When the world wants to outsource technology services, India usually comes to mind first, not China. This is apparent by the sheer size of the market where India’s outsourcing market is worth US$70 billion a year compared with China’s US$20 billion. However the leading China based IT outsourcing provider, VanceInfo is making headway around the world.
Based on revenue, VanceInfo is the number one Chinese outsourced provider for the North America and European markets for the past four years, according to IDC. The most popular services, the Beijing based company performs are software product development, customer IT application development such as Expedia and Cathay Pacific’s flight and passenger related systems and enterprise solutions such as Oracle and SAP ERP system implementation and maintenance. Clients are big global companies such as Microsoft, 3M, IBM and Citibank; typically Fortune 1,000 companies.
Forbes recently reported on the company collected $212 million in revenue last year and turned in a $30 million net profit. This year consensus estimates call for $276 million in revenue and a $40 million profit. Analysts say revenue could jump to $345 million next year.
According to Marketing Manager of VanceInfo, Ken Schulz, the success of the company can be attributed to an array of advantages over their Indian competitors like Infosys and even global ones, like Accenture. The advantages are:
- Large talent pool with about 6 million college graduates each year of which half come from engineering, sciences and management degrees
- Low cost of labor
- A low cost advantage due to streamlined operations as well as a frugal corporate culture to help control operational costs, rather than passing them onto clients
- Strong government support and relations
- Strong infrastructure, where China’s second tier cities are superior to India’s tier one cities
- A large domestic market
VanceInfo also believes that they tend to “attract the best and brightest talent because of our fast growth, which provides career growth opportunities for our employees. Although publicly-listed on the New York Stock Exchange (NYSE: VIT), our fast-paced environment mirrors that of a start-up company, allowing us to retain a high-performing workforce that seeks to make a difference.” Says Schulz.
It is clear India dominates the outsourcing market. Tata Consultancy, Wipro and Infosys generate a huge US$8.2 B, US$6.2 B and US$6 B in annual revenues respectively. According to Ken, “India’s lead can be attributed to their early start in providing low-cost staffing services. They sent low-paid workers from India to the US, and made their inroads that way. Then towards the end of last century, fears of a Y2K (Year 2000) meltdown let many companies to invest heavily in off-shoring the upgrade of older information systems. Indian firms also pioneered the concept of off-shoring and the GDM (global delivery model) that the global players such as IBM and Accenture have since adopted.”
To better serve their global network of clients, VanceInfo has established offices in multiple regions such as Americas, Europe and APAC. In scaling to the size it has become, the company has faced tough challenges along the way. Ken said that “Communication and coordination challenges in performing offshore work require us to build out a complete GDM (global delivery model) that includes ‘onshore’ resources to directly interface with client counterparts overseas. Successful overseas operations require the globalization of company culture. Given that over 90% of our resources are currently in China, globalizing our company has been a challenging task that we are still working on. Without a large global footprint, business for multi-national companies can be limited to their China operations as opposed to work on their global IT systems at their corporate headquarters.”
Currently the company makes approximately half of its revenues from within China and the other half, outside China, especially in U.S., Europe and Japan. However, as the company expands more internationally, they are looking to generate more overseas operations. Industry wise, they will look to target banking and financial services, travel, manufacturing, retail and telecom.