chinasourcingalert : Messages : 1-30 of 63

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Monday, July 12, 2004

Dateline: China

In this posting, I'd like to address something that is seemingly a bit mundane: ERP in China.

Two articles in the current issue of the Communications of the ACM (CACM) caught my eye. The first, titled "Why Western Vendors Don't Dominate China's ERP Market" is a good read. (See http://tinyurl.com/27w9d .) After reading this article, it's safe to say that Bamboo Networks (especially with their .NET ERP solution, which is something even Microsoft doesn't have), Kingdee, UFSoft and a few other domestic ERP vendors don't have much to fear from the "globals" -- although SAP and Oracle collectively hold about 25% of the market, which isn't bad. Textbook blunders on the part of (mostly American) software vendors. To request a copy of this article click on http://tinyurl.com/28eat .

The other article is titled, "ERP in China: One Package, Two Profiles." (See http://tinyurl.com/2r45p .) According to this paper, more than 1,000 Chinese sites had an ERP system by the end of 2001, costing billions of dollars. Nearly 300 were on SAP. (The figures differ slightly from the above cited CACM paper.) ERP sales in China are projected to triple in five years from a US$1 billion base in 2002. (Note: I'm not sure if the author meant through 2007 or 2009.) A good quote regarding partnering opportunities: "With China's accession to the World Trade Organization, many multinational enterprises are rushing to establish operations in China and/or interact with Chinese business partners." (My emphasis.) For those on this list attempting to attract foreign direct investment, read the part which says, "establish operations in China."

The paper noted that although ERP projects in China rarely hit even ECO/ECN-adjusted delivery schedules, they rarely exceed the planned budget. (In contrast to the States where ERP is almost always late AND over budget. In the States, taking on an ERP project is akin to playing Russian Roulette.) The article goes on to mention eight differences between ERP projects in state-owned enterprises (SOEs) and private ventures. The findings demonstrate that when it comes to ERP projects, private ventures in China are very similar to private ventures in the States. SOEs act like, well, SOEs: Bureaucratic nightmares galore. To request a copy of this article click on http://tinyurl.com/2eve2 .

There is another good article in the July issue of CACM: "Demystifying Integration," which includes a listing of and brief take on dozens of domain-independent and -dependent standards and specifications for application integration. Good stuff for a systems integrator. To request a copy of this article click on http://tinyurl.com/3ysvx .

Tidbits on Enterprise Software

What does the CEO of a systems integrator dream about? How about being one of the first companies to partner with a BEA or Siebel? (When I thought about this, all choices seemed rather awful!!

)

Need some help finding the next BEA? Turn to the AlwaysOn Network 100. For perspective, see http://tinyurl.com/23p3u . Last year's winners included several companies that IPO'd (including Salesforce.com, Opera), companies in line to IPO (including Google, RightNow) and several other hot companies. Frankly, their record so far is the best I've seen (albeit it's still a bit too early to draw any firm conclusions). For a listing of this year's winners (to be announced this upcoming week at Stanford -- Go Cardinal!), see http://tinyurl.com/25j9s . If I had the time (which I don't), I'd go through this list with a fine-tooth comb. IMHO, it's better than the listing of presenters at Enterprise Outlook or DEMO ... although the DEMO companies are a lot more fun!!.

Another list worth reviewing is Forrester's selection of the best Web design firms. (See http://tinyurl.com/3bq5z .) Critical Mass, AGENCY.COM and SBI.Razorfish take top honors. Everyone tends to look toward the top 500 systems integrators in the States for partnering opportunities. However, don't discount the elite among the U.S. Web design firms. Many compete in an extremely cost conscious environment where much less expensive Java programming from a partner in China could be a win-win for all three parties: The SI in China, the Web design firm in the States, and the U.S. client.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

To automatically subscribe click on http://tinyurl.com/388yf .

#29

From: David Scott Lewis <smartphone@...>
Date: Sun Jul 11, 2004 6:48 am
Subject: [news] Highlights from The McKinsey Global Survey of Business Executives, July 2004

smartphone@...

Saturday, July 10, 2004

Dateline: China

The new McKinsey Global Survey of Business Executives was published late last week. (See http://tinyurl.com/yv97f .) Nothing earthshaking, but several items worth noting.

"India wins in talent and R&D." What this means, I think (it really isn't very clear), is that to know India is to love India (I'm paraphrasing, of course) -- and India beats China as a better source for knowledge workers. Within the exception of APAC execs, "more executives of large companies say that they plan to invest in R&D facilities in India than in China." Frankly, this doesn't have to be the case and it simply points to the fact that the "the powers that be" in China need to make a better case for R&D sourcing in China. I can keep making this claim until I'm blue in the face, but I can't be the only talking head pushing for China. However, there doesn't seem to be a lot of faith in India's new government by anyone (well, except for Indians). Hmmm ...

"China has its admirers." Are they referring to me?

Well, not everyone is an admirer according to the McKinsey survey. One major divergence between execs in China and North American execs is that the Chinese nationals have a lot of faith in their government; conversely, North American execs have almost no faith in the Chinese government: 95% to 7% respectively. North American execs are more upbeat about India. Nevertheless, China still gets the lion's share of foreign direct investment, even compared to India. What's interesting, though, is that North American execs are "the least confident -- and least interested (in China)." Not the best news.

Tidbits on Outsourcing

According to a recent DiamondCluster survey, 26% of buyers of outsourcing services were dissatisfied with their outsourcing efforts and 21% said they had prematurely terminated an outsourcing arrangement in the past 12 months.

The same article (see http://tinyurl.com/35zfe ) also noted a rule of thumb for contract management staff sizing: Five to six employees on the client side for every 100 people that are assigned to an engagement by the supplier.

In another article, Gartner claimed that 90% of offshoring revs go to India, with Ireland as its main competitor. (However, this might be heavily biased toward BPO.) "China and Russia currently lack the resources or infrastructure to really challenge India, according to the analyst house." Funny, but Gartner has done work with the the software industry promotional agencies in Shanghai and Dalian. Perhaps they wore blinders during their visit: Clearly there are at least four "cities of excellence" in China, i.e., Shanghai, Dalian, Shenzhen and Beijing. To brush aside the "cities of excellence" while branding China in a negative light is simply irresponsible. Gartner should know better -- if this is what Gartner really said. (See http://tinyurl.com/3hnd7 .)

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

#28

From: David Scott Lewis <smartphone@...>
Date: Sat Jul 10, 2004 5:59 am
Subject: [news] Chinasoft Does the NASDAQ Dance

smartphone@...

Friday, July 9, 2004

Dateline: China

This news is several days old, so by now it's ancient history. (See http://tinyurl.com/2e492 , courtesy of Pacific Epoch.) But just in case you didn't catch it, CS&S's outsourcing arm (Chinasoft Resources) might list on NASDAQ. This will be interesting to watch. Comparisons to India's systems integrators (SIs) traded on NASDAQ are likely; however, comparing India's SIs to China's SIs is like comparing apples to oranges (or, dare I say, filet mignon to ground beef -- alas, McDonald's has had a lot more success than any steak house chain). One down, 28 (or 46) more to go?

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

#27

From: David Scott Lewis <smartphone@...>
Date: Fri Jul 9, 2004 3:19 am
Subject: [feedback requested] "The Golden Triangle": The U.S., India & China -- The Global IT Powers?

smartphone@...

Friday, July 9, 2004

Dateline: China

Among the articles I'm writing is a piece on what is commonly referred to as "The Golden Triangle": The United States, India, China (the acronym "USIC" sounds better than the alternatives, hence the ordering).

I'd like to include some quotes and since senior execs from most of the leading SIs in China read this blog, I'd like you to chime in and send me your thoughts. (Feel free to send them in Mandarin.) BTW, anyone reading this message/posting is free to chime in, but please be sure to provide your title and company information along with your name. Also, please reply via a corporate account, not a Web-based e-mail account.

My basic premise is that the Golden Triangle countries will be the most significant force in the IT sector for at least the next twenty years, with an emergence of virtual corporations spanning all three countries. Not surprisingly, Lee Quan Yu seems to think that Singapore will be a key link in this equation. Although I think very highly of Singers, I think they're irrelevant. I also think that Malaysia and the Philippines will be marginalized over the next twenty years. I'll go so far as to say that South Korea and even Japan will become much less important relative to India and China. (Controversy makes for good press.

) Samsung may remain a significant force, perhaps becoming the only company in the Koreas worth noting. Japan will remain a regional economic superpower, but I foresee China and India surpassing the importance of Japan in the IT sector. (In some ways, I feel that Japan is going to become increasingly isolated. However, the Japanese have a knack for adapting to new circumstances and their current economic power will sustain them for decades to come -- with a potential reversal of fortune around 2050, especially since they'll be the first large country to deal with the problems associated with the inverse pyramid of a homogeneous population. Unless China and India can grow fast -- VERY fast -- this same situation might lead to their eventual doom circa 2060-2070.)

Another premise is that Europe will become increasingly irrelevant and that the current interest in the Czech Republic, Russia and other Eastern European countries for IT outsourcing (ITO) is merely a passing fad on the global scene -- although significant for a European hegemony.

I don't want to get too pie-in-the-sky about this stuff. My focus is really on the next three to five years, not really on the next twenty or fifty years. Futures, such as the possibility of a joint U.S.-India-China tridominium military alliance, are fascinating stuff (and I regularly read the scholarly journal, Futures -- it's not a SF <science fiction> rag, it's an academic research journal). But my take is more along the lines of the journal, Technology Forecasting & Social Change -- but with a near(er)-term perspective than most of the papers in TF&SC.

So, what are your thoughts? Will the U.S., India and/or China come to dominate the IT industry? (Or, have they already?) What about the idea of virtual corporations, especially systems integrators and software vendors, spanning all three countries -- but also spanning within the Golden Triangle at the expense of Europe and even Japan? And what about India and China versus Japan and South Korea -- and versus Malaysia and the Philippines? Or, is it really the U.S. and India WITHOUT China, given the commonality of language and legal systems (and how quickly can China "upgrade" its legal systems and lack of English skills -- or does this provide opportunities in specific parts of China, e.g., Shenzhen and Hong Kong, where English-language skills among IT professionals are much more common)? Or, is it really India and China WITHOUT the States, with India and China forming some sort of (un)spoken bi-lateral economic codominium?

Remember, however, to focus your comments on the next five years -- and on the IT sector. If you want to speculate about long(er)-term futures, please do so, but explicitly state the time frame in your comments. (Unless told otherwise, I'll assume that all comments are about developments over the next five years.) Also, let me know if anything you say is off the record; I'll be assuming the entire content of each response is on the record. For example, I wouldn't be surprised to receive many negative comments regarding Europe's future prospects, but OFF-the-record comments.

For this particular response, please do NOT hit "Reply" to this message. Instead, click on http://tinyurl.com/2erxk and send me your viewpoints.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China (and I guess I need an address in India, too!!

)

#26

From: David Scott Lewis <smartphone@...>
Date: Thu Jul 8, 2004 4:14 pm
Subject: [news] A Special Report on Business Intelligence

smartphone@...

Thursday, July 8, 2004

Dateline: China

One of my favorite industry trades, Computerworld, recently published a special report on business intelligence (BI). (See http://tinyurl.com/2w8j2 .) As regular readers of this blog know, I'm hot, hot and hotter on BI. Not only are BI apps booming in their own right, but BI also provides an open door into other structured data apps (e.g., ERP and SCM). Also, there is a burgeoning number of apps requiring both BI and knowledge management (KM) solutions, providing a host of new opportunities. (For now, think of BI for structured data and KM for unstructured data. But the lines between KM and BI are blurring.)

The Computerworld report includes an introduction to BI titled, "BI for the Masses," an introduction to Web harvesting, and a superb article on text mining; there are several online exclusives as well. In this post, I'm going to focus on an article titled, "Predictions for BI's Future," by providing excerpts with commentary. As usual, items in bold are MY emphasis; items in red are MY commentary.

Embedded BI. "Over the next four to six years, BI systems will become embedded in small, mobile devices, such as manufacturing sensors and PDAs in the field, which in turn will be linked to more centralized systems." -- Erik Thomsen, distinguished scientist, Hyperion Solutions Corp., Sunnyvale, Calif.

PB DM (petabyte data mining). "Within three years, companies and governmental agencies will be able to successfully run analytics within a centralized data warehouse containing 1 petabyte or more of data -- without performance limitations." -- Dave Schrader, technology futurist, Teradata, a division of NCR Corp., El Segundo, Calif.

HPC to the rescue! "Within the next two to three years, high-performance computing technology used by scientific and engineering communities and national R&D labs will make its way into mainstream business for high-performance business analytics. This transition will be driven by the growing volume of complex data and the pressing need for companies to use forecasting and predictive analytics to minimize risk and maximize profit-generating opportunities." -- Phil Fraher, chief operating officer, Visual Numerics Inc., San Ramon, Calif.

BI meets AI. "In the near future, business leaders will manage by exception, and automated systems will handle significant loads of routine tasks." -- Mike Covert, chief operating officer, Infinis Inc., Columbus, Ohio

Visualization. "Over the next two to three years, BI systems will automatically suggest appropriate visualizations, which in turn will dramatically increase the use of visualization and our understanding of complex relationships." -- Erik Thomsen, distinguished scientist, Hyperion Solutions

BI + BPM + BAM. "Businesses need more than a rearview mirror to drive their business forward into the next era. A new category of intelligence tools will emerge over the next two to three years that combines business process management, business activity monitoring (BAM) and business intelligence to enable the "actively managed enterprise." This will combine the scorecards and rearview-analysis capabilities of BI with the real-time, event-driven analysis of BAM and feed that information into automated business processes for on-the-fly steering of the business towards scorecard goals. This will exponentially elevate the speed at which businesses are able to operate, adapt and make critical decisions." -- Tim Wolters, chief architect of business activity monitoring solutions, webMethods Inc., Fairfax, Va.

Bottom line: Go to a BI-related ACM or IEEE CS conference and you'll hear a lot of presentations on all of the apps described above. It's where the rubber meets the road: This stuff is real!! However, it's important to differentiate "real" BI with much more simplistic reporting software (like a good "chunk" of the so-called BI solutions provided by Business Objects, Cognos and even Microsoft -- via their recent acquisition of ActiveViews).

A BI Site to Review

Last week I came across a paper published in the current issue of the Journal of Intelligent and Fuzzy Systems. In this paper the project called "Data Mining and Decision Support for Business Competitiveness: A European Virtual Enterprise" (SolEuNet) is used as a case study and "the source of lessons learned." The paper provides a link to the SolEuNet Web site (see http://tinyurl.com/3x5vo ); at the SolEuNet site I found a wealth of case studies with supporting technical documents on leading-edge BI apps (see, for example, Workpackage 7 on "Combining Data Mining and Decision Support with Information Systems" at http://tinyurl.com/yqkqm ). Remember, strategy consulting isn't merely about comparing product specs (regardless what the IT advisory services may say).

The Gartner Conference on BI

I got my hands on three i-banking analyst reviews of the Gartner BI conference. The Morgan Stanley report (dated 27 April) noted that customer activity levels appeared to be strong and "many seem to be taking a more strategic approach to BI, resulting in the emergence of larger transactions." (My emphasis.) Corporate performance management (CPM) is driving some of the larger deals, with Cognos and Hyperion taking the lead. Evidently, systems integrators (SIs) are getting religion and developing collaterals around CPM messaging. RBC Dominion Securities produced a more in-depth report (dated 29 April) and noted the following:

Gartner expects the market to accelerate in 2004.
The ETL (extraction, transformation, and load) market will flatten (finally).
CPM is hot. "Hyperion, Cognos, and SAS appeared to be the best positioned non-ERP vendors to capitalize on the CPM market opportunity." However, "(they) believe that SAP is the best-positioned large enterprise software vendor to execute in both the BI and CPM market ..."
Finally, the Gartner BI conference itself was hot, with 973 attendees, an increase in attendance of 70% over last year.

UBS chimed in with their own report (dated 30 April), which in some ways was a bit more technical than the other two reports cited above. UBS noted that heterogeneous environments require independent tools (e.g., it is very difficult to get heterogeneous data into an ERP data warehouse <DW>). Gartner's rule of thumb is that an ERP-derived BI/DW solution should be on the short-list only if more than 60% of an organization's BI data resides within that single app vendor. UBS also noted that the importance of BI is leading to the formation of BI competency centers. They also believe that SAP and Microsoft remain significant long-term threats to the independent software vendors such as Cognos and Business Objects. BTW, all three reports seemed a bit down on Business Objects.

Another Computerworld feature on BI

Sometimes advertorials can be a good thing. A case in point is the 26 April issue of Computerworld which provides a link to a new, six page Computerworld White Paper on BI. The paper is titled, "Charting the Course: A Guide to Evaluating Business Intelligence Products"; it's a good, practical read. Tactical, product spec advice and guidelines, but still a good read. The PDF can be found at http://tinyurl.com/2gt3d .

Recent Tidbits on BI

The New Straits Times (Malaysia) via Asia Africa Intelligence Wire reported on 24 June that SAS "expects the BI market in Asia to register double-digit growth for the next five years. (Don Cooper Williams, director of marketing and alliances for SAS Asia-Pacific) cites a recent report from research house International Data Corp, which predicts that BI software market in the region (excluding Japan) to grow by 12 per cent this year, up from 7.5 per cent in 2003." Note to SIs in China: BI isn't just hot in the States; leverage your skills for serving the U.S. market and the domestic market.

From the channel, India Business Insight (also via Asia Africa Intelligence Wire) on 31 May announced that "Business Objects has entered into a long-standing systems integrator agreement with Wipro Infotech (WI) to provide business intelligence (BI) solutions to customers." Note to SIs in China: Don't be left without a dance partner.

Additional Articles for Review

I did a quick scan of trade lit and found a few articles worth reading. First, the March-April issue of Financial Executive talks about CPM -- Corporate Performance Management -- as it relates to BI. The May issue of Insurance & Technology takes a vertical look at BI (rather basic apps), as does the April issue of Business Credit. Always think verticals.

A Final Wrap (or Should I Say, "Rap"?)

Back to Computerworld. More specifically, see the 29 March issue of Computerworld. According to a survey conducted by IBM Business Consulting Services, BI is a high priority on the plate of C-level execs. In a Computerworld poll, 39% of IT executives listed business intelligence projects as their most critical IT projects. By 2005, market research firm IDC projects that the worldwide market for business intelligence software will total about $6 billion -- up from $2.5 billion in 2003 -- signaling a major increase in business intelligence projects. IT executives say the skills they need on business intelligence projects include systems integration, data modeling, database administration, data standardization and project management.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

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#25

From: David Scott Lewis <smartphone@...>
Date: Tue Jul 6, 2004 3:28 pm
Subject: [news] IT Spending Trends

smartphone@...

Tuesday, July 6, 2004

Dateline: China

A quick recap on IT spending trends from three recently published Smith Barney surveys. The three reports are the May and June editions of their CIO Vendor Preference Survey and the 6 June issue of softwareWEEK. Tom Berquist, my favorite i-banking analyst, was the lead for all three reports. I have a backlog of blogs to write, so I'll use as many quotes as possible and add context where necessary. (I'm mostly extracting from my smartphone bookmarks for these reports. Warning: I may have coded the May and June issues incorrectly, but the quotes are correct.) NOTE: Highlighted items (e.g., items in bold, like this sentence) are MY emphasis. Items in red are my commentary.

Starting with the Survey editions, "(t)he strongest areas of spending appear to be software (apps, security, storage, and database) and network equipment/apps (Gigabit Ethernet, WLAN, VPNs)" and regarding software, "larger and more well known vendors continue to dominate the list in each category with vendors such as Microsoft, SAP, IBM, Veritas, Symantec and Computer Associates getting significantly more mentions in each of their groups than the remaining vendors did." However, the report admits that their sample group might be biased. Yes, vendors matter -- and so do vendor partnering strategies. However, I'm a bit skeptical about CA and I don't particular care very much for Veritas or Symantec. Not my part of the universe.

"Applications again stand out as a clear area of strength." "Within applications, Enterprise Resource Planning (ERP), Supply Chain Management (SCM), Customer Relationship Management (CRM) and Business Intelligence (BI) all showed extremely well ..." Well, this is the first sign that a recovery may be in the making for SCM. However, I'd emphasize BI and ERP, followed by CRM; don't count on a lot happening in the SCM space just yet. Some other key surveys do NOT validate that SCM is in recovery. "In terms of specific vendors, Microsoft, Symantec, Veritas, SAP, and Adobe were the top beneficiaries of CIOs intentions to increase spending." The report continues that only SAP showed statistically significant results, both in ERP and SCM. "Results were more mixed for best-of-breed vendors in this area, suggesting that horizontal applications vendors are having a tough time competing with the large ERP vendors even as vertically-focused vendors continue to have some measure of success on this front." For the more adventurous SIs in China, SAP presents a lot of opportunities. Tread carefully, though. And "Adobe's enterprise strategy appears to be gaining momentum. Adobe was a clear standout in content management ..." "Survey results were also positive (though somewhat less so) for other leading content management players, notably Microsoft and IBM." Another "win" for Microsoft. Funny that none of the traditionally leading content management players were mentioned. A take on Linux: "Linux continues to garner mind share, but large enterprises remain the main adopter. Interestingly, nearly 83% of our respondents stated that they were not currently moving any applications to Linux. Of the 17% that said they were moving applications to Linux, only one company under $1.0 billion in revenue was making the transition to Linux confirming our views that Linux is primarily being used by large companies to shift Unix applications to Linux on Intel."

"Among CIOs who indicated a higher level of consulting spend, IBM was the clear winner, followed by Accenture as a distant second. Unisys was also mentioned as a vendor being considered, but it was a distant third. However, we note that Unisys being mentioned ahead of a pure-play consultant like BearingPoint (a low number of mentions, which included mentions of decreased spending) or EDS is positive, given that Unisys chooses to focus in 2 specific verticals, including one-public sector-that was not in the survey." "Over two-thirds of CIOs indicated that they do not use IT outsourcers. Most of the rest said they were unlikely to change the level of outsourcing spend. IBM, ACS and CSC were the only vendors explicitly mentioned as likely to get more outsourcing business." The "two-thirds" figure will likely change in favor of outsourcing. This trend is fairly clear. See a BCG report at http://tinyurl.com/2muy8 , although the report takes a relatively broad perspective.

From softwareWEEK, "(t)he CIOs were also very focused on rapid 'time to market' with purchases. None were interested in starting projects that would take greater than 2 quarters to complete." "This requirement was not a 'payback' requirement, but rather an implementation time frame requirement. The CIOs did recognize that payback times could be longer, though the payback times on IT utility spending were much shorter than on applications or emerging area spending."

"In terms of spending, the CIOs all used a similar methodology for making decisions that essentially divides their IT spending into one of three categories: 1) sustained spending on their 'IT utility' (i.e., infrastructure such as network equipment, servers, storage, databases, etc.); 2) new project spending on applications (business intelligence, portals, CRM, etc.); and 3) investment spending on select emerging areas (grid/utility computing, identity management, collaboration, etc.) It was pretty obvious that the CIOs recognized that business unit managers were more interested in spending on new applications/emerging areas than on the IT utility ..." "(S)ome of the CIOs were experimenting with grid/utility computing initiatives to try to increase their utilization of storage/servers and reduce the amount of new equipment to be purchased. In one example, a CIO showed their storage/server utilization around the world and many regions were in the 50% or worse bucket for average utilization. Their goal was to use grid computing architectures and storage area networks (along with faster communication links) to better share the pool of resources." Yes, this is it!! Take this to heart!! If you think grid and utility computing are Star Trek stuff, think again.

"In terms of new projects, the CIOs mentioned they were spending on business intelligence, portal/self-service applications, CRM, and collaboration. Collaboration was a heated discussion, with all CIOs commenting that this was a big problem for them and there was no clear solution on the market. While it wasn't completely clear to the audience what the CIOs were looking for in a collaboration solution, the elements that were described included: more intelligent email, corporate instant messaging, web conferencing, integrated voice over IP with instant messaging (so that a conversation could quickly shift from typing to talking), and collaborative document editing (spreadsheets, presentations, publications, etc.). Within the business intelligence arena, business activity monitoring was discussed as was building of enterprise data warehouses/data marts. The portal/self-service applications being built or deployed were primarily for customer and employee self-service (remote access to email, applications, and files was a big deal for all of the companies). On the CRM front, the discussion from one CIO was around their need to increase revenues and manage channel conflict better." [I'll be posting to this blog a bit more about collaboration opportunities over the next week.]

"While vendors were not discussed in any detail during the panel, the CIOs did say that they remain open to working with smaller vendors (public and private) as long as they have plenty of relevant references (in their industry, particularly with close competitors) and they offer a compelling value proposition versus larger vendors. One CIO stated that they get called by 20 startups a week to sell products to them, but most of them cannot articulate the value proposition of their product. Nonetheless, the CIO does take 5 meetings a month from startups because some of them are working on things that are interesting to the business."

Whew ... Lots of good materials. To reiterate, all highlighted items are my emphasis. Bottom line: The market is heating up. Get your ISV relationships in place. Pick your verticals (see the "Tidbit on Microsoft" which follows). Pick your apps -- and the apps I like the best are content management and BI, although ERP is looking good, too. Collaboration can be a major source of revenue if the SI can provide a truly effective solution.

Tidbits on Microsoft

A quick update on some happenings in the Redmond universe. (See http://tinyurl.com/36xgu ; the article is titled, "Microsoft focuses on its enterprise-applications business".) First, app areas that are of particular interest to MS include those for manufacturing and life sciences. So, how about a MS build-to-their-stack strategy focused on either of these two verticals? Second, MS is moving beyond purely horizontal offerings to very specific functionality. Their Encore acquisition is an example of MS moving in this direction. Finally, new releases of all four of Microsoft's ERP product lines are due for this year. Not surprisingly, MBS marketing is up 20% from FY04. Hmmm ... ERP spending intentions are strong and MS is a key player in this space -- with several updated offerings scheduled for release this year. Another opportunity?

Tidbits on Infosys

Infosys formally enters the IT strategy consulting biz. (See http://tinyurl.com/2xxlo .) Yes, it was inevitable. In April Infosys Consulting, Inc. was formed and, "(i)t's no secret that the winning model will be high-end business consulting combined with high-quality, low-cost technology delivery done offshore," according to Stephen Pratt, the head of Infosys' consulting unit. The Infosys Consulting unit now has 150 employees in the States and plans to expand to 500 within three years. Note to SIs in China: You need more -- a lot more -- IT strategy types And you need people in the States (at least on an "as needed" basis) in order to capture -- and serve -- new accounts.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

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#24

From: David Scott Lewis <smartphone@...>
Date: Fri Jul 2, 2004 5:01 am
Subject: [news] JavaMania

smartphone@...

Friday, July 2, 2004

Dateline: China

I'd like to report on what happened at JavaOne, but there are two problems: First, I was in China, not at J1. Second, there are a flood of reports in the press. To get a recap, the best bet is to visit one of my favorite XML "news" feeds: "TheServerSide.com: Your Enterprise Java Community". However, I will highlight several newsworthy items:

Project Looking Glass -- kind of a 3D windows interface (but doesn't run under Windows (capital "W"); shown a year ago, but seems to be ready for prime time.
J2SE Version 5 (J2SE 5) -- yes, their numbering scheme has changed; Sun is trying to make client-side Java a ... ah, possibility.
Java for your BMW -- true!! The ultimate geek toy!! "Hey, baby, want to ride in my Java-powered B'mer?" I can see it now ...
Java-enabled phones (350 million) and Java-enabled smart cards (600 million) -- hmmm ... I don't have either (I feel like a Luddite!).
Project Kitty Hawk -- "includes professional services for designing an SOA" (service-oriented architecture); sounds enticing.
NetBeans 4.0 Integrated Development Environment (IDE ) -- Sun's "big" J2EE-related news, and ...
... more mobile stuff (see http://tinyurl.com/2jexc ).

Tidbit: There are four million Java developers, up one million over the past year. Not sure if I believe this, but the trend sounds good.

In addition to TheServerSide.com, see http://tinyurl.com/2oegn , http://tinyurl.com/2v95w for further background info.

Bottom line: Yes, I am touting Java.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

#23

From: David Scott Lewis <smartphone@...>
Date: Wed Jun 30, 2004 2:52 am
Subject: [news] The "Bangalore of China" (from The New York Times AND the Associated Press)

smartphone@...

Tuesday, June 29, 2004

Dateline: China

And which city are we talking about? Dalian. Let's face it, you can't buy this kind of publicity!! This is a direct quote from a column which appeared last Thursday in The New York Times ( http://tinyurl.com/3ctnk ; this article was picked up by several newspapers in the States and by an Indian trade, http://tinyurl.com/2hkuz ). A copycat, but more in-depth piece appeared on the AP Wire ( http://tinyurl.com/3caq4 ) too, as did a related piece in Asia Times (http://tinyurl.com/2wy8c ). I will be quoting and referencing all three articles in this posting.

Let's start with The New York Times column. "It is not just impressive for a Chinese city. With its wide boulevards, beautiful green spaces and nexus of universities, technical colleges and a massive software park, Dalian would stand out in Silicon Valley." True. And their taxi drivers are polite and decent drivers, and their residents don't spit as much -- a lesson Qingdao -- and several other cities in China -- could learn from (although I'd give the natural beauty of QD a slight edge over DL). In short, Dalian, with a population of 6 million (although I've learned that population stats in China are not calculated in the same way as they are in the States), is the most prosperous city in northeast China -- although Shenyang and Harbin are hardly serious competition.

GE (everybody's favorite company

), Microsoft, Dell, SAP, HP, Sony, Accenture and IBM have ops in Dalian (mostly for BPO), along with nearly 3,000 Japanese companies. (And the Japanese restaurants in Dalian are superb!! My comment, not in the column.) DHC is also mentioned as one of the "biggest homegrown companies" which grew from 30 to 1,200 employees in six years. Personal observation: It's also one of the most professional looking companies I've seen in China, not quite as nice as Oracle's main campus, but on par with Microsoft's HQ campus in Redmond.

The Times column notes that "Japanese companies can hire three Chinese software engineers for the price of one in Japan, and still have change to buy a room full of call-center operators (starting salary: $90 a month)." Dalian's mayor is extensively quoted in the Times column and AP feature. He proclaims that Dalian has 22 universities and colleges with over 200,000 students and that more than half graduate with engineering or science degrees. He also states, "In the past one or two years, the software companies of the U.S. are also making some attempts to move outsourcing of software from the U.S. to our city." Hmmm ... he uses the word, "attempts." Like a variation on the word, "try." Frankly, the firms in Dalian haven't had much success in IT outsourcing to U.S. clients.

The Associated Press piece goes into much greater detail. First, it mentions that the four-year-old Software Park is expanding by more than five times. I've seen the plans and they're quite impressive. My only concern is that the new location is kind of in the boondocks. The AP feature notes that the city is offering five-year tax breaks and will pay bonuses to the most desirable workers, to the tune of $2.4 million. Their mayor, Xia Deren, stated that the Chinese government has better management ability than the Bangalore government. (Let's not get too carried away!!) However, an official with the Dalian Information Industry Bureau was honest enough to state that the "(i)nsufficient supply of qualified talent is a bottleneck restricting the development of the whole chain of the software industry." Still, Dalian's software industry has managed to grow 50% annually in the last five years in terms of export volume, reaching $605 million last year. (Note: This can't be an ITO figure; it must be mostly a BPO figure. I know what the top dozen software companies in Dalian are doing, so the $605 million figure must be over 70% BPO -- and the ITO is almost exclusively for domestic or Japanese clients, even at Accenture.)

DHC got some more ink in the AP feature. (Matter of fact, DHC was the only native company to get ink for anything related to ITO. Neusoft was mentioned, but only for training -- and their HQ is in SY.) I guess it's now public knowledge that Microsoft has outsourced some product testing to DHC. (I knew this, but I thought it was a secret. Stay tuned for more action!! I know other secrets, too, but I won't tell.

) And IBM has chosen Dalian to set up its second R&D center in China. The center, with less than 400 employees now, may employ as many as 5,000 "after IBM shifts some operations from Bangalore." I've seen the plans for the new IBM building and it's quite impressive.

The mayor does come clean on one issue. He admits that Dalian lags behind Bangalore in one crucial aspect: Education. He also admits a lack of English-speaking workers has created a need to bring in as much as 70% of workers in the software industry from outside the city. I think the AP feature is wrong. I'm sure it is the lack of educated workers and not the lack of English-speaking workers that has led to the importing of workers. But it's clear -- at least to me -- that a lack of English-speaking workers is hurting Dalian and gives an edge to south China (which I visited all last week), Shanghai and Beijing.

It is also noted that the city's low salaries may attract companies, but have the reverse impact on "much-needed software talent, who would prefer to go to Beijing or Shanghai and earn twice as much money." Amen!! Further, the features states that "Dalian's biggest competitor now is not India but other Chinese cities. A college graduate can earn $1,000 a month at a software firm in Beijing or Shanghai, but might get only half that in Dalian" (and a third or fourth that in places like Qingdao, Tianjin, Shenyang, Jinan, Changsha, Hainan, Harbin or even Zuhai). A CEO of a software firm in QD once said, "The best engineers in Qingdao go to Shanghai and the best engineers in Shanghai go to the United States." Skipping the latter part of his statement, there is a definite quality issue in favor of south China (HK/GZ/SZ/ZH), the Shanghai area, and Beijing. You get what you pay for. Frankly, I'd rather make the argument from Shanghai that "we" (i.e., SH) have the best engineers rather than making the argument from a low-cost area stating that our engineers are a lot cheaper. I don't care how many local universities you have, too. The real issue is whether you can attract good talent. Let's be honest: Silicon Valley has only two good universities (and one of them really isn't in Silicon Valley). But Silicon Valley attracts the best talent. Ditto for south China and Shanghai. (Beijing has the best universities, kind of like Boston.)

BTW, my comments in the preceding paragraph are not really directed at Dalian. I think Dalian provides a nice working and living environment, and Dalian could become the Austin or San Diego of China: Perhaps not exactly a Silicon Valley (or Bangalore), but a good, respectable place for software firms. Good talent paid relatively reasonable wages. And there's nothing wrong with this strategy. What they need is a non-stop flight from the States -- and that's in the making, too. (Probably from L.A., although I've made my pitch that it should be from SFO.)

I'll close with yet another quote from Mayor Xia (and it's a doozie): "In Shenzhen, there are so many opportunities that after one does software work for a time he'll think of running off to start his own company. Northerners (as in northeast China) are better at sitting down and doing research." Ooo ... ouch!! I can't believe he really said this. Of course, there's another way to look at this: The tech folks in SZ are masters of innovation and eventually decide to stake out their own turf due to their highly creative, entrepreneurial spirit, whereas tech folks in other parts of China are nothing more than robot programmers.

Regardless, Mayor Xia -- and especially the staff of the Software Park -- has done a superb job in building Dalian ... and in creating China's Austin or San Diego.

Bottom line: All three articles point to the fact that Dalian is the best place in China for ITO for Japanese clients. The jury is still out regarding U.S. clients. I have warned Chinese companies to avoid Europe like the plague: Russia, the Czech Republic, Ireland and Israel will win Europe. Wasting marketing RMB on Europe is just that: A waste!! OTOH, for Japanese clients, there is no better plan than ITO in Dalian. For U.S. clients, Dalian should be considered, especially for software testing and embedded programming. (There is a migration path for embedded to enterprise apps; fodder for a "Commentary" piece.) BTW, the columnist and journalist show that they didn't get into very much detail with the local Dalian firms: None of them mentioned my point about embedded programming. With a firm spec, an embedded programming job might be well-suited to one of the top firms in Dalian. Need to know who they are? Drop me a line ...

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

In China, to automatically subscribe click on http://tinyurl.com/388yf .

#22

From: David Scott Lewis <smartphone@...>
Date: Thu Jun 17, 2004 10:31 pm
Subject: [news] "The Pros and Cons of Software as a Service"

smartphone@...

Thursday, June 17, 2004

Dateline: China

Not many "cons." Read it for yourself at http://tinyurl.com/yrtu4 .

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

#21

From: David Scott Lewis <smartphone@...>
Date: Thu Jun 17, 2004 10:05 pm
Subject: [news] How to Make an Annual Profit of Over RMB1,000,000 Per Employee!!

smartphone@...

Thursday, June 17, 2004

Dateline: China

Catchy title, eh?

An article published in yesterday's edition of The New York Times ( http://tinyurl.com/2ec74 ) describes how Infosys and Satyam, two of the largest IT outsourcing firms in India, did just this.

Contrary to popular opinion, it is not just low(er)-level programming which is being outsourced. In the cases noted above, it was "the work of software architects, senior software developers and software developers" that was being outsourced. And the client? Microsoft!!

Microsoft was billed at $90 per hour for software architects. This is less than $150-200 per hour that the best independents may charge, and less than the fully-burdened labor rate for full-time employees, but it's still an annualized take of $180,000. However, "(t)he top annual salaries paid by Indian outsourcing companies to Indian software experts working in the United States are $40,000 or so." This is a profit north of RMB1,000,000.

Bottom line: Don't expect to see this kind of profit on your average contract. However, this example points to the fact that billables for work done in the States are astronomical compared to billables for work done for domestic firms in China, Korean firms or Japanese firms. This begs a strategy of a SWAT team in the States combined with a bunch of code warriors back home in China.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

WARNING: Articles published in The New York Times go to a paid access archive in relatively short order. If you want to read the article, read it NOW.

P.S.--Off to south China for a week ... and meeting all the usual suspects (about 25 companies in GZ, SZ, ZH and HK). Please note that there will not be any postings during the week of 21 June.

#20

From: David Scott Lewis <smartphone@...>
Date: Wed Jun 16, 2004 2:00 am
Subject: [news] SME Stats in the Enterprise Software Space

smartphone@...

Tuesday, June 15, 2004

Dateline: China

A recent report analyzed U.S. SME (small and medium enterprise) spending on enterprise software. (See http://tinyurl.com/2vxpy ; this link opens a MS Word file.) Total U.S. spending on enterprise software reached $14.6 billion in 2003, with nearly $1 billion spent by SMEs; U.S. spending accounts for over a third of worldwide spending. Spending by SMEs on enterprise software is growing at 14.3% compounded annually versus 4.9% for spending by large(r) enterprises.

10% of small enterprises and 25% of medium enterprises are using CRM or SFA solutions, with less than 5% of small enterprises and about 20% of medium enterprises using ERP or SCM solutions. However, over 380,000 small enterprises and 27,000 medium enterprises view implementing enterprise software solutions as an important strategic focus over the next year, with CRM and SFA showing the highest growth rates over the next five years. Hosted, utility computing solutions will gain steam in serving SMEs.

Bottom line: U.S. SMEs are both an opportunity and a challenge for China's SIs, as is utility computing. (In a CSA "Commentary" or in a China Sourcing Monitor posting, I will take a look at utility computing and its relationship to IT outsourcing.) Working with utility computing companies focused on serving U.S. SMEs and interested in the domestic market in China is certainly one approach worth investigating. Also, focus on "sell-side" apps, e.g., CRM and SFA. Although a few wins here and there in the "buy-side" space, e.g., SCM and PLM, are certainly possible, a "sell-side" approach for targeting U.S. SMEs is the better strategy.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

#19

From: David Scott Lewis <smartphone@...>
Date: Sat Jun 12, 2004 1:24 am
Subject: [guidelines] Blogs & Wikis: The Most Important Phenomena Since the Graphical Web Browser -- A How-to Quickstart Guide

smartphone@...

Saturday, June 12, 2004

Dateline: China

In many ways for better, and is some ways for worse, the blogging phenomena is the hottest thing since the invention of the graphical Web browser. I'll explain the "whys" and "how-tos" of blogging and Wikis in future messages. In this message, I want to give a brief tutorial on how to take advantage of this phenomena.

Let's begin this process by signing up with a Web-based newsreader. Trust me, once you start using a newsreader, you'll wonder how you lived without one. So let's begin, shall we ...

1) Go to http://tinyurl.com/2r3pa .

2) Click on the "Files" folder. (If you're not a member, you'll have to join or update your profile.)

3) Click on "David Scott Lewis' Bloglines Subscriptions -- 12 June 2004".

4) On your toolbar, click on "File", then "Save As" and save this file.

(At this point, it's okay to logout of Yahoo! Groups.)

5) Go to: http://www.bloglines.com .

6) Click on "Register" and following the registration process.

7) In a new window or in Outlook/Eudora, validate your subscription by clicking on the link in the message from Bloglines. (At this point, you may close your Web-based e-mail or Outlook/Eudora session.)

8) Go back to the window with your active Bloglines session.

9) When you see a link for "Manage Subscriptions", click on it.

10) Click on "Browse" and find the file you downloaded with my Bloglines subscriptions. If you didn't change the file name, it's "David Scott Lewis' Bloglines Subscriptions -- 12 June 2004".

11) Click on "Import". You're ready to rock & roll!!

12) Give your Bloglines subscriptions a spin: Click on "China Sourcing Alert". (Okay, I had to give myself a little plug.)

13) Next, click on "Mark All Read". If you don't, you'll regret this!!

Congratulations!! At this point, Bloglines will start aggregating news updates for you. Simply visit your Bloglines account for updates. BTW, you'll have to edit three folder titles, but that's not a big deal -- and you can tell what they are without editing them.

To repeat, once you start using a newsreader like Bloglines, you'll immediately start switching as many e-newsletter subscriptions as you can to Bloglines (or whichever reader you choose to use). However, I still receive at least a few dozen e-newsletters. Fortunately, more and more are offering a XML feed option on an almost daily basis. You can even receive XML feeds of Google News searches!

This has been a quickstart guide. I'll talk about other issues, including a review of over a dozen alternatives and supplements to Bloglines, the battle between RSS and Atom, and how to use syndicated news feeds as a marcom tool, in separate messages. And, of course, a few words on Wikis.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

In China, to automatically subscribe click on http://tinyurl.com/388yf .

#18

From: chinasourcingalert@yahoogroups.com
Date: Fri Jun 11, 2004 11:17 pm
Subject: New file uploaded to chinasourcingalert

chinasourcingalert@yahoogroups.com

Hello,

This email message is a notification to let you know that
a file has been uploaded to the Files area of the chinasourcingalert
group.

   File        : /David Scott Lewis' Bloglines Subscriptions -- 12 June 2004.xml
   Uploaded by : chinasourcing2005 <chinasourcing2005@...>
   Description : David Scott Lewis' Bloglines Subscriptions -- 12 June 2004

You can access this file at the URL

http://groups.yahoo.com/group/chinasourcingalert/files/David%20Scott%20Lewis%27%\
20Bloglines%20Subscriptions%20--%2012%20June%202004.xml

To learn more about file sharing for your group, please visit

http://help.yahoo.com/help/us/groups/files

Regards,

chinasourcing2005 <chinasourcing2005@...>

#17

From: David Scott Lewis <smartphone@...>
Date: Fri Jun 11, 2004 2:47 pm
Subject: [news] Lessons from India (Part 1 of a gazillion ...)

smartphone@...

Friday, June 11, 2004

Dateline: China

I read a lot of stories on my smartphone. It's a good way for me to spend idle time; besides, I get tired of sitting in front of a computer. Anyway, I came across an article and it set a new bookmarks record for me: I have 25 bookmarks for this article!! (I can set bookmarks for articles I read on my smartphone, just in case you were wondering what I'm talking about.)

The article is from the current issue of CFO. Get it; read it. It's a special issue on offshoring. See http://shorl.com/fevytidisodri .) The specific article, titled "The View from the East," can be found at http://shorl.com/gystabesamysi . Let's rock & roll ...

In the order presented in the article:

1) India's systems integrators (SIs) are facing challenges similar to their U.S. counterparts, e.g., currency fluctuations (not an issue in China -- yet), wage inflation (not a serious issue in China), and "public grumbling over jobs moving offshore."

2) The biggest threat to India's SIs are the global (mostly U.S.) IT consultancies, such as IBM Global Services (IGS), Accenture and EDS.

3) Initial work for India's SIs was writing proprietary software, but they were able to move up the food chain as they honed their project management skills. (A repeat performance is in store for China's SIs, either domestically brewed or American.) Today, India's SIs take on everything from SAP projects to IT architecture design to "conducting research and development for new products." And "(m)ost recently, the Indian companies have added business process outsourcing (BPO) services to their menu of capabilities ..."

4) India's SIs were able to grow in "a stealthy fashion" according to a partner in the Delhi office of McKinsey. This won't happen in China; the U.S. firms are much wiser this time around.

5) India's SIs are claiming that their new generation of project management skills will be their competitive advantage. They think CMM is their salvation. What's scary is that they really seem to believe this!! It makes me gag ...

6) The mostly U.S. firms are responding by setting up their own centers in India -- and hiring literally tens of thousands of Indian software engineers. The stated objective is to improve win rates. (Gee, and they pay better, too. Hmmm ... who would I work for if I was a IIT grad?) Trust me, they'll be coming to China, too. Where? I'm not going to say just yet!! ;-) BTW, If you're a Chinese software engineer, expect a five-fold increase in pay when the U.S. firms get to China.

7) Interesting quote from the CEO of Mphasis (an Indian): "The fact that the multinationals are coming to India certainly means that some, if not all, of our cost advantage will be whittled away."

8) The rising rupee is hurting, as is wage inflation. The average salary for an IT project manager rose 50% in 2003 from a year earlier. Hey, go to China! Tidbit: The labor arbitrage between the U.S. and India has already fallen by 18% in the past two years.

9) And things get more interesting: India's SIs are putting pricing pressure on one another, especially at the low end of the market. "The traditional offering of Indian vendors -- application development and maintenance -- has become a commodity, and prices are falling." Survival of the fittest!!

10) India's SIs lack domain expertise. (Think verticals, as one example.) This is especially critical as they move up the food chain. "The progress on anticipated growth drivers -- that is, domain expertise, services breadth, and geographical diversification -- remains less than satisfactory for most."

11) A benchmark to note: TCS tries to run their bench at a 78% utilization rate. What's scary is that when I mention this to China's SIs, they have no clue what I'm talking about -- or why this is necessary. After all, why not run your bench at 100%? This kind of thinking is scary, too. (Trust me, the other 22% are not playing computer games.)

12) ABC (activity-based costing) as a financial strategy? I've long been a proponent of ABC; maybe it has legs in this space.

Whew ... a great article. Well, time to go to sleep.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

In China, to automatically subscribe click on http://tinyurl.com/388yf .

#16

From: David Scott Lewis <smartphone@...>
Date: Fri Jun 11, 2004 1:57 pm
Subject: [news] Filling the HR Gap: A No-Brainer Strategy

smartphone@...

Friday, June 11, 2004

Dateline: China

Two stories recently appeared in the press based upon findings from my alma matter, The META Group. (See http://tinyurl.com/2gv55 <Computerworld> and http://tinyurl.com/2xyz6 <The Boston Globe> .)

There are several hot areas driving IT compensation higher -- and these, of course, are areas which may be useful for China's SIs as they position themselves for offshore sub-contracting. The Computerworld article cited as hot areas Java and "networking" (pretty broad topic, don't 'ya think), as well as wireless computing and "information security." "(R)espondents cited a continuing need for Internet-related skills such as application development and Java application management. And, just for fun, let's throw in that 20% of the survey respondents are involved in offshoring (but the Computerworld report didn't specify the breakdown between ITO and BPO).

The Globe article was a bit more specific and gave "senior network architects or senior database management staff" as examples of skills in need. More specifics: "IT professionals who are adept at Java, SAP or Oracle, or who have networking, security, and project management skills, are earning salaries that range from a low of $60,000 to a high of $170,000." Now this one got me: "(T)he average base salary for a director of business application delivery -- another term for programmer analyst -- is $172,402, up from $137,191 last year." At the low end, business app developers with no managerial experience earn slightly north of $60,000. Another quote: "People who do enterprise architecture, program managers, people who have multiple language skills are still in demand." The Globe article cited the offshoring stat and noted that "the majority send jobs to India."

Bottom line: Pretty obvious, don't you think? No need to spell this one out -- although I kind of did.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://tinyurl.com/2hg2e (AvantGo channel)

In China, to automatically subscribe click on http://tinyurl.com/388yf .

#15

From: David Scott Lewis <smartphone@...>
Date: Fri Jun 11, 2004 7:10 am
Subject: [news] Kingdee does it right!!

smartphone@...

Friday, June 11, 2004

Dateline: China

Well, at least that's the plan. Franky, the strategies I've been touting map very closely to what Kingdee is doing -- and why they are doing it. According to a story recently released over the IDG News Service ( http://tinyurl.com/2sb99 ), Kingdee has taken the following actions:

1) They've opened TWO offices in the States. One in Palo Alto (Go Cardinal!) and one in New York.

2) Rather than focusing on selling their ERP and CRM offerings in the States, Kingdee is positioning itself as a consulting partner and outsourced labor provider for U.S. companies. Their objective is to connect with U.S. firms seeking access to a talented, low-cost labor pool.

3) They're touting their strengths in programming (including debugging), maintenance and localization.

4) They're targeting software vendors (ISVs) seeking development assistance.

5) They're seeking partnerships with American ISVs moving into the Asia-Pacific (APAC) market.

6) They plan to leverage their market experiences in the States to help domestic Chinese firms as they expand globally.

7) They've developed a relatively strong partnership with Sun, becoming a J2EE licensee in April (believe it or not, this is a big deal for a firm in China) and working with Sun on language localization projects. (The point is that they're developing a strong partnership with an ISV. And Sun is a good one to choose!)

8) They're talking with a product lifecycle management (PLM) market leader that's looking at the Chinese market; they're also talking with a hosted CRM company -- utility computing strikes again!

Wow, let's be honest, this is EXACTLY the kind of strategy I've been touting over the past several months. My recommendations map about 90% with Kingdee's strategy. Frankly, I can't fault ANYTHING they're doing, except I'd look at ISVs in other categories: PLM is continuing to rank near the bottom of CIO priorities in just about every survey. But it's a great long(er) term play, which might be fine as Kingdee ramps up their offshoring ops.

Bottom line: To all other systems integrators and software vendors in China, take notice. Kingdee, at the very least, is trying to do it right; if they succeed in their execution phase, they'll be a formidable foe.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

http://www.itestrategies.com (current blog postings optimized for MSIE6.x)

http://tinyurl.com/2r3pa (access to blog content archives in China)

http://tinyurl.com/2azkh (current blog postings for viewing in non-IE browsers and for access to blog content archives in the US & ROW)

http://chinasourcing.blogspot.com/atom.xml (Atom feed)

http://feeds.feedburner.com/chinasourcingalert (RSS feed)

http://tinyurl.com/2hg2e (AvantGo channel)

In China, to automatically subscribe click on http://tinyurl.com/388yf .

#14

From: David Scott Lewis <smartphone@...>
Date: Thu Jun 10, 2004 7:09 am
Subject: [news] BizTalk Server 2004: Go For It!

smartphone@...

Thursday, June 10, 2004

Dateline: China -- Silicon Valley

Hitherto, IBM, BEA and Tibco have dominated the Enterprise Application Integration (EAI) market, but Microsoft is making it's first credible stab at this market through its introduction of BizTalk Server 2004. (See http://tinyurl.com/3evgb .) Microsoft's target is the SMEs (small and medium enterprises) market. Kudos to Microsoft: A great product for a great market!!

Earlier versions of BizTalk Server simply couldn't cut it compared to competitive offerings, but the new 2004 edition looks like a winner. It's all about TCO -- Total Cost of Ownership -- and BizTalk provides a comprehensive solution set including features such as human workflow services, business activity monitoring and support for Web services.

So why is this important? Why isn't this just another product release from Redmond? Two reasons: First, it's an example of my "building to a stack" strategy. In other words, build to the Microsoft, Oracle or IBM product stack. (Let's forget SAP and PeopleSoft for now.) Second, EAI is where there is the most juice for China's SIs (systems integrators). What I mean by this is that billables for EAI work are among the highest billables, yet the coding tends to be rather geeky. This is where China's SIs have a good chance to help SIs in the States reduce their overall project costs on a sub-contracting basis. Hard core programming in China and higher-level integration from their American SI partners.

Two strategies by SIs in India include the setting up of a consulting practice and a center of excellence by Tata (TCS) and a solution built around BizTalk by Cap Gemini Ernst & Young (CGE&Y). (If you're reading this carefully, you've noticed that I said that these are strategies being used by SIs in India. Yes, I'm referring to CGE&Y's operation in India. Take note in China.)

Microsoft is relying on the popularity of XML to provide their BizTalk Server 2004 product with a competitive advantage. Again, take note of this and what's I've been touting: The XML apps market is hot!! (You can define the "XML apps market" in your own words.)

Bottom line: I view this as a golden opportunity for China's SIs. If I was the CEO of a systems integration firm or value-added reseller (VAR) based in China, I'd get on the BizTalk Server 2004 bandwagon ASAP.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

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#13

From: David Scott Lewis <smartphone@...>
Date: Tue Jun 8, 2004 6:45 pm
Subject: [news] Are YOU Getting Your Piece of the US$1 Billion Pie?

smartphone@...

Tuesday, June 8, 2004

Dateline: China

An article published on the 4th in the St. Pete Times ( http://tinyurl.com/2uh8z ) had a quote proclaiming that there is already US$1 billion in outsourcing from China to the States. (The article implied ITO -- IT outsourcing, but BPO might be included in this figure.) A little bit of basic math: This means at least 40,000 person-years of software engineers and programmers are working on projects for the States!! Okay, let me know when you're done laughing!! (BTW, the same exec stated that India is pulling in 10x that amount: US$10 billion. Oh, I forgot to mention that these are figures for last year, not merely projections for this year.)

Some of the other quoted figures seem a bit more credible. First, China is 50% less expensive than India and "Indian wages are rising fast." Second, "while the average coder in China does not speak English, the managers do." (Well, I wish this were true. Perhaps it's better to say that the managers can read and write English.) Third, there is a five-to-one cost advantage for work outsourced in China; this compares to a three-to-one advantage in India.

Recommendations include starting with a simple, well speced project. Also, agree upon communications modalities.

Bottom line: Even if the figures are way off, I think it's reasonable to assume that there is a tremendous opportunity for China's systems integrators in targeting the U.S. market. The cost advantages are significant, even when compared to India. Keep in mind that all PMs (Project Managers) MUST speak English; reading and writing fluency is fine for other senior engineers. (I realize that there are a lot of good, talented engineers in China who can read and write, but cannot speak English.) Finally, start with a small, well speced project. (Frankly, this is probably the only type of contract most SIs in China could initially close.)

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Qingdao, China & Menlo Park, CA

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#12

From: David Scott Lewis <smartphone@...>
Date: Tue Jun 8, 2004 7:07 pm
Subject: [news] Hot Techs: SOAs, Linux and INDIAN offshoring

smartphone@...

Tuesday, June 8, 2004

Dateline: China

The Enterprise Outlook conference was held last week and today's three hottest trends are Linux, service-oriented architectures (SOAs) and Indian offshoring according to the collective views of the presenters. (See http://tinyurl.com/2zd28 .)

HP's Ann Livermore ranted about Linux and was upbeat about IT outsourcing -- but didn't give away any HP secrets. This is significant in the fact that HP services is under her charge. She also sees corporate spending strong in the small and medium enterprises (SMEs) sector. A BEA exec touted SOAs (no surprise), whereas an IBM exec talked about the need for always on connectivity.

Finally, outsourcing product development to India was noted, along with the observation that the outsourcing market is spreading to numerous cities in India due to rising costs in Bangalore. Cost savings in offshoring to India were cited in the 40-50% range.

Bottom line: Examine how a SOAs strategy fits your capabilities and core competencies. Remember, the flip side of SOAs is Web services. Think about utility computing opportunities, but (more importantly) ponder the opportunities in content management and portal development.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

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#11

From: David Scott Lewis <smartphone@...>
Date: Fri Jun 4, 2004 4:58 pm
Subject: Packing My Bags in Bangalore -- and Movin' to the US of A

smartphone@...

China Sourcing Alert
Saturday, June 5, 2004

Dateline: Qingdao, China

Packing My Bags in Bangalore -- and Movin' to the US of A

I came across an interesting article about a company which moved from India to Silicon Valley (yes, you are reading this correctly). Perhaps it's an aberration, but there may be signs in the tea leaves. (See http://tinyurl.com/3f4vm .)

More specifically, the company moved from Bangalore to Milpitas. Better yet (for my unemployed friends in the Valley), they have about 20 open positions. Okay, the reason for moving was to get access to "the right kind of people." And receiving an investment of $7.5 million from Norwest Venture Partners didn't hurt, either.

Some interesting takeaways:

* The company, Epiance, is looking to hire a CTO and CMO (Chief Marketing Officer). I'm surprised they could raise $$$ without a CTO and CMO. (However, this fact isn't particularly relevant for China's SIs.)

* The article stated that being based in Silicon Valley provides better access to markets in Japan and China than does a headquarters operation based in India. Reading between the lines, access to markets in Japan and China may be much more highly regarded (at least by American VCs) than access to local markets in India -- and firms in China have better access to their own market (obviously) and to the markets in Japan and South Korea.

* A related article noted that it was easier to find space in Silicon Valley than it is in Bangalore.

Also, an article recently published in an Indian business newspaper ( http://tinyurl.com/3fo7q ) proclaimed that there is a huge demand for IT professionals in India. Fact is, it might be easier to hire in Silicon Valley than in Bangalore. Also, wages in India are going up and there seems to be a bit of job hopping -- kind of like the way things were in the Valley in the late 90's.

Bottom line: The move by Epiance is an anomaly. But it says something about the labor and property markets in India, and the lack of access Indian firms may have to markets in Japan and China (do with the latter what you will). The labor situation speaks favorably for China's SIs; the SIs in China have a much lower cost and more stable labor pool. Frankly, I think the wage differentials are much higher than normally quoted -- and this is a HUGE competitive advantage for China's SIs.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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#10

From: David Scott Lewis <smartphone@...>
Date: Fri Jun 4, 2004 4:00 pm
Subject: Is it "Utility Computing" or "Software as Services" or "Software Rental" or ... ?

smartphone@...

China Sourcing Alert
Friday, June 4, 2004

Dateline: Qingdao, China

Is it "Utility Computing" or "Software as Services" or "Software Rental" or ... ?

Well, whatever it is, it seems to be a hot topic these days. According to IDC, growth in "subscription" sales will outpace that of packaged software -- and even companies like Siebel are getting religion (see http://tinyurl.com/yqxfy ). IDC predicts that sales of software sold through subscription licensing will grow at 16.6% annually from 2003 through 2008 to reach $43 billion, while sales of perpetual licenses will see a slight drop each year. Siebel, in response to the competitive threat from Salesforce.com, has even launched verticalized editions of their CRM OnDemand offering ( http://tinyurl.com/3yo2d ).

Many players have entered this space, including NetSuite, WebSideStory, RightNow, BlueTie, Employease, Salesnet, Atomz, CrownPeak and numerous others ( http://tinyurl.com/2swal ; this URL links to a superb feature titled, "The Second Coming of ASPs?"), including Malaysia-based Entellium ( http://tinyurl.com/2s2hc ) -- and they're challenging the likes of Oracle, PeopleSoft and SAP, although I suspect each with follow Siebel's lead and provide their own offerings (and to a limited extent, they already have).

Since there is less up-front revenue and less customization required for an implementation, systems integrators (SIs) in China (or anywhere, for that matter) may be reluctant to enter this space. This might be shortsighted, however. The best way for U.S. software vendors (ISVs) to enter the domestic market in China may be through a utility computing model. For one thing, pirating becomes a moot point. This provides opportunities for China's SIs to work with U.S. utility computing software vendors to help the U.S. firms penetrate the domestic market in China. But it also may provide opportunities for China's SIs to enter the systems solutions market in the States without the same level of expertise required for many/most packaged applications. (I say, "may" because I'm not sure about this. I think the waters need to be tested.)

Also, some of the U.S. players are offering partners 30-50% margins on their solutions over the life of the customer contract. Now this doesn't sound too bad at all!! There's also room for adding value through consulting and maintenance. Finally, many U.S. vendors offer low or no-cost training and certification; many will also mentor new partners through the first couple of sales opportunities. (See http://tinyurl.com/2pe2x .) However, vendors are looking for partners with an established customer base and reputation, with a nod toward SIs with experience selling and supporting packaged solutions or consulting services. And (as always) the more verticals experience, the better.

Bottom line: Utility computing is one of the hottest IT areas, with real muscle as demonstrated by Salesforce.com (among others). The subject has even garnered a lot of interest by development-oriented academia and industry researchers (and I will be covering this aspect of utility computing futures in China Sourcing Monitor). China's SIs should investigate the opportunities in this space, being fully aware that the win-win deals will help U.S. vendors enter the domestic market in China and in return, the SI gets free training, quick certification and at least several laser-guided shots at opportunities in the States. And, for my part, I'll ask Marc Benioff (the CEO of Salesforce.com and a first degree connection of mine on LinkedIn) what he thinks about the opportunities for China's SIs -- but I can't really ask this until after their IPO.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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From: David Scott Lewis <smartphone@...>
Date: Fri Jun 4, 2004 9:17 am
Subject: Embedded Software Development: A Hot, Evolving Market, But ...

smartphone@...

China Sourcing Alert
Friday, June 4, 2004

Dateline: Qingdao, China

Embedded Software Development: A Hot, Evolving Market, But ...

Although this blog focuses on enterprise apps, the market for embedded software solutions should not necessarily be overlooked. A recent article in The Hindu Business Line ( http://tinyurl.com/3c5rk ) claimed a world market estimated at $21 billion in 2003, with an expected growth rate of 16% over the next three years. Telecom and networking applications account for the bulk of the market, followed by apps in the consumer electronics, industrial automation, automotive and avionics sectors. Although the cited article is about opportunities in India, embedded operating systems (EOS) market share leader Wind River considers India AND China as key emerging markets.

Of course, mobile handsets and personal digital assistants (PDAs) are driving a lot of apps, but this is yesterday's news; what is much more interesting is what is happening in the embedded processor space. I admit, there is much debate among electrical engineers (EEs) regarding the future of microprocessors and the evolution of reconfigurable systems (see, for example, http://tinyurl.com/26e5g ; for a historical perspective, see http://tinyurl.com/2d5vx and for applications to memory devices, see http://tinyurl.com/28kg5 .) But a quick scan of The Guide to Computing Literature points to a lot of reconfigurable systems R&D encompassing a wide-range of apps, from user interfaces (UIs) to biometrics to handheld supercomputers.

Bottom line: The embedded systems software development market is a potentially lucrative market for China's SIs, and the evolution of reconfigurable systems (see http://tinyurl.com/2c8sy ) presents an opportunity for SIs to stake a claim in what may become the next Gold Rush. However, there is one catch: It is difficult to leverage capabilities in the embedded market for capturing opportunities in the enterprise market. "Migration" from J2ME to J2EE may be one solution, perhaps the only solution, for a company entering the embedded space and planning a later entry into the enterprise space.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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From: David Scott Lewis <smartphone@...>
Date: Mon May 31, 2004 11:21 pm
Subject: For R&D Outsourcing, Beijing Beats Bangalore

smartphone@...

China Sourcing Alert
Tuesday, June 1, 2004

Dateline: Qingdao, Shandong, China

For R&D Outsourcing, Beijing Beats Bangalore

Getting it Right in China: Microsoft Research Asia -- Lessons for U.S. ISVs

Although I have a lot of doubts about Microsoft's overall business strategy in Greater China, there is no question that they're batting champions in their Beijing research lab. Matter of fact, MIT's Technology Review went so far as to feature the Beijing lab as the cover story in their June 2004 issue; it's dubbed, "The world's hottest computer lab." (See http://tinyurl.com/3a9o5 or http://tinyurl.com/2z3gc for the PDF.) "B" -- as in "Beijing," NOT "Bangalore."

Today's lesson is NOT for China's systems integrators (SIs); it's a lesson for U.S.-based independent software vendors (ISVs) -- actually, it's applicable to ALL ISVs. More specifically, it's a lesson for ANYONE considering offshoring their R&D, especially for anyone considering India as their primary offshore option.

As I've stated in the past, although India's SIs are further up the food chain than China's SIs (however, this really holds true primarily for the larger SIs in India; the smaller SIs in India face many of the same challenges as SIs in China, which also tend to be small businesses), India does NOT have a competitive advantage over China in R&D.

Take this to heart: There are more English-language computer science and engineering articles published by researchers in China than by researchers in India. Scan either of the two primary CS research databases (including the ACM Digital Library), Citeseer, or Thomson: Fact is, I'm right!! Frankly, I am sick and tired of hearing about how glorious India is, as if India does everything better than everyone. This is pure nonsense. But I digress.

A recent article in rediff.com (see http://tinyurl.com/ytxh4 ) was titled, "India to see R&D outsourcing boom." I almost gagged when I read it. The article quotes a Frost & Sullivan study (is F&S still around?) estimating that the R&D outsourcing market for IT in India will grow to $9.1 billion by 2010 from $1.3 billion in 2003, which is a compounded annual growth rate of 32%. Wow, where do I sign up? If any of this is even close to being true, than the opportunity for R&D outsourcing in China is being overlooked big time. I don't want to hear a bunch of rubbish about how India has an infrastructure better suited to R&D outsourcing. Lies, lies, and more lies.

The F&S report points out that the best opportunity areas are in computing architecture, encryption and network security (okay, not a win for China), human-computer interface technologies, programming languages and software engineering. I have to admit, "computing architecture," "programming languages" and "software engineering" is rather vague -- just take a look at the ACM SIGs covering these endeavors and you'll see that the net is cast far and wide. However, the report is a bit more specific in the telecom field, pointing to IPv6, video servers and wireless sensors as good opportunities. Finally, the report said that "semiconductors and nano-technologies were to be watched out for." More stuff to gag on, I guess.

Here's a funny point. The report does mention why India is well positioned for R&D offshoring, but NONE of the points mentioned are specific to India. In other words, they're the same reasons why China should be the destination of choice. If anything, China is casting a wider net -- perhaps to an extreme. As far as "restraints," India and China have the same issues, e.g., the potential for IP loss and low in-house expertise.

Bottom line: When considering R&D outsourcing, absolutely, positively consider China -- and remember that India does NOT have an advantage over China. Taiwan, Korea and Singapore are viable candidates, too. Frankly, the country -- or a specific location within a country -- is NOT as important as is the quality of the SWAT team of research scientists and engineers.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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From: David Scott Lewis <smartphone@...>
Date: Mon May 31, 2004 9:32 pm
Subject: Ahoy, APEC ...

smartphone@...

China Sourcing Alert
Tuesday, June 1, 2004

Dateline: Qingdao, Shandong, China

Ahoy, APEC ...

I will be speaking at this week's APEC meeting. Here a several take-aways (pretty much in the order that they will be presented; I'm covering the key points in only the first 10 out of 50 slides):

* The billables for sub-contract work done for U.S. systems integrators (SIs) are 3x the rate for prime contract work done for domestic firms (i.e., clients in China) and 2x the rate for sub-contract work done for Japanese SIs.

* U.S. CIOs pick China as their preferred place for IT (information technology) outsourcing (a.k.a., "ITO") after the States and India.

* The top need is for application development for specific applications (a.k.a., "apps"). The best match is for apps requiring Java development.

* China's SIs should build upon their experience with Java, XML and UML. Think a J2ME >> J2EE strategy. And think software, NOT systems.

* Strategically, a core competency in business intelligence (BI) represents the best foundation for developing the enterprise apps space; tactically, VoIP offers the best near(er)-term opportunities, primarily because it is both an enterprise AND an embedded apps play.

And there are many, many other relevant points. A copy of my presentation will be uploaded to the members-only "Files" section at http://tinyurl.com/2r3pa next week. A related press release in Chinese and English, with a couple of pithy quotes, in also accessible in the "Files" section.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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From: David Scott Lewis <smartphone@...>
Date: Mon May 31, 2004 1:46 am
Subject: India: Coming to a Country Near You

smartphone@...

China Sourcing Alert
Monday, May 31, 2004

Dateline: Qingdao, Shandong, China

India: Coming to a Country Near You!

With all the rage about offshoring, let's take a look at nearshoring (see http://tinyurl.com/2d8mm ).

As part of their global delivery model (GDM), India's tier one systems integrators (SIs) are extending their offshoring options to include nearshoring in Canada and Mexico (really, Mexico?). Nearshoring "provides a viable alternative for companies hesitant to move their entire work offshore or for those who are unwilling to bear the high cost of onsite work." According to an EVP with Cognizant, this seems to hold true especially for large or mission-critical projects requiring 24x7 responsiveness. (Hmmm ... maybe better suited to BPO than ITO.) According to an Infosys exec, "a nearshore strategy provides clients the confidence that the software services company's site is just a few hours on a plane trip as compared to nearly a day for visiting an offshore site." (Hah, I wish it was only "a day." Perhaps in the weird since of time zone differences.) Every project Infosys undertakes has a business continuity plan (BCP), which includes a contingency plan that aids in seamless transfer to one or more of their locations. (Comment: I wonder how well this REALLY works? But it sounds good.)

The marketing head of Blue Star Infotech (another Indian SI) noted that companies who do not have "formal systems" for document transfer and management face difficulties in moving projects offshore since project details may not be fully conveyed to offshore development teams. Nearshore sites bridge this gap. (My comment: I'd be leery about taking on projects which aren't adequately speced. It sounds like a strategy for moving a pending disaster from India to Mexico.) But a point is well made: Projects requiring frequent human interaction might be best served with a nearshoring (or onshoring) strategy. However, it should be noted that the fully-burdened costs for nearshoring may be three times as much as offshoring (using India as the base, so figure six-to-ten times as much as offshoring in China). This article cites the following billables (figuring India for the offshore component): Onshore, $100 (per hour, I'll assume); nearshore, $70; offshore, $30 -- and in China, $10-15. These are numbers to take to heart. Bottom line: Frankly, this is more for G2 than something that is actionable by China's SIs. However, Canada may represent a viable nearshoring destination, especially for clients easily served by Canadian firms (e.g., U.S. clients, either end users or SIs, in the northern U.S. or easily served by a nonstop flight from a major Canadian airport, such as LAX or SFO). For now, China's SIs should be aware of nearshoring billables and be prepared for either a nearshore or onshore presence if required.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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From: David Scott Lewis <smartphone@...>
Date: Mon May 31, 2004 12:13 am
Subject: Outsourcing: The Main Driver for Growth in IT Services?

smartphone@...

China Sourcing Alert
Sunday, May 30, 2004

Dateline: Qingdao, Shandong, China

Outsourcing: The Main Driver for Growth in IT Services?

If you believe Gartner ( http://tinyurl.com/3b8ol ), "Outsourcing continues to be the main source of growth in IT services, and has become a mainstream business practice for companies of all sizes. According to Gartner, Inc., in 2004, outsourcing will account for 53 percent of the total worldwide IT services market, and will make up 56 percent of the market by 2007." Wow!!

This is even better: "Outsourcing is becoming the dominant way that enterprises buy IT services" (my emphasis). Gartner claims that everyone is rushing to deploy a global delivery model (GDM). Why? Answer: So enterprises can tap into IT resources anytime, anyplace, with one of the objectives being to REDUCE risk. Their point about risk REDUCTION is interesting since offshoring tends to be viewed as increasing risk, NOT reducing risk. Clearly, in this case, execution is everything.

Gartner goes on to claim that only G2000ish firms will rely on captive development centers and that most firms will do their global sourcing via "the GDM of an outsourcer."

Bottom line: China's SIs need a global delivery model (GDM). In China, I've seen only one firm with something that truly resembles a GDM. However, their GDM is strong on project management (matter of fact, their project management skills are on par with IGS, Accenture, EDS, TCS, Infosys, Wipro, Satyam), but fails to address onsite (i.e., in the States) issues. Another firm has a good onsite presence to serve one specific client (a U.S. F10 company), but they didn't show much in the way of project management or software development management expertise. They may have both, but it wasn't clear from what I've seen. Also, the Gartner forecast points, once again, to the ripening of the mid-market. Mid-market opportunities are boundless. Solution: China's SIs should develop a GDM for serving the mid-market in the States, i.e., catered to mid-market end users (CIOs) and mid-tier U.S.-based systems integrators (SIs) focused on servicing mid-market clients.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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From: David Scott Lewis <smartphone@...>
Date: Sun May 30, 2004 5:31 pm
Subject: IBM full court press on Web services

smartphone@...

China Sourcing Alert
Sunday, May 30, 2004

Dateline: Qingdao, Shandong, China

IBM Full Court Press on Web Services

Gather around the campfire and let me tell you a story about IBM. When I worked at Microsoft, we had a competitive intelligence/environmental scanning unit which tracked all sorts of topics, including (obviously) our competitors. I recall that at one point our competitive intelligence on Oracle was seven MONTHS old. Goes to show how seriously we viewed Oracle! OTOH, our G2 on IBM was updated a few times each WEEK!! Shifting gears to my Oracle days, there was one firm we feared the most. No, NOT SAP (don't make me laugh). Yep, you guessed it: IBM.

So why all the fuss about IBM in this posting about Web services? Reason: Because of all the fuss IBM is making about Web services. (See http://tinyurl.com/37vnt .) "IBM says the worldwide market for consulting projects related to Web services and standards-based application integration--known as service-oriented architectures--is about $15 billion this year and could total $200 billion between now and 2008. The company says it has trained 35,000 consultants in skills related to Web services." Even if the figure of 35,000 is off by a factor of 10, I'd still be impressed by IBM's commitment.

Gartner and IDC have also made some observations about the Web services market that seem to validate IBM's actions. Gartner (which felt compelled to create its own acronym, "SOBA" -- Service-Oriented Business Applications) predicts that SOBAs will emerge as "the mainstream business application architecture" by 2007, with big wins especially in the supply chain space. (See http://tinyurl.com/2xx98 .) IDC ( http://tinyurl.com/2mqhg ) observed that the alphabet soup of Web services is not the end all, be all. "The attention does not revolve solely around Web services anymore. Instead, more eyes are turning to toward strategic and long-term decisions around adopting standards-based services-oriented architectures (SOAs)." To this I say, "Amen."

Bottom line: As Web services adoption heats up, China's SI's need to get up to speed and learn to play the SOA game. It is important to note that SOAs are not just the logical extension of Web services protocols, but are key to many apps. For China's SIs, I'd look carefully at he relationship between SOAs and content management ... and content management (CM) and portals ... and CM and portals and knowledge management (KM).

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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From: David Lewis <chinasourcing2005@...>
Date: Wed May 26, 2004 1:00 pm
Subject: Mid-Market Mania

chinasourcin...

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China Sourcing Alert
Wednesday, May 26, 2004

Dateline: Qingdao, Shandong, China

Mid-Market Mania

EVERYONE is talking up the mid-market these days. Even I can't resist: One of my slides for next week's APEC presentation is on the mid-market opportunity for SIs based in China. Matter of fact, two subject areas dominate the clippings I save for this blog: Web services and the mid-market. (Hmmm ... how about Web services for the mid-market?) In the mid-market space, Forrester seems to be taking a lead among the top four IT advisory services, although IDC is doing a pretty good job, too. We can expect to hear a lot more from the Stamford and Boston analysts in the months and years ahead.

But what is really important is not what the analysts say, but what is happening in the market. In no particular order, let's see what is happening. (Actually, I'm presenting this in the order that they're stored on my smartphone using HandStory!)

In the "Memo" section of HandStory (which I must have clipped from a source retrieved via AvantGo), I have an article about SAP, courtesy of AMR (see http://tinyurl.com/22f2e and http://tinyurl.com/2cwwl ). Evidently, SAP is not only expanding its mid-market presence, but using a verticals spin as well. This is the best approach. Kudos to SAP!!

The next item also goes in the "SMEs meet verticals" category. It's BEA attempting a spin on IBM's strategy (see http://tinyurl.com/2kw94 ), using VARs and SIs for chasing customers in verticals. Frankly, the IBM offerings seem a lot more comprehensive.

Regarding market size, Forrester states that SMEs are the place to be in 2004, planning to increase their IT spending by 6.6% Y-O-Y, compared to 1.7% among "larger companies." Spending will focus on hardware, security and information management software. (Hey Forrester gang, what in the world is "information management software"? Sounds kind of nebulous.) They also claim that wireless networking is hot, as are new PC rollouts. They make a goofy causal claim stating that there is high intention to buy content management and BI software. Sorry Forrester, but the two are NOT related. Content management and knowledge management software, yes; content management and BI software, no. But I get the point -- and concur. The final takeaway is that Microsoft dominates mindshare for systems management (is this what Forrester means by "information management"?), content management and BI software. Definitely worth reading! See http://tinyurl.com/2o97r .

Bottom line: The mid-market is hot and a verticals approach using SIs and VARs is the best approach in reaching SMEs. For SIs in China, team up with the 200-1,000 largest SIs in the States to take on sub-contracting work in specific verticals (and, most importantly) with specific platforms. (More on this in a forthcoming China Sourcing Monitor feature.)

BTW, I've chosen to use "mid-market" versus "midmarket." Why? Because I did a test using my Google News bookmarklet and the results were overwhelmingly in favor of "mid-market." A little tip if you're wondering whether to use a hypen or not.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

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From: David Lewis <chinasourcing2005@...>
Date: Mon May 24, 2004 10:04 pm
Subject: A Snapshot and Armchair View of China: Not Much Value-Added

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China Sourcing Alert
Monday, May 24, 2004

Dateline: Qingdao, Shandong, China

A Snapshot and Armchair View of China: Not Much Value-Added (and Dead Wrong on Some Key Points, Too)

Since I'm going to cross post to the AlwaysOn Network (http://www.alwayson-network.com ), I've decided to comment on a post which appeared on the AO Network on 5 May. Guy Kawasaki, managing director of Garage Technology Ventures, kicked off his post titled, "What's the Deal with China? Opportunity knocks; know the rules of the game " ( http://tinyurl.com/yrqzr ) and four others chimed in. (Disclosure: I've known Guy since my Microsoft daze [no sic], we both taught Sunday School at the same church, and we were even the keynote and locknote presenters at a network marketing annual gig. Hence, it's safe to say that I'm pulling my punches ... even if the title for this section appears otherwise.) My analysis will take a point/counterpoint perspective.

Guy started out by noting that Shanghai is "kicking butt." I concur 100%. But then he begs the question, "does the United States have a chance against China?" Give me a break!! First, it is important to note, especially for those of us in or from Silicon Valley or the 128 corridor, that Shanghai is NOT representative of China-at-large. Shanghai no more represents China than Silicon Valley represents the States. Besides Shanghai, Dalian (which I've mentioned in a previous post) and a few other cities (which I'll mention in future posts; I'm deliberately keeping some info close to the chest), nobody is "kicking butt." A lot of dreams, but in fact they're mere allusions. I just don't see it in China. Shanghai, Dalian and a few other places, yes; China in general, no. I'll pick on an easy target: Even though the Chinese government has afforded the Hainan province with special status, the Hawaii of China is NOT going to become a tech hub. There is not the same breadth of tech talent in China as there is in the States, so it's silly (almost absurd) to talk about the greatness of China. Think by region first, city next. But a few regions and cities will not be able to match the dynamism of the States for at least another fifty years (barring some unforeseen natural disaster, massive terrorism, et al). Remember, you're hearing this from China's IT sourcing evangelist, too!! First China has to beat India; then it can worry about the States. READ THIS LAST SENTENCE CLOSELY: THIS IS WHAT THE GAME IS REALLY ALL ABOUT. This might seem a bit surprising, but I can see Chinese companies cooperating with Indian companies in targeting the domestic market in China. (Fact is, I *already* see this -- and it might be China + India vs. the States for China's domestic market.) But in the battle for global dominance, it's China vs. India.

Joseph Chamie, the director of the population division of the UN's Department for Economic and Social Affairs, added his two cents. Nothing new. On one point he is dead wrong, though. He stated that the Chinese "have all the values the Americans have." Another "give me a break." (I feel like John Stossel.) A key problem I find, again sans a few regions/cities, is that there is a limited notion of quality. Life in China kind of sucks and I live in one of the nicer cities in China (Qingdao) and in one of the nicer areas within the city (the CBD; I call it "Juscodao") and in one of the nicer buildings within the area (a penthouse-style townhouse). And I can trace back the reasons for why life in China kind of sucks to quality consciousness in general. The Chinese, like everyone else, like good quality. The difference is that they accept poor quality without a blink of an eye. (Not everywhere in China, but in most places.) Will the Chinese (as a whole) be more quality conscious as per capita incomes increase? Maybe, probably. But for China, it's a long, long way to Tipperary.

I agree with just about everything said by Irwin Federman, a general partner at US Venture Partners, but I'll take him to task on one point. Mr. Federman stated that China is hot NOW. I disagree. India is hot NOW. China, however, is getting warmer each day. The APEC is holding their tech conference and exhibition next week and I'm the speaker on global sourcing, with a focus on IT sourcing in China. (I'm in good company. There are only four speakers on IT issues and two of the others are the heads of IBM and EDS in China.) One of my slides quotes from a DiamondCluster report. (I'm going to upload my presentation to http://tinyurl.com/2r3pa AFTER I give it; you can read the quote for what it's worth.) To paraphrase, the report accurately points out that China is on everyone's radar, but the images are fuzzy at best. It's a stretch to say that China is hot, but one of my missions is to make China hotter -- and clarify the images.

Aaron Gershenberg, a managing director for Silicon Valley Bank, then added his two cents. Nothing to challenge, but I'd like to expand upon his comments about the VC "industry" in China. First, there's a VC industry in China which has almost nothing to do with Silicon Valley's VC industry. Americans tend to view the VC industry as a Menlo Park phenomena, but China has a venture investing base which is very different from that in the States. Can Silicon Valley VCs successfully play the China card? Maybe. Draper is trying. But nobody can claim success. And even if there is a bit of successful venture investing from the Sand Hill Road gang, I doubt it will amount to very much for at least another twenty years. Yes, twenty years (maybe thirty or fifty ... if ever). The clubbiness of Bay area VCs isn't a match with the social networking structure in China. (VCs, take this to heart.) If there are successes, it will be through investments in firms started by Chinese engineers and scientists who have been educated and trained in the States -- probably at Stanford ;-) -- who have returned home. Remember, most of the larger publicly-traded Internet plays based in China were started by Chinese nationals who were educated and trained in the States. But how many of their ventures were backed by American VCs? Sadly, not many. Maybe this will change, but I wouldn't hold my breath. I just don't see John Doerr as a frequent local diner eating things he has never seen before. And, as VCs will be the first to admit, you can't manage this business by remote control. Maybe through affiliated funds and the like (the Draper approach), but I'm skeptical. Worth a try, perhaps, if the U.S. VC is willing to have a local presence in China.

Craig Johnson, a Silicon Valley icon, closed with his comments. He's bullish on Silicon Valley. So am I. He feels it is the best place in the world to start a high tech company. So do I. But he hints that China may have its own distinct advantages. We've all read Michael Porter ad nauseum, but how many of us have read his Competitive Advantage of Nations? And just think about what the title implies, i.e., that there are competitive advantages for each nation. China has a lot of bright, talented, and very, very young software engineers and programmers. As the Indian software industry moves up the food chain, there are a lot of opportunities for China. Will it be China vs. the Czech Republic or Russia? (Forget the Philippines; they're yesterday's news.) Sometimes, but the larger issue is China vs. India.

Didn't sound like I was pulling my punches? Trust me, I did. However, I want to applaud Guy & company for dealing with the real issue: Is China open for business? It's NOT about the nonsense coming out of Beltway talking heads (e.g., job loss); it's all about business. Bottom line: In the final analysis, I'm VERY bullish on China. In several areas (e.g., R&D outsourcing), China is on par with India TODAY. (For R&D outsourcing, there are pros and cons for both China and India, but they pretty much balance out. It really depends on specific needs.) And in many other areas, e.g., custom application development, there are numerous (okay, a handful of) SIs based in China which can serve American CIOs at a much lower cost and with equal quality of the Bangalore bunch. Come to China -- and be prepared for the ride of your life!!

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

U.S. tel: +001.650.618.1475

China tel: +011.86.(0)532.577.8957

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From: David Lewis <chinasourcing2005@...>
Date: Mon May 24, 2004 10:07 pm
Subject: The IT Market in China (including a Message to Redmond)

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China Sourcing Alert

Tuesday, May 25, 2004

Dateline: Qingdao, Shandong, China

The IT Market in China

Time for a couple of side comments about the domestic market in China. It seems that just about everyone wants to set-up shop in China, and Shanghai (for obvious reasons) is the place to be, even though a lot of the larger U.S. software companies have already established their presence in Beijing. So I have two comments: IMHO, Shanghai is tops. But it's not the only option. However, it appears that many Americans, especially those in the software biz, think that the only options are Shanghai or Beijing. Case in point: I suspect that Guy and another pro-China VC, Jim Beyer with Accel Partners (see http://tinyurl.com/37rvp ) have been to Shanghai (and perhaps to a couple of cities in two adjacent provinces), Beijing (and another city nearby Beijing) and perhaps one other city. But I know for a fact that they haven't visited what are arguably not only largest systems integration and software development firms in China, but those best positioned to assist U.S. firms looking for offshoring talent. How do I know this? Simple: Because I've asked the firms!! I guess you have to start somewhere and I'd agree that Beijing and Shanghai are perhaps the "necessary condition" choices for doing due diligence. But there are many, many other options besides Shanghai and Beijing (as areas) and firms based in Shanghai and Beijing. My other point pertains to Microsoft GCA (Greater China Area). I have a lot of faith in Microsoft and still hold my ESPP shares, but their China strategy is goofy. They think that they're going to capture the domestic market through all sorts of high profile alliances and partnerships. Think again, Microsoft. My gut tells me that the folks in China know the reality, but Redmond isn't privy to their secret. Again, I have a lot of faith in Microsoft and suspect that they might find a solution to their China dilemma: 100% market share and zero revenues. But their strategy in play is doomed to defeat. Besides the Evermore (see a Pacific Epoch news item at http://tinyurl.com/2fkak ) and open source threat, their strategy is simply dead wrong. Trying to impose the will of Redmond upon China's software industry simply won't work. Message to Redmond: Try listening to what China's software companies want from you!! Trust me, it is NOT at all what you think and what you seem to be imposing on them.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

U.S. tel: +001.650.618.1475

China tel: +011.86.(0)532.577.8957

http://www.itestrategies.com (blog) & http://tinyurl.com/2r3pa (access to blog content in China)

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http://tinyurl.com/3dcej (AvantGo channel)

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P.S.--Pacific Epoch [ http://www.pacificepoch.com ] is my favorite source for news on China's domestic IT market. I encourage everyone to subscribe to their mailing list.

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