CIO — When State Street opened a technology center at Zhejiang University in Hangzhou, China, in December 2001, the goals were modest. But since the center opened, State Street has found a valuable foothold in an important Asian IT talent market.

The financial services giant set up the center at the university to be part research and development lab, and part application outsourcing facility. The school is about a two-hour drive southeast of Shanghai and is known as a top-10 computer science school in a country that graduates nearly 500,000 engineers a year.

State Street’s project started with a reference. One of the company’s senior managers who was familiar with Zhejiang talked about the university. It wasn’t long before a group of professors was spending six months at the financial giant’s Boston headquarters, working on software projects and familiarizing itself with the financial services industry in general and State Street’s development processes in particular. When the group returned to China, it started the center with 15 students.

Initially, the center was slated for IT pilot projects and prototypes, said John Fiore, State Street’s CIO at the time, in an interview with FinanceAsia Magazine.

During the past year, the number of programmers at the technology center has grown to nearly 70, mostly graduate students and professors. The center is now entrusted with some of State Street’s most critical application development. For example, student workers recently finished an upgrade to the company’s equity trading system, which because of missing documentation had to be completely reverse-engineered.

"The system is now in production with four times the previous volume," says current CIO Joseph C. Antonellis. "And it took less than six months."

Antonellis insists that his company’s program is not about cost savings, but acknowledges that it is one of the advantages. The graduates are paid, he says, adding, "this is not a sweatshop."

George Koo, the director of the Chinese Services Group at Deloitte & Touche, says the benefits of State Street’s program go two ways. Cost savings is an important factor: Chinese programmers in China typically make between 25 cents and 33 cents on the dollar compared with American IT workers. Second, the technology center gives State Street a presence in an area poised for growth. Koo says that an arrangement like the one that State Street has with Zhejiang can build a sense of loyalty with the Chinese population.

Having workers halfway around the world has other advantages as well. "When we’re asleep, they are working," says Antonellis. "And as they sleep, we can do the quality assurance."