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- Your Competitive Edge - CHINA The New Global Technology Outsourcing HUB. Cyrill Eltschinger CEO, I.T. UNITED OutsourceWorld New York -- Metropolitan Pavilion October 17, 2006 --. Table of Contents. Global Trends China: Your Essential Shore Case Study. 1. Global Trends.

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your competitive edge china the new global technology outsourcing hub

- Your Competitive Edge -CHINA The New Global Technology Outsourcing HUB

Cyrill EltschingerCEO, I.T. UNITED

OutsourceWorld New York-- Metropolitan Pavilion October 17, 2006 --

table of contents
Table of Contents
  • Global Trends
  • China: Your Essential Shore
  • Case Study
industry forecast
Industry Forecast -
  • Worldwide end users spending on IT in 2005 was $625 billion, to increase at 6% CAGR and reach $828 billionby 2010
  • Global BPO market$135 billion in 2006, at an 8% CAGR to$182 billionby 2009
  • Global ITO market: $50 billion by 2008, at a 20%CAGR

Source: Gartner and Nelson Hall (2006); IDC and The Economic Times (2005)

offshoring ito leads growth
Offshoring – ITO Leads Growth

% of Total Offshoring Market (estimated)

Offshoring Market Spending$ billion

Application Development

35% in 2006

5% in 2006

BPO

Infrastructure

3% in 2007

An estimated 1 million programmers needed!

Source: The McKinsey Quarterly, July 2006

offshore ito bpo outlook
Offshore ITO & BPO Outlook

US$50 billion

IT Services

US$24 billion

BPO Services

By 2008

Offshore Spending

Source: Gartner Research, 2005

successful outsourcing transactions
Successful Outsourcing Transactions

Top 10 Barriers

Top 10 Success Factors

Competingresources (48%)

Functional boundaries (44%)

Change Skills (43%)

Middle Management (38%)

Long IT lead times (35%)

Communication (35%)

Employee opposition (33%)

HR (people/training) issues (33%)

Initiative fatigue (32%)

Unrealistic timetables (31%)

Ensuring top sponsorship (82%)

Treating people fairly (82%)

Involving employees (75%)

Giving quality communications (70%)

Providing sufficient training (68%)

Using clear performance measures (65%)

Building teams after change (62%)

Focusing on culture / skill changes (62%)

Rewarding success (60%)

Using internal champions (60%)

Source: IBM Survey of Global 500

9 out of 10 factors are people related.

most attractive global business locations
Most Attractive Global Business Locations

Source: UNCTAD World Investment Report 2005

china market gaining attractiveness
China Market Gaining Attractiveness
  • By 2007: Chinese #1 Internet language
  • By 2010: China to be largest…
    • Cell phone market
    • Beer market
    • Worldwide I.T. market
    • Advertisement
    • Automotive car park
    • Commercial aviation
    • Chemicals
    • Waste & recycling treatment, etc.

(Accenture 1999)

top 3 languages on the web
Top 3 Languages on the Web

1

2

3

China*: users, incl. other Chinese speaking regions

Source: www.internetworldstats.com, March 31, 2006

top 3 world internet user groups
Top 3 World Internet User Groups

1

2

3

China*: Internet users in mainland. Not including Taiwan.

Source: www.internetworldstats.com March 31, 2006

asia pacific cross border m a
Asia-Pacific Cross-Border M&A

Source: UNCTAD World Investment Report 2005

asia pacific hq relocation
Asia-Pacific HQ Relocation
  • 1970s: Australia
  • 1980s: Singapore
  • 1990s: HK & Japan
  • 2000 onwards: Mainland China
        • Shanghai
        • Beijing
        • Other Cities
outsourcing global play @2006
Outsourcing Global Play @2006
  • India
  • China
  • Brazil
  • Russia

Many other destinations, but without volume ability to scale up tech talents & professionals

china basics

China = 4 xUS population

China Basics
  • Slightly larger thanUS, incl. AlaskaPRC area: 9,596,960sq km
  • 1.3 billion people

China about twice the

population of EU

  • 90+% literacy
  • Government focus on English language development

Source: www.worl-gazetteer.com and http://www.cafediverso.com

china fdi
China FDI

Source: Beijing Municipal Bureau of Commerce, 2006

fdi geographic allocation
FDI – Geographic Allocation
  • Eastern Region captures nearly all FDI
  • 65% in Fujian, Jiangsu, Guangdong, Shandong, and Shanghai

$11.69bil

$40.77bil

$60.63bil

ADB, FDI Survey 2005

slide22

China Investor Friendliness

Source: The US-China Business Council: An Investor’s Guide, 2003

china economic performance 2005
China – Economic Performance 2005
  • GDP +10.2% to $2,305.28 billion
    • 2006 Q1: + 10.2% to $1,314.5 bil
  • FDI, reaching $60.33 billion (-0.5%)

- 2006 Q1: +6.4% to $14.2 billion

  • Investment in fixed assets +25.7%
  • Retail sales +13.8% to $76.52 billion (2004)

Source: Various, September 2006

2020 economic targets
2020 – Economic Targets
  • GDP overall: $4 trillion (4x higher)
  • GDP growth: 7.2% annual
  • GDP per capita: $3’000, up from $1’000

China Development Research Institute, www.china.org.cn, 2005

r d and innovation stages in china
R&D and Innovation Stages in China

HIGH

2006+

Frontier Innovation

Create new technologies.

2000

Technology Improvements

Improve products, processes and skills to raise productivity and competitiveness, in-house R&D.

Effort Dedicated to R&D and Innovation

1990

Significant Adaptation

Change products and processes to adapt technology to local or export market – in-house experimentation and R&D.

1980

Basic Production

Train workers in essential production and technical skills required for efficient production – quality management, procurement and inventory management systems.

LOW

HIGH

Business Value

Source: Gartner Research ID Number: G00138506, May 2006

decade of unprecedented growth of telecom infrastructure
Decade of Unprecedented Growth of Telecom Infrastructure

435 mil

Mobile:06-2006

435 M

Fixed*:06-2006

360 M

Into Market InnovationDrive Era

Sources: MII, May. 2006; China National Bureau of Statistics, 2006

Forecasts – MII * Fixed includes PHS/Xiaolingtong subscribers

slide28

China Internet Snapshot

  • June 2006: 123 mil users
    • 64mil broadband users, 2nd largest high-speed after US
  • Only 9.4% of China’s total population
  • 12+%of total Internet users worldwide
  • 3rd largest user group, after the EU & US

Sources: CNNIC, Internetworldstats.com, November 2005

china internet users
China Internet Users

123 mil

9.4% population penetration(8.5% 2005 and 7.2% in 2004)

Internet users refers to Chinese mainland citizen who use the Internet at least one (1) hour per week. Not including: 1) Hong Kong; 2) Macau; and 3) Taiwan

Source: CNNIC, June 2006

web international bandwidth

Sensational speedof growth

Web International Bandwidth

214.2 Gbp/s

1999

2003

06/2006

Not including: 1) Hong Kong; 2) Macau; and 2) Taiwan)

Source: CNNIC, June 30, 2006

a matured marketplace new era booming engineering services
A Matured Marketplace – New EraBooming: Engineering Services

Keep in House

To Services

  • High value
  • High-end skill sets
  • Engineering services

BusinessKnowledge

2003-2004:Key Turnaround

From Manufacturing

  • Cheap labor
  • Low skill sets
  • Factory workers

Outsource Gradually

Technical Knowledge

china eastbound jp usa
China: Eastbound – JP/ USA

Depart Beijing

At 1:00pm,

Any Day…

Land in the US

Before DepartureSame Day

china westbound europe
China: Westbound - Europe

200 flights a week To EU

Depart Beijing

At 11:30am,

Any Day…

Land in the UK

3:15pmSame Day

outsourcing industry forecasts
Outsourcing Industry Forecasts
  • Global IT outsourcing market will grow at a compound annual growth rate (CAGR) of 20%
  • China's outsourcing market is expected to grow at 36.5% ACGR through 2008/1010
  • Rapidly “Moving” China outsourcing software industry size and tech talents availability

Sources: IDC Group 2005, Global Outsourcing Report 2005

china sw it services exports revenues outlook
China SW & IT Services Exports Revenues Outlook

$4.6bil

In Million USD$

Source: Sino-India Cooperative Office, Beijing 2005

slide37

China - Annual Computer Science & Software Graduates

400k E.

250k

189k

140k

89k

62k

41k

33k

29k

E.

Not including Hong Kong & Taiwan

Source: China National Statistics Bureau 2005; and China Ministry of Education 2005

software technology parks torch program
Software Technology Parks-TORCH Program-

Beijing #1

Xi’an #3

Shanghai #2

Top-3 HigherEducation Cities

53 High-tech parks29 National software parks

Source: TORCH Center 2005

china software export markets
China – Software Export Markets

Hong Kong 10.9%

Others 7.4%

USA & EU 22.5%

Japan 59.2%

Source: Analysis International, April 2006

china outsourcing hotspots
China Outsourcing Hotspots
  • Beijing, Shanghai, Shenzhen

[First tier cities]

  • Chengdu, Dalian, Xi’an, Tianjin, Suzhou

[Second tier cities]

53 High-Tech National-level Economic Zones

    • Which includes 29 software parks, incubators and R&D centers**

Source: TORCH Center 2005

china new era booming engineering services sector to china
China New Era: Booming Engineering Services Sector to China

2003-2004: Turnaround

Hourly Rates

Increasing Hourly Rates

Widening Gap

India

2006

ChinaTier-1

(-5%)

China Tech Services Critical to Global Competitiveness

(-15%)

ChinaTier-2

(-25%)

2006

2007

2008

2009

2010

beijing s play in outsourcing
Beijing’s Play in Outsourcing

Ranked 6 times #1 in national rankings:

  • Software (SW)exports (~40% of China)
  • Number of SW products delivered / year
  • Technologyexports
  • Number of software enterprises
  • Highest reimbursement for SW-related VAT
  • Highest concentration of SW professionals

Source: Beijing Municipal Bureau of Commerce 2005

software export beijing
Software Export – Beijing

Outlook: $2bil by 2010

E.

Data reported to customs software exports bureau. Actual figure much larger.

Source: Beijing Municipal Bureau of Commerce 2006

top 5 overseas concerns in considering offshoring services to china
Top-5 Overseas Concerns in Considering Offshoring & Services to China
  • English Language Capabilities?!
  • Intellectual Property Rights ?!
  • Information Security ?!
  • Tech Talents Quality ?!
  • Staff Loyalty/ Turnover ?!
china s outsourcing challenge
China’s Outsourcing Challenge
  • Overseas Marketing! Too many conferences inside China, little/no participation at overseas trade shows
  • International Internet controls
  • International Standards. Number of certifications as of 2005, i.e.:
    • QMS: 7’754 (BJ) / 138’042 (Total)
    • CMM3/CMMI3: 38 (BJ) / 112 (Total)
    • CMM5/CMMI5: 5 (BJ) / 17 (Total)
  • Communications, rapidly improving
  • India’s 25years head start
smooth project migration successfully growing your offshore partnership

– Smooth Project Migration – Successfully Growing Your Offshore Partnership

Doug Rosenthal, I/T Development Manager, Dell

Cyrill Eltschinger, CEO, I.T. UNITED

– Gartner Outsourcing Summit, Orlando, FL –

April 3, 2006

dell profile
Dell Profile
  • Founded in 1984
  • Diverse technology and service provider
  • No. 28 on Fortune 500
  • 65,200 employees globally
  • Publicly traded (NASDAQ)
  • Revenue of $56 billion
dell and offshoring
Dell and Offshoring
  • Global organization encompassing offshore employees and partnerships
  • Offshore facilities for engineering, manufacturing, and customer service
  • I/T development centers in Asia, Europe, LA
  • Global network of suppliers
dell master data management mdm
Dell Master Data Management (MDM)
  • System of record for global product data
  • Product attributes related to sales, marketing, and order management
  • Support variety of customer-facing and internal applications
  • Scalable, reliable data management environment
i t united profile
I.T. UNITED Profile
  • China - Since 1998
  • 200+ team - ITO & BPO
  • 85%+ from Chinese top universities
  • Privately held -Operating in China as a wholly-owned foreign enterprise (WOFE)
  • Leading China-based outsourcing provider
  • Multinational client portfolio
i t united offices
I.T. UNITED Offices

N. America:

• San Francisco, USA

• Toronto, Canada

Europe:

• Brussels,

Belgium

Asia: • Beijing, China (Global HQ)

• Shanghai, China

• Xi’an, China

• Hong Kong, China

• Chengdu Q1’07, China

• Tokyo, Japan

i t united acknowledgements 2006
I.T. UNITED Acknowledgements 2006
  • ‘Global Services 100’ - Recognized in the top 5 leading China-based outsourcing services provider (01-06)
  • ‘Global Outsourcing 100’ - Selected by the International Association of Outsourcing Professionals (IAOP) as a rising star (04-06)
  • ‘Outstanding IT Outsourcing Services’- Supported by the Chinese Ministry of Commerce, second year in a row (06-06)
background
Background
  • Dell undergoing a MDM globalization and consolidation process that includes Oracle, .NET
  • Dell continues to leverage global partnerships
  • Dell interested in working with a China partner to leverage cost advantages and supplier flexibility (scalability, ramp-up time, etc.)
  • Dell evaluated and retained I.T. UNITED
why china
Why China?
  • Diversification of global sourcing risk
  • Strategic market across industry sectors with sustained economic growth 10 yrs outlook
  • Largest pool of tech talent
  • Exploding English language command
  • Tech industry: #1 focus by China Gov.
  • State-of-the-art infrastructure
  • Lowest rates, globally
engagement model
Engagement Model
  • Fixed-fee project vs. staff augmentation
  • Initially fixed-fee project to determine suitability
  • Move to staff augmentation: target self-contained development work
    • Longer-term commitment of resources
    • Grow domain knowledge and familiarity with technology
    • Gain productivity efficiency
    • Absorb company culture and work style
project scope
Project Scope
  • DBMS migration (SQL Server 2000 to Oracle 10G)
  • Data model consolidation
  • PL/SQL generation
  • Automated tools in C# / .NET
    • Team of Oracle developers supporting Dell’s efforts to migrate MDM applications from SQL Server to Oracle
    • CMMI-inspired, incremental project management approach with high flexibility
the offshore team structure
The Offshore Team Structure
  • Offshore team
    • Lead Developer + Developers + Testers
    • Part-time Project Manager (25% allocation)
    • Part-time Account Manager
  • Metrics
    • Approx. 5:1 offshore to local (onshore) resources ratio
    • Local FTE 20%-25% part-time allocation
    • 2-3 month project cycles
work process
Work Process
  • Iterative approach between offshore resources and local (senior) developers
  • Define functional requirements and design guidelines
  • Frequent deliverables and regular feedback
  • Offshore team to test each deliverable, then local resource also validates; local code review
success factors
Success Factors
  • Security
  • Communication
  • Quality Assurance
  • On-Time Delivery
  • Response Time
security
Security
  • Offshore staff working on segregated network
  • File transfer via secure FTP
  • Restricted access to dev/test environment
  • CCTV protected work premises
  • No external data-recording devices permitted
  • Clean desk policy
communication
Communication
  • English proficiency of key staff members in China
  • Establish team spirit
  • Ensure that work is on track
    • Meet deadlines (I.T. UNITED)
    • Timely decisions & feedback (Dell)
  • Weekly conference calls and status reports
  • Onsite progress meetings as appropriate
quality assurance
Quality Assurance
  • Iterative two-step QA process based on CMMI
  • Cross-validation by team members and technical lead prior to delivery
  • Cross-validation of offshore deliverables by local teams
  • Routine technical training for offshore developers
  • Performance-based incentives
on time delivery
On-Time Delivery
  • Clear requirement specifications
  • Weekly status reports
    • Project schedule reviews
    • Issue/Resolution tracking
  • Smooth project implementation: faster problem solving with combined technical skills
  • Effective time zone management
    • I.T. UNITED gets the work done overnight(follow-the-sun)
partnership results
Partnership Results
  • Complementary development skills between both Dell and I.T. UNITED teams
  • Successful DB migration and consolidation
  • Automated SQL generation tools
  • Validated engagement model
  • 65% cost savings per FTE
next steps
Next Steps
  • Growth of existing support teams
  • Implement concurrent projects
  • Evolve partnership to other development areas, including consulting services
  • Expand partnership opportunities within Dell
china offshoring advantages
China Offshoring Advantages
  • Largest pool of tech talents
  • Sustained economic growth 10 yrs outlook
  • World class infrastructure and networks
  • Exploding English language command
  • Government commitment to tech industry
  • Steady expansion into China as strategic market
  • Lowest rates, globally
slide76
Enter your Business Card into our LuckyDraw box at the booth and Win the official Beijing Olympics 2008 Games Mascots…

Draw:1:45pmOct.18Wed.

keep in touch
Keep in Touch

Cyrill Eltschinger

e-mail: ce@ituc.com

phone: +86-10-6599 2288 ext.-800

China cell: +86-139-0109-5212

USA cell: +1 (310) 801 0598

china us specific success factors
China-US Specific Success Factors

Cultural understanding

Local holidays

IPR

Language skills

Export control issues

Time-zone

china ipr in the spotlight
China IPR In The Spotlight
  • Highest awareness – China brands arte taking off
    • Beijing is home to 70% of Chinese software brands
  • Ongoing focus on enforcing protection measures
  • Focus on short legal proceeding for IPR lawsuits
  • Continued government campaigning to raise awareness & training
  • Ongoing media coverage to fight illicit use fake products

Source: Beijing Municipal Bureau of Commerce 2005

indian it firms china rush
Indian IT Firms  China Rush?
  • Tag-along its client base going to China
  • Tap into China’s domestic software sales
  • Tap into largest industries across sectors
  • Re-position closer to the Japanese market
  • Tap into most attractive China talents rates
  • Tap into special skills to face own shortages
battle of the titans

Contracted FDI ‘05:

$167bil

$>6bil

Battle of the Titans:

INDIA

Population

1.3bil

1.09bil

Literacy rate

90%

59%

CHINA

Foreign exchange reserves

$412bil

$102bil

GDP

$2,228bil

$719bil

Avg. Ann. Growth of IT Sector

42% (97-03)

2.4% (97-03)

Software exports

$2bil

$10bil

Internet bandwidth

136Gbps

10Gbps

Installed PC base

40mil

8mil

Fixed phone lines

360mil

67mil

Mobile connections

420mil

69mil

Number of software companies

10,000+

3,000+

Domestic software sales

$22.3bil

$3bil

Hourly rate for developer (2yrs)

$12-25

$24

Sources: Gartner Research May 2002; ADP May 2004, MII 2006; US-China Business Council 2005, IMF, 2005; Indiainfoline 2004; CISA 2004, TIMES NEWS NETWORK 2003, ITU World Telecommunication Indicators Database, 2005/6

offshore rapidly increasing
Offshore – Rapidly Increasing
  • Offshore will more than double in 3 years
    • 2005: 3% of overall IT services spending, while
    • 2008: 6-7% (Gartner and IDC)
  • By 2008, nearly 1/4 of U.S. spending on applications development (ADM), integration and management services will go tooffshoreproviders (IDC)

Source: TheEconomic Times, 2005

global outsourcing projections
Global Outsourcing Projections

An estimated 1 million programmers needed!

US$ Billion Projection

  • 2000: < US $5.5 billion
  • 2005: > US $17.6 billion
  • 2008: > US $50 billion
  • Total worldwide tech outsourcing volume, today: India ~2% ; China ~1%

Source: Various

global bpo market
Global BPO Market
  • Global BPO market is expected to reach $134.7 billion in 2006, an increase of 8.3% over 2005
  • It is predicted for the global BPO market to grow at an average rate of 8% per annum, reaching $182 billion by 2009

8% increase per annum

Source: Gartner and Nelson Hall, September 2006

recognition awards and rankings
Recognition, Awards and Rankings
  • I.T. UNITED is an internationally recognized Top 100 offshore player and a “Class A” IT company in China.
  • International Association of Outsourcing Professionals (IAOP) - one of ‘The Global Outsourcing 100’.
  • Selected as an outstanding IT outsourcing (ITO) and business process outsourcing (BPO) service provider by ‘Global Services 100’.
  • Ranked in ‘Global Services 100’s China Top 5 list.
  • Received the 1st China Outsourcing Award by the Ministry of Commerce & Dalian Municipal Government.
  • Ranked in CIO INSIGHT magazine’s Global Outsourcing Report 2005 as one of China’s Top 10 “Major Players”.
  • Top 100 Offshore Global Players and one of China’s Top 10 IT Companies by Managing Offshore and neoIT.
slide92

First foreigner to receive Private Pilot’s License in China…

Cyrill Eltschinger

CEO, I.T. UNITED