setting with my customers does not touch on CMM (although we have the accreditation), but rather revolves about the frequency of communication, the quality of deliverables, mixed teams with people on both sides of the ocean, etc.

SMB is a fast-growing segment of the outsourcing market, yet to be addressed specifically, i.e. with solutions that are different from the ones applied to larger companies.

Commercial offers that are tailored to the needs of SMBs naturally yield to more efficiency and higher quality, without necessarily drive the costs higher. Better prices do not always come from lower quality; they also come from higher efficiency!

And coming back to my comparison between China and India, we all know that new entrants usually tackle emerging markets more efficiently than well-established players, which have to deal with their legacy. Future will tell!

Business, China | 1 Comment »

I spend most of my time talking to executives of SMBs (small & midsize businesses) about outsourcing their innovation. The expression SMB encompasses highly profitable companies with a successful client base, all the way down to small startups, with very limited funding and sometimes no product yet. While the major challenges of larger SMBs is often to “cross the chasm”, smaller size companies are struggling to find the resources to develop their product.

An average salesperson would certainly focus all of his/her efforts on the high-end of the SMBs market. At Venus, we are careful spending an equal amount of time on both. We even recently signed a contract with a local (Bay Area) startup that just raised the bare minimum from Family and Friends.

And guess what? The large, well-established, sometimes even risk-averse Venus Corporation basically agreed to commit top-notch resources (who are in high-demand as we all know) to:

- Develop for a fixed-price an application that has not been fully designed yet

- Guarantee the quality of the work (the client were not too interested in the long list of wonderful resumes we showed).

I know it sounds crazy, but we found several good reasons to work with them:

- The 2 co-founders have a successful track record of setting up successful companies

- The CTO is a recognized expert in the WEB 2.0 arena

- Venus can benefit from their solution

- They are to be a reliable and long-term partner of our company.

But if you look at this from a Venus standpoint, what do we get?

- First our developers love this type of projects where there are a lot of interactions with the client (agile methodology). Moreover smaller size clients will usually ask developers to assume much more responsibilities than large corporations would. It means for us a satisfied employee base, i.e. a lower attrition rate and the reinforcing of a true “Venus Spirit”

- While the application has not been fully designed yet, we trust the judgment of our customer regarding the workload. Moreover we also have extremely seasoned project managers who tended to agree with the workload. Our financial risk should not be greater than 10-15% of the overall estimate

- If we succeed in building a relationship with this customer, then we will have made significant progress in proving our point: it is a sound decision for startups to outsource their innovation as soon as possible. And by the way, I notice every day that most of the engineering challenges larger SMBs are facing today come from the fact they have not thought through early enough an efficient process to outsource their innovation.

Business | 1 Comment »