This Expert Explains How To Work with China

Just like IT service providers elsewhere in the world, those in China would have you believe they can handle just about any aspects of your programming, testing or localization work. Only a small percentage has actually succeeded in attracting business outside their own border.

One of the dominant players — albeit, not as measured by staff size — is Information Technology United Corp. (I.T. United). This British-owned, Beijing-based company also has offices in Xi'an and Shanghai and representation in the US. The client list includes Cisco, Boeing China, GE, the British Embassy and Intel. Its areas of expertise include Web and e-commerce design and development, application development (including for mobile platforms) and streaming media tool creation

Cyrill Eltschinger, a former EDS executive from Switzerland focused on the GM China account, started I.T. United with a small group of former EDS staff, with the vision of creating one of the leading tech outsourcing services firms working in the China market.

Currently, it employs 120 people. It forecasts growing to 2,000 by the year 2008.

From his perch in Beijing, Mr. Eltschinger likens the current climate in China to "the early dot-com boom days when you had venture capitalists, banking groups, angel investors. Everyone is looking at where and how they can invest, grow and be a part of this booming next sector."

In this article, he shares 18 tips about doing IT work with China.

–> TIP #1. How do you know if you should head to China for your services? "Country before company."

Mr. Eltschinger quotes a Gartner motto here. As he explains, you have to ask yourself where the "key strategic market of expansion" is for your company. Once this has been determined, then outsourcing strategies are best served by working with an outsourcing partner from that market.

Currently, one of the reasons why there's so much attention paid to China is because it's wooing companies that are hoping to achieve a competitive advantage in their industry segment.

But don't assume that because you'll gain a presence there, it'll give you inroads to the domestic market.

It's difficult for most Chinese companies to get paid for their services, says Mr. Eltschinger, particularly in the area of software. "The average Chinese executive and even government officials have a hard time understanding why they should pay for something that they cannot feel and touch."

That's where having experience in selling to the West can be an advantage, because that means you probably have experience in demonstrating the value a company can achieve by automating its processes. "That's why," says Mr. Eltschinger, "you find local Chinese companies are starting to hire foreign professionals simply to gain that edge and add credibility and knowledge."

–> TIP #2. If the work you need to do is application development-oriented, look to China.

Mr. Eltschinger says his company gets a lot of inquiries specifically for Java- and .NET-based coding projects, as well as kJava for mobile applications. He points out that China is the largest mobile market with 350 million users (higher than the population of the entire US). And it's making for an extraordinarily dynamic environment — not limited to lowest-common denominator coding work. "China is evolving so fast and so quick that there are starting to become needs in the market that the West hasn't met yet and doesn't know yet. You are going to find the new situation in China whereby they will start to be innovation-driven in the market simply because of the sheer size of the market and how fast it is evolving."

–> TIP #3. With 10,000 IT companies in China, picking one to work with isn't easy.

China's Central Government has tried to help the effort by running an evaluation program that ranks companies. Currently, about 50 have made A and B grades. (I.T. United is a class A company.) Mr. Eltschinger says the evaluation process looks at the number of years a company has been in business, what sort of projects those companies are working on, what the development process is, how projects are managed, what communications and customer service is like, revenue and other financial standards, number of employees and type of offices that are set up.

But a government-sanctioned ranking won't reveal all viable contenders for your project. (In fact, you should probably assume the deck is stacked towards those companies that have relationships with the evaluators in some form.) To get a broader perspective, read through independent rankings, such as those put out by NeoIT and Managing Offshore and CIO Insight. You'll find the links to one 2005 report in the Useful Links list.

He also advises contacting the American Chamber of Commerce, which covers all of China but is located in Beijing. They can provide networking opportunities while you're visiting, make possible service provider referrals and provide advice for your travels.

–> TIP #4. Airlines are slowly cranking up the number of flights scheduled between the two countries. That'll make inter-continental travel easier — eventually.

Slowly but surely, the US Department of Transportation and China are raising the agreed-upon numbers of flights available between the two countries. In 2004, 54 passenger flights from the US increased to 84. By the end of the decade that'll be 249 flights (or, possibly, an unlimited number). What that means — presumably — is that you won't have to land in Beijing or Shanghai to get somewhere else in China.

You'll lose a day heading to China, but then you gain it back on your return trip. Plus, you'll need a visa, an easy thing to obtain for US citizens. (But, as Mr. Eltschinger points out, the reverse is not true. "It is a really complicated, really frustrating experience [for a Chinese person] to apply for a visa for short term business trips; even for tourism locations.")

–> TIP #5. Meet with providers before you head to China.

Plan your itinerary before you head over. That means having phone meetings with your list of candidates to ensure they're serious contenders worth visiting. Time zone-wise, if you're on the West coast of the US, you can schedule a meeting for 5 p.m. your time, which is 8 a.m. the next day in Beijing or Shanghai. (If you're on the East coast, it's tougher. The time difference is a solid 12 hours, which means overlapping meeting times are harder to set. We include a link to a handy meeting planner utility below.)

During the meeting, Mr. Eltschinger recommends developing a set of questions to establish such topics as:

  • How the company is structured.
  • How many years it has been in business.
  • How many employees it has.
  • What its staff retention rates and policies are.
  • Processes — ISO standards, certifications, and CMM levels.
  • Who its current clients are — and how to contact them for references.

The latter is especially important. As he advises, unless there's a truly compelling business reason, you don't want to be a test pilot — the first non-Chinese company to work with that particular service provider.

Regarding CMM level, Mr. Eltschinger recommends setting the bar at Level 3 (even if your organization hasn't yet achieved Level 1).

–> TIP #6. Another filter to apply: the presence of a US office.

As Mr. Eltschinger explains, "It is obviously an advantage to have a US legal entity in contracting business with US-based clients. People may be a bit apprehensive and distant in signing a contract with a China-based legal entity, since no one really knows how that would work or what would be the legal implications in case issues come up."

Frequently, you'll find that the US office consists of one or two highly overworked individuals who are from China and have gone to school and worked in the US (which, the thinking goes, gives them a "westernized" perspective). But even that small measure of effort means you'll have a somewhat local liaison in situations where communication problems arise.

Mr. Eltschinger believes that a lot of China service providers will end up becoming subcontractors to IT firms elsewhere in the world. If that sounds like a safer route, you may decide to structure your project that way, eventually — choosing a US service provider that can act as the China liaison. In fact, because so many India companies are opening up operations in China too, even if you go offshore to India, you may discover that your work is being done by a China team being managed by an India team.

But Mr. Eltschinger doesn't believe that Indian companies will have easy success in opening up operations in China. "I would say that simply judging by some of the steep cultural differences and historical background that has kept the Indian and Chinese markets more rival than partners over the last four decades," he says. "Some will be successful faster than others and others will simply not be successful at all."

–> TIP #7. In China you shouldn't expect the same level of "sheltering" that is provided by the host companies in India.

Yes, Asian hospitality is real, and you'll probably be invited to receptions during your visit. But the experience will be different from going to Mumbai, according to Mr. Eltschinger You can probably count on getting yourself to the hotel from the airport and even taking your own taxi or car to visit potential service providers on site.

There's one advantage to this. Although you should have an agreed-upon agenda for your meetings, you may want to make a surprise visit. According to Mr. Eltschinger, "It is too easy for companies to be prepared just for that [scheduled] moment… If I wanted to visit companies, I would show up a day earlier and have a look at the office when they actually didn't expect me. Then I would still make the meeting as scheduled the next day. That would always be a better way to evaluate how a company looks and feels."

–> TIP #8. Don't be deterred by service providers that want to block you from accessing certain areas of their companies.

Yes, that's right! Mr. Eltschinger recommends doing what you can to talk your way into restricted areas. Why? "There are always anal-retentive, process-oriented companies that will invoke whatever process or procedure or company policy to try and block you from accessing certain areas. I would be concerned when that happens, especially if you are there to discuss partnership and business activities. This I would say would be a negative point to be concerned about."

He says nothing should prevent a company from having an open-floor approach for prospective clients — and that includes the computer rooms.

Of course, you should be prevented from taking photos, carrying bags with you or hanging out for lengthy periods in one place, as measures of security.

–> TIP #9. Don't believe what you hear.

Actually, Mr. Eltschinger says this is a common mistake that Americans make. His suggestion: to validate up front through spot checks, references and follow-up on specific claims.

For example, if a company says they'll have 20 developers with three or more years of experience and Sun certification working on a project, then plan to have an in-person resource-oriented review meeting. Interview the individuals who will be working on your projects and confirm their certifications and track records. Also, match picture IDs with the candidates presented. He said most people don't think to do the latter.

–> TIP #10. Don't get overly concerned about people calling in sick or taking lengthy holidays, but do take the latter into consideration during your project timeline planning.

Mr. Eltschinger says workers in Asia in general and China specifically are hard-working. Sick leave isn't a common phenomenon. (It's deducted as non-paid leave or taken as vacation unless there's a medical certificate provided.)

Typical vacations are six or seven days per year for the first year, then it may go up by a day for every subsequent year worked.

National holidays — of which there are three to be aware — include the Chinese New Year, at the end of January and early February, where people are out for the week. (Though, as Mr. Eltschinger points out, they'll be working through the usual Christmas/New Year holiday in the US.) Then Labor Day is May 1 (a day off) and National Day is October 1 (typically two days off).

–> TIP #11. Take at least 200 business cards with you.

Sound like a lot? Everybody you meet along the way will trade a business card with you. Take it in both hands, study it, and avoid sticking it into a pocket. Keep it handy. Don't think you'll meet 200 people during your visit? Remember those networking receptions? You could hand out a huge pile during one of those alone. After all, the goal is to meet a lot of people during your visit.

–> TIP #12. Unlike in India, you won't be dealing exclusively with the person at the top of the hierarchy.

While top management will participate in welcoming guests, the core of the meetings will clearly engage other people in the organization and don't require what Mr. Eltschinger calls the "Entertainment Officer." He considers that a plus for China — "to have the ability to work with other people in the organization rather than just be filtered through one single person."

–> TIP #13. As with any outsourcing project, plan on cross-training and over-communicating.

Mr. Eltschinger considers the early stage work to be the most important success factor in the course of a project. That entails having subject matter experts from the client side in the US going overseas to cross-train or coach the people on the China side. In some cases, it may mean bringing the Chinese workers to the US to get training on specific aspects of the industry or the application itself.

That's where staff retention becomes vital. If the people assigned to your project are wooed to another firm, you've lost that investment. Right now, that's a greater concern in India than in China, says Mr. Eltschinger

Also, once you've established the merits of the team you'll be working with, don't assume they'll be available for a second or third project — unless you've committed to a full-time extension.

Expect to participate in on-going weekly and monthly program and milestone reviews and be involved in the performance evaluation of staff members who are part of the project.

–> TIP #14. Second-tier cities really do produce dramatic differences in the compensation structure at service providers.

Whereas the average developer in Beijing or Shanghai with two or three years of experience would earn $500 a month, according to Mr. Eltschinger, that drops to $300 to $400 a month in second-tier cities.

Stories about companies providing their own housing may be overplayed, but you may find out that your service provider is set up that way. Although I.T. United staff is responsible for its own housing, that may well change depending on how and where the company grows, Mr. Eltschinger says.

If you find a company that appears to be paying its staff less than the average, be suspicious. It may mean the individuals you'll be working with won't stick around to the end of the project.

In other words, monitor market rates for your geographic area in China. Don't be overly delighted with a significantly lower project price. That quick win now could come back and hurt you later.

–> TIP #15. Choose a project that's not too large but not too small either.

Mr. Eltschinger recommends against a pilot project that is less than $10,000. Even $15,000 may be too small. Yet that's frequently what US companies come up with. The challenge on that scale is validating your gains or benefits and advantages of using a China-based service provider. In other words, by choosing too small, you may find you've just proven how it won't work.

He considers a $50,000 project a "more adequate rule of thumb" for a pilot effort. And he never sees first-time projects above $200,000.

So what would that buy you? Of course, if the project involves a specialized skill set or a great amount of consulting or project management, the cost goes up. But a $100,000 "basic development job using .NET for six months" would probably cover the expense of 10 to 15 people.

–> TIP #16. If you find that you're unable to understand your project liaison, act immediately.

Yes, Chinese people are being taught English from a very early age. Yes, their written understanding of English is frequently quite good. But they don't have ready access to English-speaking people to practice their verbal skills.

If you find that the interface — written or verbal — isn't up to your standards, suggests Mr. Eltschinger, put the service provider on written notice that you want the person you're dealing with changed within a certain number of days or weeks.

–> TIP #17. Take into consideration US export controls.

If your products involve Department of Defense work that's of a proprietary nature or some type of national security-class application, confirm that you can export development work to China. "Some companies have already been fined by the US government for not complying with export control procedures," says Mr. Eltschinger. His suggestion: "Contact [your] friendly Department of Defense rep."

–> TIP #18. Yes. Consider intellectual property issues, but don't let them paralyze you.

I.T. United is regularly audited by its Fortune 500 clients and, says Mr. Eltschinger "is known to have better IT protection in data security process than they do." Plan to do your own auditing if the service provider becomes a vital partner.

To prevent possible reverse engineering, break your outsourcing work into pieces, where all the pieces aren't provided at one time.

Another route: providing remote access to the code from the US and allowing only "bubble access into the development area."

Finally, evaluate the clients that work with a particular provider and examine its track record.

Useful Links:

I.T. United
http://www.ituc.com/ituc/index.php

I.T. United US liaison
John S. Tai, john.tai@ituc.com, (650) 430-2846

Torch Program ranking
www.chinatorch.gov.cn/tzgg/tzgg_tongzhi_info_55_1.aspx

CIO Insight China report
http://www.cioinsight.com/article2/0,1397,1776816,00.asp

American Chamber of Commerce
http://www.amcham-china.org.cn/amcham/home/index.php
Email: amcham@amcham-china.org.cn
http://www.amcham-china.org.cn

World meeting planner utility
http://www.timeanddate.com/worldclock/meeting.html