Recruiting The Best Talent

Quick Resource Ramp-up is critical

China IT outsourcing has been growing at an annual rate of over 20% the past 5 years according to industry research firms. Players in the China outsourcing industry require robust HR and recruiting programs to serve as a foundation for this rapid growth. The strongest players build their companies by recruiting talent from the industry and hiring new graduates from leading universities and academic institutions in China. To ensure a diversified resource pool, they also source qualified applicants from India, Japan, North America, and Europe through international recruiting agencies. In addition, they will encourage and reward employee referrals to ensure a qualified candidates are found rapidly. At the more successful companies, as much as 10% or more of new hires can come through referrals.

Internship programs at top universities in China and various on-campus training activities are needed to raise the profile of leading companies and give them a competitive edge in recruiting the best resources. When performing due diligence on China-based IT outsourcing firms, it is important to understand how their talent pool is sourced, and how rapid resources can be added.

Assessing Capabilities Of Outsourcing Providers - China Or Otherwise

Technical and business domain skills are both necessary

Technical skills should be first and foremost when it comes to finding the right talent for your IT projects. This means that software programmers need to be well versed in in the likes of Java, .Net, Oracle, or SAP, or whatever the project requires. However, both software 'consulting' skills and business domain knowledge are also critical components of the capabilities mix. They are not something learned in school, but rather obtained through real on-the-job experience. Although China has a rapidly expanding talent base with these skills, it is still critically important to ensure adequate due diligence is performed on service providers. Don't just look at how good a provider's coders are, but rather ensure that they can communicate effectively using business terminology relevant to your domain.

Poll: Would You Outsource Your IT To China?

In a recent entry on his Inside Outsourcing blog, author Karl Flinders poses the following question to his readership: Would you outsource your IT to China?  I just voted in the on-line poll which enabled me to see up-to-date results. 'Yes' and 'No' responses were neck and neck at the time, and it will certainly be interesting to see final poll results down the road.

In his post, Karl refers to the recent VanceInfo and HiSoft merger to create Pactera, now the leading IT Services provider with global headquarters in China, and notes:

"These companies are managed from the US but have access to a massive computer science worker resource. China has 350,000 computer science graduates every year and they cost less than their equivalents in India."

What is your vote?

Largest China-based Global IT Services And Offshore Software Outsourcing Provider Created Through Merger

China-based outsourcing leaders VanceInfo and hiSoft announced their intention to merge yesterday, which will create the largest China-based business offering of consolidated IT, offshore software development, and BPO services, with a total employee count of over 23,000. While this scale still pales in comparison to large global services players such as Accenture and IBM, and India-based players such as Infosys and Wipro, it should nonetheless finally place China-based global IT services on the map.  For up to this point, and outlasting numerous analyst predictions of industry consolidation, the competitive landscape has tenaciously remained overly fragmented.

From the press release: 

VanceInfo Technologies Inc. and hiSoft Technology International Limited to Combine in Merger of Equals to Create China's Leader in Global IT Services

BEIJING, Aug. 10, 2012  -- VanceInfo Technologies Inc. (NYSE: VIT) ("VanceInfo") and hiSoft Technology International Limited (NASDAQ: HSFT) ("hiSoft") announced today that they have signed a definitive merger agreement, under which the companies will be combined in a tax-free, all-stock merger of equals with a combined equity value of approximately US$875 million.  Under the terms of the agreement, VanceInfo and hiSoft shareholders will each own approximately 50% of the combined company.  hiSoft will be the surviving listed company in the merger, and its shares will continue to be listed on the NASDAQ Global Select Market. A new name for the combined company will be announced in due course.

Under the agreement, each outstanding ordinary share of VanceInfo will be exchanged for the right to receive one common share of hiSoft, and each American Depositary Share of VanceInfo ("VanceInfo ADS"), each of which represents one VanceInfo ordinary share, will be exchanged for the right to receive one American Depositary Share of hiSoft ("hiSoft ADS").  Immediately prior to the merger, hiSoft will effect a 13.9482-to-1 share consolidation and change the ratio of hiSoft ADSs representing ordinary shares from one ADS for 19 shares to one ADS for one share, which effectively implies in a 1-to-1.3622 hiSoft ADS split.  These changes are designed to ensure that hiSoft and VanceInfo will have the same number of outstanding shares and ADSs at the effective time of the merger.

Upon completion of the transaction, Mr. Tiak Koon Loh, the current Chief Executive Officer of hiSoft, will assume the role of Chief Executive Officer of the combined company, while Mr. Chris Chen, the founder and current Chairman and Chief Executive Officer of VanceInfo, will assume the role of Non-Executive Chairman.  The board of directors of the combined company will consist of four directors selected by VanceInfo and four directors selected by hiSoft.

The strategic combination will create a combined company with expected 2012 revenue of over US$670 million, which will be the largest China-based offshore IT services provider based on industry market research reports.  The combined company will have the scale and diversity to compete on a global basis, with a stronger customer platform created by the complementary customer bases of hiSoft and VanceInfo, an enlarged and diversified asset portfolio, an extended business pipeline and a strong balance sheet and cash flow profile.  Customers of the combined company will benefit from an expanded pool of consultants and engineers around the world with a commitment to superior customer service and a highly experienced management team from both companies with extensive industry knowledge and experience.

"I am excited to be leading the new company to create China's global champion in IT Services. The combined company will be a clear market leader in serving domestic and offshore customers with the largest resource base, most comprehensive breadth of IT services capability and the most balanced geographic customer profile," said Mr. Loh. "Our common vision in building a world class services organization delivering outstanding financial performance has already helped us to identify some strong synergistic opportunities for the combined company.  We expect to see significant synergies across a number of areas including sales, general and administrative costs, effective utilization of facilities and sharing of future R&D and capital investments."

"VanceInfo and hiSoft are pioneers in China IT Services who have built strong, loyal customer bases," said Mr. Chen. "The joint company can take advantage of the strong market growth opportunities while continuing to attract the best people. Our broader scope of capabilities leveraged across a deeper sales force will also open ample new business development opportunities. This combination will be perfectly placed to address my vision since the founding of VanceInfo to build an unrivalled leader in China IT Services serving the global market. As Chairman, I look forward to working with Mr. Loh and the management team to deliver this vision."

The combined company will employ over 23,000 people across 13 locations in China and 14 additional locations worldwide.  It will serve a global base of top tier customers, which include some of the largest Chinese corporations as well as many Fortune 500 companies.  Its vertical areas of strength will include TMT, BFSI, Transport and Manufacturing.

The companies have identified potential cost synergies, which are expected to reach 2% of combined revenues within 18 months after the closing of the transaction.  The parties are developing a defined execution plan and anticipate that the transaction will be accretive within the first 12 months following the consummation of the merger.

The strategic combination has been approved by both companies' boards of directors and is subject to customary closing conditions, including shareholder approvals by VanceInfo and hiSoft shareholders. The transaction is expected to close in the fourth quarter of 2012.

Citigroup Global Markets Inc. acted as financial advisor and Orrick, Herrington & Sutcliffe LLP acted as legal counsel to VanceInfo in connection with this transaction. Lazard acted as financial advisor and Simpson Thacher & Bartlett acted as legal counsel to hiSoft in connection with the transaction.

Research On Corporate Culture At China-based Outsourcing Firm: Trust Building In Virtual Teams

A study on corporate culture at VanceInfo, a representative China-based outsourcing firm listed on the New York Stock Exchange (NYSE: VIT).  Thanks go to Qiu Wang, a visiting researcher from Leeds University in London, who has embedded himself in the workplace environment at VanceInfo's world headquarters in Beijing and volunteered the following piece...  

Out of Sight, But Not Out of Touch: A Reflection on Trust-Building in VanceInfo’s International Sales and Marketing Teams

VanceInfo Insights: Corporate Culture Series

By: Qiu Wang, visiting researcher from Leeds University

The following article for the China Outsourcing Blog was written by one of the visiting scholars attached to VanceInfo’s Academic Outreach Program and represents an independent, third-party perspective on corporate culture in China’s leading software outsourcing company for North American and European markets. All views expressed by the researcher are his/her own and do not represent VanceInfo corporate policy.

A virtual team (VT), where members use electronic networks to communicate with one another across geographical, cultural and organizational boundaries, has become a reality for most multinational companies (MNCs) (The Wall Street Journal, 2007). It is argued that the rise of virtual teams is attributed to a confluence of advances in communication technology and increasing competition in today’s turbulent business environment (Forbes, 2010). Indeed, by creating a ‘dream-team’ composed of the best professionals regardless of their physical locations, VTs provide a cost- effective way to realize the coordination and synergy among the differentiated but interrelated business units within multinationals. In spite of potential benefits, it is important to bear mind the dark side of VT: such disadvantages may include low individual motivation, social loafing, cultural mis-understanding and a feeling of isolation (Mowshowitz, 1997).

Given that, a number of researchers and consultants have suggested that trust is a determining factor in the success of VT. Although trust is important in any type of team, trust is particularly pivotal in global virtual teams for three reasons. First, by representing an expectation of mutual interests, trust sets up an ‘organic administrative principle’ in the sense that traditional forms of control and coordination (i.e. direct supervision) are not feasible in the virtual workplace. Second, while the metaphor of ‘network organization’ has been constantly evoked to capture the pattern of intra-MNC resource exchange (Stevetodd, 2012), development or breach in trust is the structuring event that influences the configuration of social linkages, that is, certain connections are initiated while others are terminated; some individuals become more central in the communication structure while others are pushed towards the margin. Third, given its strong associations with emotional factors including care, benevolence and satisfactions, trust can significantly reduce the adverse impact that geographical distance can have on psychological well-being. Therefore, trust has been described as the ‘glue of the global workspace’ (O’Hara-Devereaux and Johansen, 1994: 243).

However, our understanding of trust and trust-building in context of VT is still inadequate. To fill this gap, the visiting researcher, Qiu Wang, from University of Leeds, UK, has conducted several interviews with team members in VanceInfo’s global sales and marketing unit—a geographically dispersed but highly interdependently division within the company. From ‘the live experiences’ of VanceInfo’s sales and marketing staff, the researcher has discovered some interesting insights that may challenge or extend the current knowledge on trust building in VT. In line with this logic, this report starts with conventional thinking on trust development, then introduces VanceInfo’s unique experience, and finally draws some managerial implications.

1. Building trust in VT needs frequent face-to-face interactions.
Many researchers presume that trust can only be built as a result of constant meetings in person. Charles Handy (1995), an influential management guru, famously claims that, ‘Trust needs human touch’. Given the nature of ‘virtualness’ eliminates the chance for team members to meet each other physically, a general conclusion is that trust is difficult to maintain in VT. The accounts by VanceInfo’s sales staff seem to challenge this conventional thinking. One employee explains that, ‘Yes, trust is absolutely essential for global marketing activities via virtual team. This type of trust, however, is substantially built on the people’s competency on specific project rather than the number or time of inter-personal contacts.’ A valuable implication derived from this statement is that trust in VT can be quickly formulated on task-related capability to compensate the lack of frequent direct interaction.

2. Trust development within VT is subject to cultural barriers
Since individuals from different cultures vary in terms of their communication behaviors, researchers believe that trust tends to be particularly fragile in a culturally heterogeneous VT. Not surprisingly, team members are bombarded with sophisticated training on ‘cultural awareness’, ‘cultural etiquettes’ and ‘cultural shock prevention’. Nevertheless, the interview with VanceInfo’s managers seems to relax our excessive worries on culture difference in trust development. As stated by one staff, ‘as long as the people can response to my request timely and provide detailed information I ask for, I will trust in them no matter of their nationality, age or hierarchical position.’ This account supports the view that technology-mediated communication actually reduces the salience of cultural difference. It also highlights that what is really important for trust in cross-cultural VT is quite straightforward—a substantive and timely response.

3. Trust is primarily a personal asset
A key assumption from the received wisdom is that trust represents a private social capital that grants individuals more opportunity to realize personal goals. In other words, trust only benefits the people who possess it. In contrast, the conversation with VanceInfo’s marketing professionals suggests that trust can be transformed into collective resources which all team members can access and use for project management. For instance, one sales staff recalls that with the help of good relationship between his supervisor and a certain unit, he quickly developed a trust with the colleagues in that division with whom he had no previous interactions. In this way, virtual team leaders may go beyond the role of information boundary spanner, and act as a ‘trust advisor’ who makes referrals about the perceived trustworthiness of others. Furthermore, given the very ‘virtulness’ constraints the immediate contacts between the team members, this kind of third’s party judgment often serves the micro-foundation of the trust development within the global VT.

4. Feeling of isolation in virtual team may be detrimental to trust development
The major disadvantage of VT is the emotional alienation due to limited physical interaction. Given genuine trust often requires sufficient affective investment, many researchers and consultants assert that trust in VT is quite superficial or shallow, which in turn may stimulate people’s tendency to behave opportunistically. Indeed, some of our interviewees have indicated the feeling of not being connected. One VanceInfo’s virtual team member comments that ‘I wish I could have been given more chances to visit my colleagues in HQ or other units…. As human beings, we have to be touched, cared and heard.’ However, VanceInfo counteracts feelings of detachment first by employing the expatriate who have been living in host country for over 10 years. Hence, their emotional needs from the country of origin may be less salient compared to new-comers. Second, because of their unique culture experience, they are more attuned to the subtle emotional clues in computer-mediated communication. Consider the following statement made by VanceInfo sales manager, ‘I like to use positive words such as “This is getting exciting!” or “well done, everyone”. It injects our virtual team with a strong sense of enthusiasm and community.’ By implication, VanceInfo’s experience with isolation in VT suggests that feelings of loneliness, while possible, can be overcome with careful selection of prospective candidates.

In sum, VanceInfo’s experience demonstrates that trust in VT can be developed swiftly as well as effectively when team members have a strong task-based ability, pragmatic style of communication, high-level emotional intelligence and a well-connected team leader. In fact, these factors are by no means exhaustive. But they represent the potentials of trust building that mainstream studies on VT fail to capture or even tend to reject. Although we concur with the argument that there are no ‘sliver bullets’ in creating a strong trust relationship in global VT, learning from VanceInfo represents a good starting point. In addition, given ‘trust’ considered as a core organizational value, we believe that VanceInfo will come up with more innovative ideas and practice that may cast new lights on trust development in the unique context of international management.

China's Emergence As An Outsourcing Global Delivery Center: A European Perspective

The recent National Outsourcing Association (NOA) 25th anniversary conference provided insights into China outsourcing from a European perspective:

"John Barton, General Manager Europe at VanceInfo [...] focused on trends and tips when dealing with China. It provided a rare look at the strategic outsourcing partnership between a China-based IT services provider and its Western client"

The case study Mr. Barton presented is summarized in the NOA's Outsourcing Yearbook 2012 Summer Supplement.  The summary, titled "China's Emergence as a Global Delivery Center", reads:

"In a recent report comparing the suitability for outsourcing of Chinese and Indian cities, IDC made a strong case for Beijing and Shanghai. China has taken many actions to encourage the growth of the IT outsourcing business (ITO) in “model cities” around the country. The support given to ITO business should not be surprising; ITO represents a low-carbon, high value-add, technology-intensive industry – in short, exactly the kind of industry china wants to attract and develop. Within the outsourcing space, which most observers agree China only truly entered four or five years ago, ITO is a much greater part of the outsourcing business than BPO (business process outsourcing), which includes many traditionally outsourced services, such as call centers, credit card processing, indexing, etc. Indeed, though still a large player in terms of revenue, China lags behind heavyweight India, and also the Philippines and Ireland, in BPO services. Still, analysts agree China is maintaining a strong lead in ITO, with BPO catching-up fast.

Many European companies, especially in Britain, turn to India as a default outsourcing destination. In fact, china is already competing with India and other global providers, and is anticipated by industry research firm IDC to become the outsourcing delivery destination of choice in several years’ time. Some basic advantages china enjoys are modern infrastructure, a well-run intellectual property rights (IPR) environment, easy scalability of existing operations, and the trust of the international business community. (Those who have ridden China’s “bullet train” from Shanghai to Beijing will testify to the technology and investment that went into that project.) Chinese cities are also well-connected to electricity and water networks, even in western China. China’s education system produces a large number of engineering and computer science graduates all over the country, so outsourcing delivery centers are able to find diverse talent across many different regions as well as scale-up operations quickly if need be. Finally, the success of long-term outsourcing relationships such as that between VanceInfo, China’s leading software development services provider, and Microsoft, the world’s leading software company, create a strong precedent for overseas collaboration..."

Although a handful of leading China-based outsourcing service providers do have a sizable base of North American clients, European client bases are typically much smaller. Mr. Barton points out a number of historical factors. It now remains to be seen whether China-based players can seize the momentum of successfully servicing EU-headquartered client operations in China, and grow to provide scalable onshore services in Europe.

World Bank 'Ease Of Doing Business' Report On Offshore Outsourcing Destinations

One of the primary business drivers for China-based outsourcing providers has been the huge domestic market potential that attracts investment from multi-national corporations (MNCs). Relationship-savvy MNCs quickly learn that to do business in China, it makes sense to consider partnering with a China-based provider.  After all, why in the world would an MNC doing business in China ask their current providers based in an entirely different region of the world to service them in China?  Although there may be good reasons, strategic consideration needs to be given.

Helping MNCs assess the overall ease and risks of doing business in China with a local China-based service provider, the World Bank has published comprehensive DOING BUSINESS research. From their website:

"Economies are ranked on their ease of doing business, from 1 – 183. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country's percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic."

One of the 10 topics/criteria is Enforcing Contracts, which is a critical measurement of the risk involved with doing business offshore. The table below show how the popular offshore outsourcing destinations stack up to each with regard to overall ease of doing business and contract enforcement:

Source: The World Bank, Ease of Doing Business Report, 2011

We can see from the table that China compares favorably with other offshore destinations on contract enforcement. And perhaps counter-intuitively, also surpasses most countries in the developed world.