U.S. Services Firm Acquires China's Suzsoft

In an example of the rapidly changing landscape of the offshore outsourcing industry, U.S. IT services firm Darwin Partners has acquired Suzsoft Co., a Chinese outsourcing firm, for an undisclosed sum.

A key reason for the deal, which Darwin describes as a "merger/acquisition," is to provide IT customer insurance from too much Indian outsourcing. "Many of our customers were worried about too much concentration in India," said Paul Buntrock, Darwin's senior vice president of Solutions Delivery, in an interview Friday.

Bruce Ferland, Darwin president, noted that the firm polled its clients extensively about the direction of IT outsourcing. "It was clear that the U.S. market for outsourced IT services is seeking an alternative to India," he said in a statement, citing also the "mitigation of geo-political and vendor concentration risks as well as the rising cost of labor in India and the need for a broad-based global sourcing strategy."

The firms said the new combined firm will have about 750 employees about evenly divided between each unit. Frank Robinson, Darwin's CFO, said Suzsoft will operate as a wholly owned subsidiary and in China will operate as a separate legal entity. He noted that Suzsoft, founded in 2001, already has a stable of international customers.

Buntrock said the Chinese operation offers expertise particularly in .Net and J2EE, PLM (product lifecycle management), and quality assurance and capability. The acquisition was carried out largely because Darwin felt Suzsoft's expertise will complement Darwin's IT expertise in financial services, telecommunications, and healthcare markets.

The new combined company will have a global outlook focusing on the U.S., Asia, and Europe with its differentiation to be its front-end U.S. capabilities and its size relative to other China-based firms in the IT offshore outsourcing business. James Tong, Suzsoft's CEO, will continue to lead the Chinese company and will join the board of directors of the new combined firm.

Buntrock said one advantage for customers in dealing with the new combine is that they can contract with a U.S. company rather than a Chinese company. And in China, customers can do business with a Chinese company. He noted that some employees at Suzsoft are native English and German speakers, giving the operation an international flavor.

As an example of how the deal is already proving to be beneficial to both firms, he cited the case of one of its clients, a U.S. loan services company, that had hired Darwin to examine whether a loan processing system would benefit the loan services firm. The answer was affirmative and now with the Chinese operation, the Darwin combine is working on building the system.

Citing the advantages of the new company structure, Tong said the offshore software development experience of the two firms will lead to "a unified strategy on how to achieve the next generation of IT outsourcing via offshore development in China."

Darwin believes the combined company is the first IT company in China with an established U.S. IT clientele to operate across multiple industry vertical segments.