David Scott Lewis is an experienced businessperson/techie, now with Startech Global’s Beijing Office in Tsinghua Pioneer Park. In this three part Sourcing Magazine series, Diane Schaffhauser extensively interviews Lewis on China and on technology in China. Part I, “Analyst David Scott Lewis Shares His China Perspective” is here, Part II, “Your China Strategy Development: Advice from an Analyst” is here, and Part III, “The Current State of Services Outsourcing in China” is here.

Schaffhauser describes the Lewis interview as follows:

You can never know what’s going to come out of David Scott Lewis’ mouth next — but you should know whatever he says will be insightful and you’d better pay attention. An ex-METAGroup analyst who — along with many others — lost his job when the company was acquired by Gartner Research, he had never been to China, aside from Hong Kong. But not so many months ago, he moved overseas because little was keeping him in the US and love beckoned from afar (and online). The last time we caught up with him — in July 2005, when he’d returned home for a brief visit to speak at the AlwaysOn conference at Stanford University — he was providing consulting services in China, primarily to US clients trying to locate just the right service providers to work with. In this interview, Mr. Lewis supplies a no-holds-barred rundown on the current state of the outsourcing business in China.

Though the interview is two years old, it is, like all discussions with Mr. Lewis (a frequent CLB commenter) it is truly “no-holds-barred” and, more importantly, quite interesting and quite instructive.

I recommend it to all who are doing business in China, particularly to those in the tech business.

  • Dian and I met again during SOFTWARE 2007, had a nice, long discussion that could (and might) make it as another two- or three-part series in Sourcingmag.com. However, Dian recently left Sourcingmag.com and told me that she’s not sure what they’ll do with her source materials.
    Since the original interview, I’ve had the “opportunity” to serve as VP, Business Development for the two largest U.S.-focused, China-based IT outsourcing firms, Worksoft and Beyondsoft. Worksoft is the larger of the two (about twice the size of Beyondsoft), has raised $30 million in a Series B led by Sequoia, and might be the first China-based ITO firm to go public on NASDAQ. (Since HiSoft will likely opt for Tokyo and given that Achievo and Augmentum are U.S.-based firms, Worksoft will very likely be the “Infosys of China” in the minds of most Americans, especially after a NASDAQ IPO.) BTW, of their 18 person senior management team, I was the only person not born in China (besides the fact that I was the only non-ethnic Chinese). Quite the experiences at both Worksoft and Beyondsoft.
    Now that I’ve had an “insider” take on things, my perspectives are a bit different than they were when I was first interviewed by Dian. They’ve also been shaped by my current position as SVP with the outsourcing hub for Tsinghua (University), a post I’ve held for the past year. I also have a decent take on things in the China solar sector, more on the collectors (panels) side of things versus cells, but they’re ultimately all tied together. A “green tech” in China perspective in addition to my background in ITO.
    My general observation is that China hasn’t made much progress in ITO (at least relative to India). Although there are exceptions, China is really stuck in the manual testing and localization/globalization side of things, something I think of as the industrial sludge of the IT food chain. Most clients are U.S. ISVs (software vendors), too, and China-based firms can’t support U.S. end user clients due to a host of issues, including visa issues.
    However, the Indian globals — who have all sorts of activities going on in China — will fail with their China efforts unless they’re willing to adapt to a different set of rules. And, for the most part, the Indian globals are clueless when it comes to China. They do the dumbest things, make the most absurd claims, but really just don’t get it. I suspect your readers know the real reason why the Indian globals will fail in China, and I plan to write about this for an article to be published in Forbes China (in Chinese).
    The big opportunity that has emerged since my first interview is ESO: Engineering services outsourcing. NASSCOM blessed ESO last August and it’s the new darling of many Indian globals. Well, this is one area where China will crush India. But China needs to thank NASSCOM for producing a wonderful report on the ESO opportunity, a report that has been translated into Chinese and has been read by senior officials in several central government agencies. (Gee, I just can’t imagine how they got a copy of a tranlated version of the NASSCOM report?) Anyway, this is the new outsourcing market — a market higher on the value chain than what is normally done in China — that China will dominate. It will take time, but China will literally destroy India in the ESO sector. India has a few years to get things going, build the ESO concept, and then China will run with it. Unlike ITO where the gap between China and India is actually widening (primarily due to the fact that the Indian globals are now at the highest levels of the IT food chain), ESO will be China’s to conquer and dominate.

  • nanheyangrouchuan

    “ESO: Engineering services outsourcing.”
    We’ll see how long that process lasts as companies in developed countries are starting experiment with using powerful computer programs to do basic CAD, modeling and forecasting in finance and engineering. The upfront cost is far from small but you can leave the computer on all night and will work all night, all day, rain or shine, national holidays, etc.
    I’m curious as to what sectors of ESO are being targeted for outsourcing.

  • nanhanyangrouchuan

    I also wonder how China can sell itself as THE ESO place to be when it does such a shoddy job of engineering anything itself. There is a reason that foreign experts are still there and still being sent to China…there aren’t enough competent chinese graduates to do the work.

  • @nanhanyangrouchuan: Thanks for your comments.
    As defined by NASSCOM, the key sectors are telecom, semiconductors, consumer electronics, computing systems, industrial automation, and medical devices; automotive; aerospace; construction and industrial machinery; and, utilities.
    Why will China win? No need to repeat what I’ve already written. See and also click on the other sections listed under “Why China?” on that page. Hope this helps.

  • David Scott Lewis (Zytech Solar, a Going Green 100 Winner)

    The Startech page has removed an extensive “China vs. India in ESO” section that I once wrote. However, it might still be available through the Internet Archive. (Startech’s marketing focus has morphed over the past several months. In fact, my day job these days is in the solar power sector, and I joke that my night job is being Twine’s number one private beta tester and writing about all things semweb.)
    Anyway, if you look at the points raised in NASSCOM’s ESO report, you’ll see that China is “better” than India in EVERY category except language. And, fact is, China has a sufficient number of capable (not fluent) technical English speakers, readers and writers.
    Finally, manufacturing firms often need to have engineering and product design 1) in their target countries, and 2) near their manufacturing base. Advantage: China. The only downside for China is IPR, but this is also a problem in India. True, it’s less of a problem in India, but China is getting better at IPR protection. However, proceed with caution.

  • A Treehugger report claims that solar panels may not be as environmentally-friendly as was initially thought given the potential for waste generated from the life-cycle of a solar panel. The article discusses the early development of a recycling plan as a plausible solution.