India has become the premier offshore locale for application-development programming talent, though costs there are rising as outsourced projects increase in complexity. China is the next large source of affordable offshore talent. In fact, some of the biggest names in Indian and U.S. outsourcing, such as Tata Consultancy Services and Cognizant Technology Solutions, have opened Chinese offices to serve customers, including local branches of multinational businesses.
Still, competition with big IT services houses isn't deterring Kingdee. The second-largest software company in China, according to research firm IDC, is a newcomer to the global market. But it's expanding and growing fast. Its revenue in 2003 reached $48.3 million, up from $24 million in 2001. "Our profit grew 45% in 2003," says Toa Charm, general manager at Kingdee International Software Group in Asia-Pacific. "Our target revenue goal for this year is to exceed $60 million."
A couple of years ago, the company began formulating a plan to get a piece of the U.S. outsourcing market. Recently, it formed a unit called Kingdee Software Technology with the objective of signing U.S. customers that want to outsource application development to China or consult on doing business there. Plans are in the works to open offices in Silicon Valley and either New York or Boston by year's end.
Kingdee recently signed two big deals with companies in the U.S., King says.
Kingdee Software's U.S. offices will be staffed by project-management groups responsible for communicating development and maintenance work done by about 1,000 software developers in Shenzhen, Beijing, and Shanghai.
There are many challenges to overcome. Bridging the language barrier, making sure no violations of customers' intellectual-property rights occur, and managing U.S. regulatory issues are key business concerns Kingdee will need to monitor.
"They also must have a quality IT infrastructure and the ability to provide business continuity and backup redundancy to protect information," says David Tapper, director of IT outsourcing utility and offshore services at IDC. "When you get into application management, there is a business risk associated, and it's important for companies to understand the foreign company's investment in the U.S."
Kingdee Software aims to build out a consulting network next year, betting that its knowledge of China's business environment will appeal to companies that want a better understanding of conducting business in an emerging market economy.
Its parent company isn't neglecting its applications business. It plans to release in the third quarter an ERP app for large companies; its products so far have been tailored to small to midsize businesses. It also will attempt to expand globally the business partnerships it has secured in China with companies such as IBM. More than half of Kingdee International Software's software license and services revenue is generated by partnerships like this.