ChinaSourcing: iSoftStone has conducted a series of mergers and acquisitions during the past several years. What is the driving force behind all these?
Li: Our strategy for developing in both size and strength is based on three engines. The first one is we are in constant effort to extend services for our customers, which is to say, we try to develop the capacity to provide varied kinds of services for every single customer; the second one is we are committed to serving clients from all around the world, namely, we are constantly exploring regional markets; the third engine is we are constantly improving ourselves in the industry that we have entered.
The mergers and acquisitions we conducted in the past all revolved around the three engines. For example, in order to expand our market in the United States, we acquired a Seattle-based company located near Microsoft Headquarters. With a good customer base and the advantage of being a local player in America, it was a high-end EPO enterprise. Through this acquisition, we attained talents for high-end customer services. It was also by the means of acquisition that we entered Japan’s market. Our outsourcing capacities have got enhanced in recent acquisitions, more of which happened in such key sectors as finance sector, insurance sector, banking sector and telecommunication sector. Thus, our acquisitions were not blind, but revolved around the above-mentioned three engines. Only in this way can we realize quick integration and thus improve our own delivery capacity, include the companies we have acquired into our strategic and organizational structures as well as reduce acquisition costs.

ChinaSourcing: Currently, there exist some doubts among foreign outsourcing clients about Chinese outsourcing enterprises’ delivery capacities, which pose an obstacle for the latter to win large orders from overseas. What kinds of experience in promoting outsourcing delivery capacity can your company share with us?
Li: Our experience is as follows: Foreign outsourcing clients do have some misgivings about China’s outsourcing companies, mainly because they do not have a deep understanding of us. As for our company, when dealing with overseas orders, normally we will appoint senior customer managers or vice presidents at the front-end for customer services. As they all have technical background, they can dispel the incomprehension that may occur among customers when projects are transferred to us from the United States or the Europe. Very often, we come to realize that the problems that may emerge are not technical, but are caused by the differences of working environments and communication mechanisms. By appointing quite a number of VP-level customer managers who have technical background and who come from the customers’ working environments, we can succeed in dispelling customers’ misgivings. Customers are also concerned about the actual delivery of transferred businesses by Chinese outsourcing enterprises. A complicated project with a relatively long lead time is apt to give rise to all kinds of problems. Our approach is finding suitable employees with appropriate backgrounds to undertake the project. Of course, costs also enter into our consideration. If necessary, we will form a team specially for the customer so that it can transfer the project to us with more trust. With the establishment of ODC (offshoring development center), we get closer to our customers that may send staff to participate in our ODC construction and plan with us the new projects to be launched in the following year.
One of the BPO high-end projects we have been undertaking recently was only won after we beat India’s third largest outsourcing enterprise. At the very beginning, the client showed worries over the delivery capacities of China’s outsourcing enterprises; however, after half a year’s operation, the client was completely relieved and has included China’s delivery base into its list of global major delivery bases. Therefore, the competition between our country’s outsourcing enterprises and India’s does not involve employees’ quality, but the way and process of communicating with customers as well as the handling of the differences of working habits and cultures. It is all right to make some small mistakes at the beginning. What customers appreciate more in an outsourcing enterprise is its speed in solving problems, the sincerity it shows for long-term cooperation and its long-term investment planning. In discussions with the government, we often mention the need for our country’s outsourcing enterprises to grow bigger, as a customer that wants to transfer large or long-term projects to an outsourcing service provider normally will hope that the latter should have time for trials and costs for overcoming mistakes. Only when you have a big platform can the customer gives you the chance for trials. We don’t think there is any shortcut and what we can do is to win trust from the customer through trials. It costs money for a company to have trials and attain orders eventually. So, the government should encourage outsourcing enterprises to have trials, give them more support as well as help them attract experienced project professionals and reduce project costs.

ChinaSourcing: The labor cost advantage enjoyed by China is gradually disappearing. What kinds of changes will the rising of labor costs in future bring to outsourcing enterprises? And how will the emergence of such countries as Vietnam and Philippines whose human resource costs are lower than China’s impact on the global outsourcing industry?
Li: It is impossible for our country to forever maintain the absolute advantage in labor costs, but there is no need for us to feel pessimistic. The overall supply of college students in China is 2-3 times that of India. China does not enjoy the absolute advantage in the number of computer-science college students, which almost equals to that in India. However, China will have a much greater source of talent supply if we convert some of the non-computer-science college students into computer or outsourcing-related professionals through professional training. This advantage of China is sustainable, while the one enjoyed by India can not last for long. Therefore, India has been witnessing the rise in labor costs, which hasn’t occurred in China yet.
In the medium and long term, the cost pressure on China will be reduced, as it holds superiority over India either in talent supply, efforts in transforming education and training systems or national support for outsourcing. But for some specific posts, such as project manager, architect, business analyst and high-end customer manager, the labor costs will rise, as the supply of talents for them can not be solved just through simple large-scale training. There is no need to feel worried if the rise of labor costs can go with the bulk supply system of training institutions. It is just impossible for those countries whose labor costs are lower than China’s to enjoy the constant supply of college students in large numbers.
Moreover, these countries do not have complex, large information technology projects. Through serving the domestic market, China’s outsourcing enterprises can produce high-quality project managers, architects, business analysts, etc. Other countries, including India, are inferior to China in this aspect. India’s outsourcing workers that offer demand consulting services in America and the Europe can not really serve their customers well, as they can rarely attain the chance for exercises in their domestic market, while the software outsourcing workers from China can well satisfy customers’ demand. There will be many an opportunities for high-end talent training in future. We did not pay enough attention to such training in the past, because of which many people did not have the idea that they could work for the outsourcing industry. The large domestic market supplies very good soil for us outsourcing enterprises to cultivate high-end outsourcing talents, especially consultants and high-end architects.

ChinaSourcing: The Chinese government attaches great importance to the development of the outsourcing industry. It is clearly stated in the No.9 File issued by the State Council General Office early this year that support would be offered to the outsourcing industry from such aspects as finance, taxation, talent training. What’s your opinion on the introduction of this file?
Li: We think that the introduction of the No.9 File as well as the holding of the symposium presided by Vice Premier Wang Qishan on February 2 in Nanjing on the implementation of the policies stated in the file are both conducive to China’s outsourcing industry. The introduction of these policies is very opportune. As we know, the financial crisis starting last year has slowed down the rates of European, American and Japanese clients in giving out orders to us, as they are being in the process of adjustments, which we think will bring us great opportunities. Major clients from the Europe and America are paying more attention to China’s outsourcing service providers and locations, as they have come to realize the risks they may encounter when dealing with India’s outsourcing enterprises. Also, they have witnessed the continued stable growth in China’s outsourcing market against the backdrop of financial crisis. Every crisis can benefit a large number of enterprises. For example, the 2001 Internet crisis helped a batch of outsourcing service providers in India to become successful, while exerting great impact on traditional outsourcing enterprises in the Europe and America. The crisis this time must be an opportunity for us Chinese outsourcing companies and how should we seize it? We are still relatively weak, with the scale normally staying at 6,000-7,000 employees, while the staff number of an Indian company generally can arrive at 30,000-100,000. Without governmental support, it will be hard for us to compete with Indian companies or seize the opportunity during this crisis. Therefore I say the introduction of the policies this time is opportune and is of milestone significance to the development of our country’s outsourcing industry. There is one more thing I would like to talk about. As the introduction of these policies was the result of the joint efforts of various ministries, outsourcing enterprises will get more help during the implementation of the policies. We are also expecting the other 11 supporting policies to be introduced as soon as possible and we believe that local governments and the municipal leaders of outsourcing model cities will join us in innovations aside from making policies, help us seize the opportunity and thereby realize the country’s task of “maintaining economic growth, promoting domestic demand and adjusting industrial structures”.

Introduction of Li Bo: Mr. Li Bo is the Executive Vice President of iSoftStone Information Service Corporation and the head of Greater China Business Group. Prior to working for iSoftStone, Mr. Li held senior management positions in well-known consulting or software companies including Roland Berger, Langchao-Genesoft and Capgemini. He also founded Bexcel, and built it into one of the most successful local management consulting brands in China. Mr. Li has rich experiences in Transformational Strategy, IT Planning, Business Process and Performance Consulting, ERP PMO, and Key Account Management. He holds a PhD and a MS from Christian Albrechts University of Kiel, Germany.