Just read a post on the Computer Weekly Blog entitled, “Would you offshore your IT to China?” (h/t to the China Outsourcing Blog).  The post talks quite a bit about  US listed Chinese outsourcing company, VanceInfo and its recent merger of equals with HiSoft to form Pactera Technology International.  My firm has represented VanceInfo for many years so I am going to remain silent on the merger, but that representation has given me a somewhat inside look at how China is perceived as a destination for IT outsourcing.

The Computer Weekly article also polls its readers as to whether they would outsource their IT to China and at this point the yes votes are tied 1-1 with the no votes.  What I find fascinating is how many companies are so much slower to outsource to China than they are to India and their explanation for that is often something along the lines of how China is the wild wild west or that it has no IP laws. The funny thing about this is that each year the US Trade Department does a priority watch list of the worst countries on IP protection and each year both India and China (and Russia too) are on that list, usually made up of about ten countries.  And when it comes to handling commercial disputes, China consistently does quite well in the World Bank ratings (top 20), whereas India is always very near the bottom. Now I am not saying that these statistics mean that China is safer than India for outsourcing (especially since I am of the view that in the end the best analysis is by company, not by country), but I am saying that the fears regarding China are exagerated, at least as compared to India.

Of course, for all I know, the poll results for India would have been similar, but I do not think so.

What do you think?  Would you outsource your IT to China?  Are you already outsourcing IT to China? Are you any more or less willing to outsource your IT to China than to India?

Larry Hotaling was the final first day speaker at the China Forum.  Mr. Hotaling (who I have heard described as an “operations genius”) spoke on “China/India: The Collaborative Future is Here.”  Mr. Hotaling heads up Global Diligence, a Hong Kong based market entry and operations consultancy whose tag-line is “Your Bridge to Asia.”

Mr. Hotaling began by talking about how much easier it is to start doing in China than in India. He also noted that India’s infrastructure is much worse than China’s and how if you have more than 100 employees in India, you will need government permission to fire anyone.

Hotaling said manufacturing companies must deal with both China and India. Though this is going to be a requirement, Chindia as he and others are starting to call it, is also “an opportunity.” A company’s tasks should be done where the company can secure the best resources at the best price:

  • Product definition will be in the United States or the European Union (EU).
  • Product design and tooling will be in India.
  • Tooling build will be in India or China.
  • Product manufacturing will be in China and/or another low cost country like Vietnam.

Hotaling then compared China and India using a whole slew of different factors. I generally agreed with Mr. Hotaling’s assessment of China and India, but I disagreed with his brief assessment on the state of the two country’s legal systems. Mr. Hotaling described China’s legal system as “poor” and India’s as “excellent (British Model).” I would describe China’s legal system (and this is for business only and only in those parts of China where most foreign business is conducted) as fair and improving. But that is just a quibble.

Where I think Mr. Hotaling is wrong is his describing India’s legal system as excellent because it is based on the British model. The way to judge a legal system is not on its model, but on its reality. China has some of the most modern, most clearly written, and most thoughtful corporate, contract and IP laws in the world. China’s legal problems arise not from the system on which it is modeled, but from poor implementation. I think the same is true in India. I note also that India has yet to sign on to numerous international treaties relating to IP protection, including the Madrid Protocol on trademarks, which China signed more than ten years ago.

After Mr. Hotaling spoke, I talked with two forum attendees about their companies’ willingness to outsource design and engineering to India. My theory was that Midwest manufacturing companies (most of the attendees) would oppose sending such tasks overseas because they are considered the “heart of their business” and to do so would also mean laying off their friends. If a two person survey can be deemed conclusive, I was flat out wrong.

Both people with whom I talked (one was head of engineering and the other was a high level executive) told me they thought outsourcing such work would allow their companies to take on more work and would, if anything, increase company jobs.  One said that securing overseas engineering help would reduce turnaround time and allow his company to secure more projects. Another said his company was already maxed out on the engineering and design side and bringing in more engineers and designers from outside the company would allow it to expand.

Chindia’s coming.  Or, if we are to include Vietnam, should that be Chindiam?