India

India is the largest destination for outsourcing worldwide: the country is home to almost 70 percent of IT offshoring and almost half the outsourcing of processes.

When facing risks, have a strategy Large Spanish technology companies such as Indra and Abengoa, but also SME’s like Bankoi, Gorlan Team, inQAlabs, Avisor, and Lantek, either have set up shop in India or are looking for local partners to sell and develop their technology in Asian countries. The success of Spanish high-tech SME’s in India is proven by the speed with which they have managed to lay down roots, just a year and a half on average compared to seven and a half years for the textile industry. The steps to follow are: 1. Define the goal of the operation beforehand: just to develop technology in India, or to sell it there as well. 2. Explore the country and its market. Travel to India, dig for in-depth knowledge on its technology sector, seek advice, visit local companies, and get an on-the-ground sense of any potential problems. The cities that are the most highly recommended due to their concentration of technology companies and their pool of talent are Bangalore, Bombay and Pune. 3. Study whether it would be wiser to create a subsidiary or seek a local partner to set up a joint venture. During this decade, subsidiaries with 100 percent Spanish capital are beginning to be more numerous than joint ventures due to more flexible legislation and a greater need for control. Sources: El País; Estudio sobre la presencia empresarial española en Asia, edición 2006, Everis-Casa Asia.

China

For 2006, Gartner Dataquest predicted a turnover of $8.8 billion for IT services in China, which means an annual growth rate of 19.6 percent. The majority of large technology companies are moving at least part of their production there. IBM already has several development centers in the country, as well as one center to coordinate outsourcing in Asia and a research centre.

A fragmented sector In Shenzhen, an emerging high tech segment is being created in the heat of the stock exchange in this city, which has a technology index and is the second largest after Shanghai. Companies tend to be located on the eastern seaboard; this is the region with the most technology companies, plus it boasts the most highly qualified technical staff. The location is also dependent on the population’s restrictions on internal mobility.

Six golden rules 1. Be flexible and diversify your suppliers. 2. Forge associations with privatized state-owned companies. 3. Do not only seek low costs when choosing a province or city. Also bear in mind government incentives, reliability, distribution speed, and suitable infrastructures. 4. Use your suppliers to gain access to the Chinese market. 5. Try to understand the cultural differences: you have to be patient and flexible in order to handle a society in which decisions have traditionally been based on power and relationships. 6. Pay attention to changes in regulations and technology standards, and adapt your strategy accordingly.

Zooming In

Spotlight on quality Although the main reason why technology companies set up shop in India and China is to save on costs, some companies have realized that quality is what should come first. For this reason, they end up making concessions on cost and responsibility, such as by hiring local project leaders in China – to avoid translation problems – and adopting more suitable knowledge transfer practices and management models.

The role of the local partner When there is a local partner, to ensure that outsourcing is successful Western companies should view the partner as such and not as just another vendor. Key requirements are a type of management in which both sides participate, coupled with a structure oriented towards cooperation. Sources: The Outsourcing Institute; Chinese Ministry of Trade; CIO.