For Indian IT biggies, China is hot

Bruce Einhorn, BusinessWeek | March 24, 2006

It’s fair to say that Hari Natarajan is obsessed with Microsoft. A vice-president at Satyam Computer Services, one of India’s biggest outsourcing specialists, Natarajan is in charge of the company’s strategic-relationship unit with Microsoft. Or, as he puts it, “I breathe, eat, and drink Microsoft every day.”

And what occupies the Microsoft-focused thoughts of Natarajan these days? Easy. Satyam and Microsoft are partners in a new joint venture designed to develop the software-services market in China. Right now, China isn’t much of an outlet for Indian outsourcers like Satyam. But Natarajan and others at Satyam are determined to change that.

“This is a huge market with great innovation potential,” Natarajan says. The local market is only about $1billion, but that will probably grow eightfold in the next five years. “You don’t see these kind of growth numbers anywhere else in the world,” he adds.

A major shift

That’s one reason Satyam and other Indian companies have been busy putting down stakes in China. Infosys has acquired 50,000 square meters of land in Shanghai and 300,000 square meters in Hangzhou, and is building new centres in both cities.

Tata Consultancy Services has reached a deal with Microsoft and the Chinese government to launch a new joint venture in Beijing this year. And on March 1, Zhang Guangning, the mayor of the southern Chinese city of Guangzhou, visited Satyam headquarters outside of Hyderabad in southern India. While there, Zhang and Satyam’s managing director, B Rama Raju, signed a deal to set up a Satyam operations center in Guangzhou.

All of this represents a major shift for India’s information-technology leaders. Not long ago, China wasn’t even an afterthought for Indian software executives, who looked pretty much in one direction: West. And who could blame them? After all, companies in Europe and North America represented almost their entire customer base. Japanese companies didn’t do much outsourcing, and what little they did wasn’t sent India’s way. Other Asian markets were similarly unpromising, and there was no business to speak of coming from China.

That’s all changing. Increasingly, companies in Japan and South Korea are outsourcing. They’re sending a lot of that work to nearby China, where it’s relatively easy to find programmers who understand Japanese or Korean — certainly a lot easier than finding people in India who can speak those languages.

Job boom

With China attracting tens of billions of dollars in foreign direct investment each year, there’s a growing list of Western multinationals that need outsourcing help for their Chinese operations. And Chinese companies themselves are starting to realise that they not only need to upgrade their IT systems, they need outside help to do the work for them.

One of the early Indian movers into China was Bangalore-based Infosys. Early this decade, following visits to Infosys headquarters by then-Premier Zhu Rongji and Li Peng — China’s longtime No 2, who at that time was head of the National People’s Congress — the Indian company announced plans to open an office in Shanghai.

To date, the growth hasn’t been spectacular: Infosys has only 450 people in China, out of 50,000 employees worldwide. But James Lin, a Taiwanese-born veteran of IBM Global Services, who joined Infosys in 2004 as chief executive of China operations, says Infosys will be embarking on a China hiring spree. “In the next five years,” he says, “we’re talking about 6,000 (Chinese) staff total.”

Maintaining lead

Why the renewed commitment to China? According to Girija P Pande, Asia-Pacific director for TCS, Indian companies have to build up their workforces there. The business model depends on it. “This is a business of skill and scale,” he explains.

“There aren’t many countries with both. In Asia, you have India and China.” Of course, companies like TCS are already employing tens of thousands of Indian engineers. That leaves China as an untapped talent pool. “So China becomes important as well,” says Pande.

Executives like Pande insist that Indian companies have little reason to fear that all of those talented Chinese engineers will go to work for homeland companies that can seriously threaten Indian IT dominance. Indian companies last year had $17 billion in revenue, compared to just $2 billion for their Chinese counterparts. Three years from now, Indian companies will have sales of $48 billion, compared to $5 billion for Chinese.

“They aren’t going to be in the same league. If anything, they will fall behind,” Pande says. “They don’t have scale, and they don’t have the marketing connections that Indian companies have established.”

Structural risk

Not everyone is so sure. A December report from analysts at Merrill Lynch noted that China produces 400,000 new computer-science graduates a year, compared to 181,000 IT-engineering grads in India. China also boasts far better infrastructure, the Merrill analysts reported, and less red tape than India.

While Chinese IT-services outsourcing companies are still in their infancy, they stand a good chance of growing up quickly. “Unlike the general belief that the China threat is a very distant one, we believe the first wave of competition from China could be felt in two or three years,” wrote the Merrill analysts. “(And) over a three- to five-year time frame, we need to watch the structural risk posed by China in ‘commoditising’ IT services outsourcing.”

All the more reason why Indian companies need to expand their operations in China now, while they still have time.

Putting china on your resumé

EXECUTIVES LOOK FOR CAREER BOOST FROM ASIA STINT
By Katherine Yung
Dallas Morning News

Bobby Carter shows all the symptoms of China fever.

Each week, he meets with a private tutor to learn Mandarin. On airplanes, he listens to language tapes. And in his spare time, he reads books about the Asian powerhouse and blogs written by expatriates living there.

China “is really intriguing to me. I want to experience it,” said Carter, 44, UPS’s international sales and marketing manager for the Southwest region.

Although he’s traveled in the region for his job, now he wants to work full time in China, for at least a few years.

“Who would think in our lifetime we would have the opportunity to be pioneers in anything?” he said.

As China evolves into an increasingly important market for many U.S. companies, a growing number of Americans are eager to work there, despite potentially formidable obstacles of language and culture.

`Not a hardship’

Interest in China extends beyond multinational corporations. Increasingly, managers at small and mid-size businesses are volunteering for forays in China, seeking excitement, riches and a career boost.

“It’s not a hardship,” said Louisa Wong-Rousseau, managing director of China for Stanton Chase International, an executive search firm. “People see going to China as a career advancement.”

Though many in China prefer to hire locals, a shortage of skilled executives means expatriates remain in demand, said Lisa Johnson, director of consulting services for Cendant Mobility, a large relocation company.

Many companies award assignments in China to their rising stars, she said. “It’s where a lot of companies’ future is.”

According to a Cendant Mobility study conducted last year, people relocating to China for business reasons are typically married men in their early 40s.

Shanghai, China’s most cosmopolitan city, ranks as the top destination for expatriates. But a growing number of them are headed to less well-known places like Chengdu, Dalian and Tianjin.

Americans who have taken the plunge and relocated to China often find the experience an eye-opener.

In November 2004, Nokia Oyj employee Ron Davenport sold his house and two cars in Grapevine, Texas, and moved to a gated community in Beijing.

Now, he is helping develop low-cost phones at Nokia’s product creation center in Beijing.

“The pace is quite frantic,” Davenport, 41, said of the Chinese business environment. “But I am much more sensitive to growth in other parts of the world.”

`Flying in and out’

For Mark Abe, living in China became a necessity. The 40-year-old executive for Plano, Texas-based Electronic Data Systems arrived in Beijing three months ago to help his company win information technology services contracts from Chinese airlines, airports and other air services providers.

“It’s very hard to build those relationships when you’re flying in and out,” he said.

The expatriate from Orange County quickly learned that conducting business in China requires forming personal relationships, not just making sales calls.

“The business models that are prevalent here in China are different from ones in other parts of the world,” he said, referring to the nation’s many state-owned firms.

“Don’t wait,” he advised others considering working in China. “The country is changing so fast. Jump in with both feet and don’t look back.”

Taking on a China assignment does involve some challenges and adjustments.

Chief among them is finding health care that meets U.S. standards, according to the Cendant Mobility study.

An unhappy spouse and children can also cause problems.

Ironically, once expatriates and their families adapt to life in China, the hardest part is often coming home.

Attorney Carter Meyer endured a difficult transition when he and his wife returned to Dallas in August 2004 after living in Beijing and Tokyo for a little more than two years.

“It was hard getting used to it,” he said of the first few months back on American soil. “I missed the food quite a bit. I missed the people.”

Meyer, 37, recently left Vinson & Elkins to become head of a small venture capital firm. But if the right opportunity came along, he would consider going back to Asia.

“On a résumé, it has a lot of credibility,” he said of his time spent in China. And “I appreciate the size of the world a lot better.”

http://www.mercurynews.com/mld/mercurynews/business/14203721.htm

China Needs People!

Foreign firms invest $1 billion a week in China but they lack creative managers who are willing to take risks.

Reasons For Lack of Talented Managers
1. Success often depends more on loyalty to the party than business acumen .

2. There aren’t many MBA programs in China.

3. Chinese talent is 1st-generation. They don’t have role models. Their parents worked for state-owned firms and were too bureaucratic. Entrepreneurial types are too unrestrained.

4. The Confucian heritage emphasizes rote learning and hierarchy. That might explain why Chinese managers are cautious about taking the initiative. But maybe living in a police state has something to do with that, as well.

5. The one-child policy doesn’t grow team-players. [Are only children loners?]

No Marketing Talent
Local Chinese are good technically and in administration. But there is no experience in marketing.

“You find yourself micro-managing more than you’d like…. If the tasks are across departments, or if it means working in a team or trying to relate to others, they still have a long way to go.”

The biggest issue – Retention
In 2004, 1 in 10 execs changed jobs in Shenzhen. 1 in 12 in Beijing. That’s a nationwide employee churn rate of 11.3%, up from 8.3% in 2001.

Some smaller firms see a 30% turnover.

Compensation Rates
Middle Manager, foreign firm (in Beijing or Shanghai): $27-32K (base plus bonus)
Senior Managers: $46-54
Top execs: 80-90K

Salaries Rising
Avg annual salary increases for mid-level and senior managers: 6-10%.
Accountants’ salaries: rising 14% / year.

Standard Perks: Bonuses, long-term incentives, free housing, meals, a mobile phone, car. Also: more holidays, mat and pat leave, more frequent job rotation and share options.

Employers also make Big Contributions to China’s National Security Fund. So, workers cost double their basic pay.

Attractions: Chinese employees will join a company for good training.

Alternate Strategies
Overseas Chinese are filling some jobs. But they’re expensive and don’t know the local market.

Non-Managerial Labour
1. South Chinese economy is growing and moving into higher level work.
2. Firms can’t find skilled labour.
3. They can’t find cheap labour. (What does “cheap” mean in China?)

Some companies are relocating to cheaper inland cities.
Some will outsource to Vietnam and Cambodia.

Problems with HR Strategy
Business plans aren’t taking the lack of talent or the cost of recruiting and retaining talent into account.

From the Economist

China’s draft labor law worries foreign firms

By UNITED PRESS INTERNATIONAL
Published March 21, 2006

BEIJING — A proposed Chinese labor law has foreign companies worried that China is giving power back to the state-backed trade union.

According to a draft of the Labor Contract Law, released late Monday, the union would have to be consulted about mass layoffs and approve companies’ rules for employees. It also would have the right to negotiate on behalf of workers through collective bargaining, the South China Morning Post reported Tuesday.

State media said the National People’s Congress had invited public comment on the draft law for next month, after the full text was posted on the NPC’s Web site.

Companies claim the proposed law marks a step backward for China’s economic reforms by taking away flexibility in hiring and firing.

The law requires companies to pay a full year’s salary to employees departing under “non-compete” agreements, a level far higher than in Western countries.

The planned law also sets the length of probation for new employees and requires companies to make severance payments to workers on fixed-term contracts if their contracts are not renewed.

Criticizing foreign companies for failing to install unions, state media have threatened to draw up a blacklist. Companies also must hand over a mandatory payroll tax to the union.

http://www.wpherald.com/storyview.php?StoryID=20060321-101225-2734r

Firms recruiting in China find few fits

By RALPH JENNINGS

BEIJING (Kyodo) Japanese companies trawling for new hires at the second annual Beijing job fair have found few skilled applicants among the latest group of graduates.

Employers taking part in the Japan Chamber of Commerce and Industry in China’s second annual weekend job fair on March 11 at Beijing Normal University said they found few good matches.

They want people with technical skills but many job-seekers were Japanese language specialists with little work experience.

“People who understand technology don’t know Japanese, and the people who understand Japanese don’t know technology,” said a Chinese sales official at a Chinese branch of Matsushita Electric Industrial Co.

The job fair drew some 800 people — fewer than the 1,000, hoped for — from about 100 universities. A total of 33 companies participated, taking resumes and holding brief interviews with the job-hunters.

Companies collected an average of about 20 resumes each. Of those, three or four might have the qualifications for open jobs, recruiters said.

“The feeling isn’t that good, because they don’t meet our needs,” said Wang Huan, an account manager with the Beijing branch of Hitachi Information Systems (Shanghai) Ltd.

She said she wanted mostly experienced workers, not the college students who came to hear about Hitachi’s 15 job openings in Beijing.

The class of 2006 is a large one, due to a surge in university enrollments four years earlier, and now graduates are finding it more difficult than they expected to find good jobs. The People’s Daily reported recently that 4.1 million university students will enter the job market this year, 700,000 more than in 2005.

Graduates expect to make roughly 3,000 yuan to 5,000 yuan ($ 373 to $ 621) per month, enough to give something back to parents who paid their tuition as a family investment.

The Japan Times: Tuesday,March 14, 2006