It’s not India or China. It’s India AND China
At Freeborders, the buzz word is CHINDUSSM. CHINDUSSM is the amalgam of the best in China, India, and the United States. Jim Reesing is well versed in CHINDUS as executive vice president at Freeborders, a San Francisco-based supplier that provides IT services from China to U.S. and Western European buyers. He explains why global business needs a trio of offshore geographies, not a duo in today’s highly volatile business world.
Q: What exactly is CHINDUS?
A: Chindus has three parts. No. 1 is:
Understanding the nuances of doing business in the United States. This includes how to govern an offshore relationship. It outlines how to deliver services using a distributed delivery model. And it includes understanding how American companies consume IT services.
Q: Do non-American firms have difficulty with this aspect of offshoring?
A: Yes. Many offshore providers find managing U.S. buyers challenging. Some do not have a firm understanding of the operating models that U.S. companies have embraced to deliver offshore services.
Q: What are the other two parts of CHINDUSSM?
A: There are dramatic differences in business cultures around the world. So No. 2 is:
Understanding the nuances of doing business in the country providing the services. This is particularly important in China, which was a closed society for so long. India, Brazil, Russia — they all have their unique requirements.
Q: What is No. 3?
A: Leveraging industry best practices. We studied the business lessons in offshore services over the last 15 years and found most of them come from India. Interestingly, we discovered the Tier-1 Indian service providers operate almost the same way. That told us that their practices are de facto the industry’s best practices. So we adopted their model as our operating model to leapfrog over their early mistakes.
Q: Five years ago offshoring was synonymous with India. Now China is the up-and-coming big player. Will China overtake India as the offshoring leader?
A: Our buyers ask that question every day. My answer is: It’s not China versus India. It’s China and India. The last thing I do is bash India. I think India suppliers offer world-class services.
In fact, there are some services we can’t do in China. If our buyers need those services, I tell them to go to India instead of dealing with us. The Indian suppliers have moved up the IT value chain. China as yet doesn’t have the breadth of skill sets or the depth of domain knowledge Indian companies do. Few can match the maturity of Indian suppliers today.
However, suppliers can deliver high-quality services from China, and they can be an excellent complement to services from India. Geographic and vendor diversification are key drivers for striving for a balanced set of providers.
Q: How do you counsel buyers when they are trying to decide where to send their work?
A: We believe the key is diversification. That reduces risk. We believe offshoring buyers should use more than one supplier. And they should be in at least two geographies.
A lot of American companies have invested a lot of capital in India because that was the only place to go up until now. Today, with the alternatives, I think that is too risky a philosophy.
Q: What risks are you worried about?
A: It’s hard to believe, but we are now seeing a scarcity of IT skills in India. Indian suppliers are facing issues of retention and attrition. Stability of teams has become an issue. That has led to wage inflation.
Then there’s the currency question. Infrastructure in India is beginning to be a problem too. These factors are encouraging the move to diversification.
Q: How worrisome are these risks?
A: Certainly not enough to leave India. However, sophisticated offshore users understand it takes at least one to two years to get a mature offshore geography established. So they realize they need to invest in new geographies now so a serious change in business conditions will not have a major impact on their operations.
Q: Why China?
A: China has a massive IT population, so access to talent is not an issue. It has an infrastructure that is incomparable anywhere in the world.
American companies are eager to enter the consumer markets in Asia in general and China in particular; they see them as their next engine for growth. So there is good alignment culturally and geographically in working with China-based providers.
Q: What processes do you use in China?
A: We have taken the lessons India taught us. We use the same tools, processes, and operating model. We just plugged them into another country. We stripped the nationality out of the processes and presented them as global best practices.
Q: Tell me about one of your buyers.
A: Our deal with Expedia to date is the largest deal of its kind in the history of Chinese IT services; it’s valued at over US$100 million.
Expedia was trying to decide between Indian and Chinese suppliers. They gave an Indian provider and Freeborders the same project and budget and then compared results. They wanted a bake-off to see who could deliver the best services. We worried we couldn’t compete.
We won; we beat out a Tier-1 Indian supplier! Expedia said we won because it wanted executive relationships and client intimacy in addition to great IT skills: it felt we could do that better. We now successfully service one of the largest business-to-consumer Web sites that has to be available 100 percent of the time. It has large transaction volume. And we do well at it.
Q: Tell me about the Chinese IT industry.
A: It’s really an opportunity for the West to tap into new innovation. The Chinese economy was closed to the West. The West designed and produced major enterprise applications during this time, and China had no access to this software or the engineering behind it. Yet the Chinese created similar applications themselves. Now that their society is open, we have access to their amazing IT thinkers. They can now share their innovations with the rest of the world.
Q: What’s the next quantum leap for offshoring?
A: We will see more global players. The Indian service providers will move into other locations. They will begin to look more like IBM or Accenture. They have become big companies with deep pockets.
Then, within different countries there will be pure-plays that totally understand how to operate in that geography. This deep domain knowledge will help them thrive and stand alone.
Q: Any new trends?
A: The new trend is multi-sourcing. Massive, all-encompassing deals with one provider are going away. The current big deals are breaking up.
Q: Tell me about you.
A: I’m 41. I grew up in Cleveland, Ohio, but spent half my life in Los Angeles. I now live in Cleveland; I moved back with my family because the Midwest is a great place to raise a family. I went to college at UCLA and then did a fellowship at Columbia.
Q: What was your first job?
A: I was a high school teacher. I taught algebra and biology. I loved teaching. I taught for six years.
Q: How did you get into outsourcing?
A: I was also the school’s technology director. I helped schools build out their infrastructure. I kept running into IBM, so they hired me. I was an infrastructure delivery guy. I ended up working in all parts of the business, including managing delivery organizations and business development organizations.
Q: How did you get into offshoring?
A: I spent eight years working for Kanbay, an Indian firm focused on financial services. When I joined in 1998, it was just a start-up. It went public, and then Capgemini purchased it.
I left in 2006 to join Freeborders. During the last 10 years I have personally been part of the evolution of the Indian offshoring industry. I saw Y2K and the dotcom boom and bust. Then the industry matured. Now I’ve watched China mature in my 2.5 years at Freeborders.
Q: What has been your biggest business lesson?
A: It’s really important to fail. Failure teaches you how to react. I had had a ton of successes in my career, and then I hit a roadblock. I had to figure out what to do. What a lesson! I worry about people who haven’t had a big failure.
Q: What do you do for fun?
A: I run. I love to play sports. I fish. I play guitar. I also spend time with my kids. I have two in high school.