5 things to consider for outsourcing IT work to China (plus, 3 tips on opening an office there)

If outsourcing software development to China is in your plans, Julia Cai’s experiences offers some useful perspective.

The IT entrepreneur was born in China, studied in Singapore and the United Kingdom, and held IT positions in the pharmaceuticals and utilities industries in the United States before founding her own company. Cai’s business is outsourcing. Her company, The Seven Soft, handles outsourced IT and software projects for enterprise clients and small and medium-sized businesses in a range of industries spanning pharmaceuticals, finance and manufacturing, among others.

Cai launched The Seven Soft in Research Triangle Park, North Carolina to be closer to customers. She also decided to open a branch in China. Cai said this “hybrid model” gives her customers the comfort of working with an American company along with the lower costs of doing software development in China. But if you think working with a Chinese vendor is just about saving money, think again. Cai spoke at the recent China BioSciences Connect conference in Winston-Salem, North Carolina where she offered advice to companies who are considering whether to outsource work to a Chinese software vendor.

A big company is not always your best choice. Large vendors want large contracts. If you’re not a big customer with a multimillion-dollar contract, the large vendor might take your contract, but it likely won’t put its best software developers on your project.

Don’t just think hourly rates. Think about overall costs. If you think that getting workers for $15 an hour is a great deal, keep in mind you might also need to pay for a manager to “babysit” those workers at $100 an hour. Suddenly, those low hourly rates don’t look so good.

Make sure there’s a cultural match. Look for a vendor that has had previous experience working with American companies. That experience helps a vendor understand what is important to you and makes it more likely that they’ll respond to your concerns.

References don’t mean much. A pilot project is probably necessary to make sure a vendor is the right fit.

Language is not an issue. Many young Chinese workers watch Western movies and listen to Western music, so they’re more comfortable with English than you think, Cai said. It’s most important to make sure that a vendor understands what you’re trying to do. If a vendor can’t grasp what your goals are, it won’t matter what language is spoken. “I’ve never seen (language) be an issue for an IT vendor,” she said.

And if you’re a Western company considering whether to open a branch of your own in China, Cai offers some lessons learned from her own experiences. Even with her familiarity with the Chinese workforce, Cai says opening a branch in China presented business challenges.

Have patience. If you’re opening a location in China to sell a product to the local people, prepare for a long haul. It will take time to win customers over to your business. Cai recalls one company that lost money in China for nine straight years after opening an office there. Only in the 10th year did that location start to turn a profit.

Turnover. It’s high. The Seven Soft’s China office has a 30 percent turnover rate and that’s considered low for a small company. Chinese workers have high expectations and are striving to get a position at big companies. Cai tells a story of a job fair where workers bypassed Cai and chose instead to wait in long lines for IBM. Workers who look at smaller companies will want to know about the company’s ambitions. “If you’re not going IPO in five years, they think you’re not aggressive enough,” Cai said.

Labor laws. Laws don’t give employers much flexibility. You can hire a worker on a contract for a variable period of time. But companies can only extend that contract twice. The third time, the worker becomes permanent. After that, it’s very hard to fire the worker.

[Image from stock.xchng user flaivoloka]