What You Should Know About Outsourcing to China

A veteran watcher of India's outsourcing market, researcher Joseph Rottman says that China is worth evaluating for offshore work but he warns labor costs are rising.

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Did you find that China was trailing India in areas like leadership and project management skills?

Rottman: Actually, it was similar to India. I think both suffer from what seems to be an Asian problem. China has a collective thinking mentality. When the boss asks the employee what he thinks, he says, "I think what you think." You really have to work hard to encourage productive disagreement, debate, and individualism and tell them, "I don’t want you just to agree with me." It’s an ingrained issue. India is getting better at dealing with it, but part of it may be that U.S. managers have come to expect it and manage around it.

When you ask Chinese managers what’s lacking in their new college graduates, they cite things like leadership skills and project management skills. They’ll tell you they need to teach them how to lead and how to be led.

What’s the employee turnover situation like in Dalian?

Rottman: Turnover is an issue. Job hopping is an issue. I don’t think it’s as severe in Dalian as it is in Bangalore. But it has the potential to be. When the multinationals start waving money in front of China’s IT professionals, it certainly could be. When I talked to the employees at Oracle, that name on the door was certainly a draw.

What about concerns about IP protection in China?

Rottman: That’s the other elephant in the living room. You walk down the street in Dalian and see pirated CDs and software everywhere. It’s still a big issue. According to the manager of one of the captive development centers in Dalian, that’s why China is not ready for hardcore development work yet. The safeguards are not in place.

Neusoft will tell you they have IP protections in place and your IP is safe with them. But the U.S. managers at the captive center will tell you they wouldn’t put that kind of development in China yet. But “yet” is the important word. It’s getting better. The Chinese government realizes it has to fix this because the first thing anybody asks is, “What about my IP?”

If you look at India, the market forces were stronger than any government efforts to protect IP. If Infosys let a flagship customer’s IP walk out the door, they’d be devastated. And that’s where IP protection in China is going to come from, the market forces.

In what ways was Dalian most different from the cities you visited in India?

Rottman: The security in India was almost oppressive. I had to pop the battery out of my Apple laptop before going into an Indian company. On the street and in the hotels, private security was everywhere. I didn’t see two police officers while I was in Dalian. It was much different. In India, I got the impression that it was rich and poor existing side by side but never interacting. And maybe that’s what the security was for.

Dalian was a much more comfortable city—very Western feeling and modern and clean. I was surprised at how Western the city felt. It was amazing the growth going on. It was like a forest of construction cranes. The concrete never stops pouring. You’d never mistake any city in India for a Western one. India is clearly India. It seems very decrepit (compared to Dalian). In India, you might see IBM’s beautiful building right next to a slum.

Next: Can China usurp India as an outsourcing capital?

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