Archives 2006

Big bucks in China’s software industry

By Dan Ilett

Published: Wednesday 26 July 2006

Amid China’s tech boom, how is software shaping up? It might not receive the attention that internet- and even mobile-related sectors get but, finds Dan Ilett, the industry is addressing its challenges.

You commonly hear two phrases in China’s technology world: “there’s so much opportunity here” and “this is the new Silicon Valley”.

Whether there’s truth in either will be seen over time but China’s software industry – spanning indigenous software vendors, overseas arms of foreign companies and outsourcing operations, for example doing application development for users in China and overseas – is certainly growing at phenomenal speed.

China throws people at software because it’s so cheap to do so. The real problem though is that the Indian companies are coming.

— David Lewis, VP of corporate development, Worksoft
There are more than 13,000 companies producing software in China. In 2000, they exported $400m-worth of software but by 2005 that figure had grown to $3.6bn. It is set to jump again to $12.5bn by 2010, according to China’s Ministry of Information Industry.

David Lewis, VP of corporate development for Worksoft, a software outsourcing company, says: “China throws people at [software] because it’s so cheap to do so. The real problem though is that the Indian companies are coming.

“But they themselves have problems. There are cultural issues between Indians and Chinese and there’s a good deal of protectionism – not to the same extent as Japan has had but that’s a key issue people are overlooking.”

Some predict that just as the Chinese government has protected Chinese banks, the same will happen in software.

IBM, a large overseas player, has approached the market by putting Chinese people in charge of its operations. Lewis says Infosys is the only Indian company to have embraced the same approach.

Worksoft produces software for the likes of Citibank, EDS and Microsoft and also sells into Japan’s financial services sector.

According to the China Software Industry Association, China is the largest overseas software producer for Japan – a near-shore coding shop, if you like. Beijing alone did $150m worth of coding for Japan in 2005 and that figure is expected to grow by 50 per cent per year. Almost 4,000 Japanese-speaking software engineers are now required to meet the growing demand.

Yet, at first glance, China seems to have an abundance of qualified software engineers.

Read all about it…

Yu Bin, head of the Zhongguancun Software Association in Beijing, says: “International companies are getting in to China to develop their software. There are a lot of students who graduate in China – about three million every year, one-third of whom would be IT students.”

Bin says antivirus and ERP software companies – covering areas such as payroll, HR and manufacturing systems – are hot right now. Government figures also point to education and tax as growth areas.

And software companies argue that although there are a large number of IT graduates, finding the people with the right skills is proving difficult.

Worksoft’s Lewis adds: “The universities here blow away Indian universities. But in India they do more training. It’s still a young industry here. It still has to grow up but it will grow faster than India.

Another hurdle is creativity. Lewis believes the Chinese government is taking a risk by homing in on “what’s making big bucks” now rather than looking to the long term. He would also like to see a greater spirit of teamwork among the Chinese software engineers.

Cheng Peng, an academic from Tsinghua University – one of China’s most prestigious – agrees that a lack of creativity and innovation is holding back the software economy.

He says: “Innovation is so poor here. We can earn a lot of money from doing things like coding and having our own businesses but fundamentally the IT economy is something we can’t get yet because we’re not innovating. There’s a lack of real thinking. Everyone’s trying to break into a market – they just can’t do it without innovating.”

And analysts argue software engineers are taking advantage of an environment that allows them to change companies every few months.

Sage Brennan, MD at analysts Pacific Epoch, says: “In software China has a great chance but the main issue is project management skills. Chinese engineers are great at getting tasks done. But they have few skills in management – they just don’t have much experience.

“We’re starting to see companies get past the 50-person mark. We’re not seeing many 4,000-person software engineering companies, though – not like India, for example. If you can get high-quality managers and middle managers then that’s easier but people don’t manage teams very well. Not yet.”

China’s future in software clearly looks bright – though not without its issues.

China’s MNCs pick local managers over expats

YINCHUAN (CHINA): Yong Wu, 40, heads a foreign invested factory that produces over a million tyres a year, most of which is sold worldwide. He is in charge of 3,000 workers toiling in three assembly lines.

Yong draws a salary of 6,000 yuan or Rs 30,000 a month. A third of his income goes towards mortgage on his house in Yinchuan, capital of the remote Ningxia province in west China. Zou Guanghui, his deputy, runs one of the assembly lines with 916 workers. Zou earns 4,000 yuan or Rs 20,000.

Yong and Zou are among the hundreds of low-profile wonder boys – as foreign investors sometimes describe them – who have become the darlings of these investors. These reliable managers are one of the many reasons why there is an almost endless flow of foreign investment into China’s manufacturing sector.

Most of them earn about 20% of the salaries claimed by expat managers. And usually do not have sophisticated management degrees. But they exhibit an ability to efficiently manage vast armies of workmen.

Recent years have witnessed a huge growth in the number of Chinese managers being employed by foreign companies, who used to mostly rely on expatriate managers till the mid-90s.

Now Hiring in China

By Rick Aristotle Munarriz (TMFBreakerRick)
August 8, 2006

Running a human-resources business in China has to be like shooting fish in a barrel. Between a dynamic economy that has grown at a 10% clip over the past few years and 1.3 billion potential hires in the world’s most populous nation, 51job (Nasdaq: JOBS) is in a good place. Unfortunately, investors think the company should be in an even better place.

Monday night, the company behind the popular 51job Weekly employment classifieds publication saw second-quarter revenues climb 18% higher to hit the U.S. equivalent of $21.7 million. That may not seem like much, especially when you consider that the slower stateside economy still found Monster.com parent Monster Worldwide (Nasdaq: MNST) posting a 36% spike in revenues over the same three months.

However, it’s also important to contrast 51job’s slower print business — whose revenue climbed just 7% higher during the quarter — with the online-recruitment and executive-search segments, which posted hearty top-line improvements of 41% and 36%, respectively.

Margins improved to the point of allowing profits to soar 79% higher to $0.16 per American Depositary Share, before stock-based compensation expenses and currency-related hits. Analysts were expecting earnings to clock in at only $0.11 per ADS, even though they nailed the top-line gain.

The current quarter will be challenging, though. The company is looking to earn between $0.13 and $0.15 per ADS on $21.6 million to $22.9 million in revenue. That’s fine on the earnings front, since Wall Street was projecting profitability of $0.13 per ADS. But it’s not cool on the top line, where the potential of flat sequential growth flies in the face of the $24.1 million that analysts have been targeting.

The world understands the potential in China. Investors do, too. Our stock newsletters are ripe with recommendations in the region. Ctrip (Nasdaq: CTRP) is a Motley Fool Hidden Gems selection. Motley Fool Stock Advisor has picked SINA (Nasdaq: SINA) and TOM Online (Nasdaq: TOMO). The Motley Fool Rule Breakers newsletter service has singled out three China-based companies, including online-gaming leader NetEase (Nasdaq: NTES) and solar-power pioneer Suntech Power (NYSE: STP).

No, 51job hasn’t made the cut in any of our newsletters, but the after-hours slide, which drove the shares into the high teens, does pose some intriguing value-based possibilities. Now trading at 38 times this year’s earnings and 28 times next year’s profit potential, 51job isn’t a screaming value. But with an improving economy placing a greater value on landing quality hires, the company is at the right place at the right time. Risk-tolerant investors may also be feeling the same way.

IT salaries to go up in China, Singapore

By Vivian Yeo, ZDNet Asia
Wednesday, July 19 2006 11:34 AM

update Companies in the IT and telecoms (IT&T) sector across Asia, particularly China and Singapore, expect to offer higher remuneration this quarter, according to a new report from human resources agency Hudson.

Nearly 2,400 key employment decision makers in China, Hong Kong, Japan and Singapore were surveyed for the report, according to Hudson. Respondents were from companies in six industry segments: IT&T, banking and professional services, consumer, healthcare and life sciences, manufacturing, and media, public relations and advertising.

The report, released Tuesday, noted that 82 percent of IT&T companies in Singapore anticipated salary increases during the third quarter of 2006. Of these, 44 percent said they were expecting to hand out increases of 5 percent or more.

Lynne Ng, general manager at recruitment agency Adecco, agreed that salaries are climbing in Singapore’s IT industry. Brisk hiring activities can also be expected and IT professionals will likely be encouraged–by this environment–to change jobs, she added.

In China, 5 percent of IT&T companies forecast a salary raise of more than 15 percent, the highest among the six industry segments. About 57 percent of those polled expected to hand out increments of between 5 percent and 15 percent, while another 18 percent predicted pay raises of under 5 percent.

Salary sentiments, however, were not as positive in Hong Kong. Respondents forecast minimal or no pay increases, where 69 percent indicated that salaries would remain the same, while 31 percent said pay raises will be less than 5 percent.

On the bright side, the employment outlook in the IT&T sector remains buoyant for all China, Hong Kong and Singapore, noted Hudson.

The hiring trend for all job functions remains positive across the sector this quarter, according to Hudson. This is notably so in Hong Kong, where 62 percent of respondents anticipated a headcount growth in the third quarter, compared to 38 percent during the same period last year. The demand for new hires was expected to be particularly strong in “development and sales roles”, Hudson added.

In Singapore, 54 percent of IT&T companies planned to hire new staff, up from 49 percent during the third quarter of 2005, while 57 percent of Chinese IT&T companies also intend to increase headcount, a slight increase from the previous quarter. Although the hiring forecast for the IT&T industry in China is one of the lowest among the six sectors, the Hudson report noted that expansion in the other sectors will help drive demand for new IT projects.

In addition, the demand for IT specialists–regardless of industry sector–is strongest in Singapore at 21 percent of the estimated increase in headcount. In the report, Hudson attributed this demand to “Singapore抯 rapid development as a regional hub for companies’ IT operations”.

In China and Hong Kong, 3 percent and 8 percent, respectively, of the overall increase in new hires for the IT&T industry will go to IT professionals.

Andrew Sansom, director of DP Search, a recruitment agency specializing in the IT and finance industries in Southeast Asia, told ZDNet Asia in an e-mail that the strong hiring outlook now means both prospective candidates and employers have a bigger basket to pick from.

“Job seekers have more choice now, for sure, but [the growth is] still well short of pre-2001 levels,” he said. “Hirers are very choosy and won’t recruit just to fill headcount. They expect to see more resumes now than before, and take longer to make decisions.”

Companies in the banking and professional services industry indicated the highest level of hiring activity, and is consistently ranked first or second in China, Hong Kong and Singapore, in terms of expected increase in headcount.

Caterpillar Will Build New Manufacturing Plant In China

July 24, 2006 — A new wheel loader manufacturing facility will be built in the Suzhou Industrial Park in China’s Jiangsu province. Caterpillar intends to begin construction of the 350,000-square-foot building in early 2007 pending appropriate governmental approvals.

“This facility will add to Caterpillar’s growing operations in China and provide the primary manufacturing source for Caterpillar wheel loaders in the Asia Theater,” said Rich Lavin, vice president of operations for Caterpillar’s asia pacific division. ” This site offers Caterpillar a business-friendly environment with excellent access to port and ground transportation facilities, established suppliers and great people.”

Caterpillar operates 13 China-based facilities which manufacture products including: hydraulic excavators, track-type tractors, motor graders and paving products, large diesel engines used primarily for marine and power generation applications and generator sets for use in China and the Asia Pacific region. Caterpillar also manufactures components at several facilities in China. In addition, Caterpillar holds a minority stake in Shandong SEM Machinery Co., Ltd. (SEM), one of China’s leading wheel loader manufacturers.

In the 1980s, Caterpillar launched technology transfer agreements with Chinese manufacturers who began building Caterpillar licensed products. Caterpillar’s expansion in China accelerated in the early 1990s with the establishment of a more significant local production strategy.

Jupiter to launch China fund for Ehrmann

By Margaret Taylor

Jupiter is to launch a China equity fund by the end of the year, to be run by former Gartmore manager Philip Ehrmann.

Ehrmann, who left Gartmore following its management buyout partnership with Hellman & Friedman in May, is to join the firm in October and, subject to regulatory approval, the portfolio will launch thereafter.

At Gartmore Ehrmann was head of Pacific and emerging markets and, among other managerial roles, was lead manager on the firm’s China Opportunities fund.

China VC Gold Rush Continues

Report on VC investment in China in first half of 2006 sees more money chasing deals.

July 12, 2006

Beijing—Venture investment in China in the first half of 2006 nearly doubled to $772 million compared to the same period in 2005, according to a new report.

The report, released by Zero2IPO, a Beijing-based venture capital research firm, at the China Venture Capital Semi-Annual Forum 2006 on Tuesday, found that 121 Chinese firms received venture investments, an increase from the first half of 2005 by 49 percent.

The number of firms, however, also represents a 17 percent decline from the 147 firms that landed venture funding in the second half of last year. Still, total venture investment has risen 5.4 percent over the second half of 2005.

“Valuations are up, and the average deal size is now $6.2 million, up from $4.2 million last year—an increase of almost 50 percent,” said Zero2IPO CEO Gavin Ni.

But Mr. Ni called this trend a “low-grade fever,” not a clear valuation bubble.

‘Things may get even hotter.’
-Rocky Lee,

Eleven new China-focused funds were raised during the first half of the year, with an average fund size of $90 million.

Non-Chinese funds continued to dominate, with 71 percent of projects funded by non-Chinese venture firms. Eight-five percent of total venture investment came from dollar-denominated funds.

The Lion’s Share

IT firms continued to win the lion’s share of funding with 84 IT companies receiving $562 million in venture backing in the first half of the year, representing 69 percent of the total number of venture-invested firms and 73 percent of the investment dollars.

The Internet sector in particular attracted the largest number of investments and greatest total amount of venture funding. Thirty-nine Internet companies were funded in the first half of the year, with $276 million dollars invested.

“During the first and second quarters, we saw some very aggressive plays by investors, especially in the web 2.0 space, with high valuations that some of the VCs are now having second thoughts about,” said Rocky Lee, a Beijing-based venture and private equity attorney at DLA Piper Rudnick Gray Cary.

“There seems to be a return to a focus on business models, revenue models, and other fundamentals,” he added.

Telecommunications followed IT, with 18 projects receiving $152 million. Eleven integrated circuit companies drew a total of $50 million, and seven software companies were funded for a total of $42 million, the report said.

“This was something of a surprise to me,” said Mr. Ni. “I had anticipated that there would be more non-TMT [technology, media, and telecommunications] deals in the first half. But the non-TMT deals tend to take longer, and we expect they will make up a greater percentage in the second half.”

Beijing Leads Shanghai

Beijing-based firms accounted for 51 percent of the received investment dollars and 40 percent of funded companies. Shanghai trailed with 20 percent of the investment dollars and 29 percent of the companies.

Fifty-eight firms—69 percent of firms attracting funding—were early-stage startups, pulling in a total of $241 million for an average of $4.1 million per project, said Mr. Ni.

Rules issued by China’s State Administration of Foreign Exchange (SAFE) in April and July scared off overseas venture investors in the first half of 2005. But with the repeal of the SAFE regulations in October, VC money gushed back in.

“A number of VCs are doing larger and larger deals,” said Mr. Lee. “This might be driven by higher valuations, or it might be because the target companies have to have larger war chests in this increasingly competitive environment.”

“In the second quarter alone, we closed eight venture deals,” said Mr. Lee. “We helped deploy almost $100 million in that quarter alone.” With new opportunities related to third generation (3G) applications now heating up, he added, “things may get even hotter.”

ArvinMeritor To Establish New Manufacturing Facility In China

SHANGHAI, China, Aug. 7 /PRNewswire/ — ArvinMeritor, Inc. (NYSE: ARM) today announced it will open a new wholly-owned operation in Wuxi, Jiangsu Province, China. The 300,000 sq. ft. facility will initially manufacture trailer axles and suspensions for key trailer manufacturers in China, as well as for export of components to North American and European plants. The company’s board of directors approved the investment in the new facility.

Production is estimated to begin in the first half of 2007.

Other drivetrain and brake components will be added to the operation’s portfolio, as the company continues to pursue its strategic enterprise model.

“As the country’s infrastructure improves, tractor-trailer configurations are expected to rise exponentially, and we will be ready to support both current and future market needs with advanced technology,” said Sergio Carvalho, vice president and general manager of ArvinMeritor’s Trailer Products and Suspensions business.

Investment in the Wuxi operation will include $35 million for new equipment.

The company has identified local sourcing for its components, which furthers its integrated manufacturing strategy to bring all aspects of the supply chain within close proximity of the facility.

Background

ArvinMeritor is the worldwide market leader for trailer axles and plans to become a major player in China’s growing trailer undercarriage market.

Today, the company has four Commercial Vehicle Systems (CVS) manufacturing facilities in China, with one being wholly-owned and the remaining three operating as joint venture partnerships. These locations assemble or produce axles, brakes and related components for medium- and heavy-duty trucks, off- highway and bus and coach markets, in addition to the aftermarket. All products are produced for export or are supplied to leading vehicle manufacturers in China.

ArvinMeritor, Inc. is a premier global supplier of a broad range of integrated systems, modules and components to the motor vehicle industry. The company serves light vehicle, commercial truck, trailer and specialty original equipment manufacturers and certain aftermarkets. Headquartered in Troy, Mich., ArvinMeritor employs approximately 29,000 people at more than 120 manufacturing facilities in 25 countries. ArvinMeritor common stock is traded on the New York Stock Exchange under the ticker symbol ARM. For more information, visit the company’s Web site at: http://www.arvinmeritor.com.

Web site: http://www.arvinmeritor.com//

Siemens China appoints new general manager for Communications Group

Siemens China has appointed a new general manager for its Communications Group as a strategic adjustment, a crucial step for its future development, reported the Xinhua-run Shanghai Securities News on Wednesday.

Zhang Zhiqiang, former vice president of Siemens China, is appointed the new position, and will be responsible for all the business of the Communications Group in China.

Zhang joined Siemens China in 1987, starting as an assistant manager in the commercial and management branch. Before his new appointment, Zhang has held management positions in many different business groups in Siemens, including Medical Solutions and Siemens VDO Automotive.

Peter Weiss, the former general manager of the Communications Group, will continue to serve as executive vice president and member of the management board of Siemens China, the newspaper reported.

Source: Xinhua

Apple Cancels General Manager Position For China

August 9, 2006

Apple (APPL) is rumored to be removing its general manager position in China and replacing it with four business departments whose general managers will directly report to the head of Apple’s Asia Pacific Headquarters.

The four new departments that Apple will set up in China include the Industry Client Business Department (B2B), Consumer Electronics Products Department (B2C) and Education Market Product Department (Edu). The name of the fourth department is still unannounced.

Apart from the manager for the Education Market Product Department who will come from Apple’s headquarters, the other two managers are not known yet although local media report that they might be new faces to the company.

A representative from Apple in the Asia Pacific Region has confirmed that Apple is making some adjustments, but he says that the final scheme has not come out yet.