Software industry veteran David Scott Lewis offers a candid perspective on business and life in China. Original Sand Hill Group posts at http://www.sandhill.com/opinion/daily_blog.php?id=52. Some posts are cross-posted to the AlwaysOn Network (http://www.alwayson.goingon.com/) or Sourcingmag.com (http://www.sourcingmag.com/).
Not quite, but getting there. Charlie Bess, an EDS Fellow, comments on this in a recent post on their EDS' Next Big Thing Blog (one of my favorite, must read blogs).
"Most of what I hear about nano-tech is based on taking advantage of the different chemical and physical properties, incorporating them in a relatively static fashion in commercial products. This competition shows a glimpse of a more interactive set of tasks performed by devices that have been manufactured near the nano-scale."
Charles, you couldn't be more correct. MSM, even a lot of bloggers, confuse all things "nano" and MEMS. They fail to understand that there is a huge difference between the nano world, which is heavily dominated by materials science, and MEMS. And the fact that there is sometimes overlap between the two adds to the public's confusion.
When I describe MEMS, the reply that I hear back most often is, "Oh, you mean the nanites on Star Trek." Well, I guess I do. Others have said, "You mean like the movie Fantastic Voyage." Yes, I guess, but with itty bitty robots instead of "Honey, I Shrunk ..." people. And going forward, I'll send everyone to view the robotic fly demo video, a near-MEMS device designed for covert surveillance and currently featured on the MIT Technology Review web site. DARPA funded, but that goes without saying. Gee, I wonder how many Web 2.0 (ad)ventures have been funded by DARPA?
For "nano," i.e., the way it's normally described in technical literature, it's much more about materials such as carbon nanotubes and applications in solar cells, things like this.
And for those a bit more knowledgeable, I'll argue that what Feynman was really talking about way back when was more closely related to MEMS, actually NEMS: Manufacturing at the nanoscale.
Both have their place. It's hardly an either/or situation. I've seen practical apps with nanomaterials and social cells, and MEMS fabrication techniques used in the production of solar collectors (panels). I also differentiate the two by noting a key part of the acronym "MEMS": "Mechanical." This isn't something usually associated with "nano." But the good 'ol nanites on Star Trek were MEMS (actually, NEMS) in every sense.
Watch out U.S.: China is a major player in this space and as the outsourcing hub for China's premier technical university, Tsinghua, we're in the thick of some MEMS projects (nothing on nanomaterials, though). This is turf that may very well be dominated by the U.S. and China ... and an area where India isn't even a top ten player. In Asia, it's China vs. Japan in the MEMS and nano supremacy race.
BTW, for those of you who actually read this, isn't it nice to read about something that isn't Web 2.0 related? Instead of Milk of Magnesia, I'm recommending TechCrunch, Scobleizer and Micro Persuasion as free alternatives. I'll be writing a lot more about MEMS (in general) and what is happening in China (specifically) in forthcoming Letter from China columns.
Based in China, David Scott Lewis is SVP with Startech Global Corporation, the outsourcing hub for Tsinghua University (China's MIT). In addition to his bizdev/GAM responsibilities, he authors their Tech China blog.
Photo courtesy of the MEMS Image Gallery.
P.S.--I'm in the process of writing a column titled, "Arrington, Rubel and Scoble: Three Monkeys in a Tree." Should be a fun read.
I didn't mention this in this column, but in a past life (from 1986-1993), I was in the MEMS sector, both directly and indirectly.
I then started a venture called EndoCath with the head of UC Irvine's cardiology department. We focused on making endarterectomy devices using "nano" techniques, tapping into the molecular self-assembly lab at Harvard. We applied for a NIH SBIR Phase I grant, but lost by a few points (or so it seemed). What we were proposing was a bit out there and in retrospect, would have been better served by MEMS than by "nano" (i.e., "nano" as defined by a focus on materials and SAM -- self-assembled molecules). Yes, we were 15-20 years too early (I learned this lesson in the AI sector as well), but this is where things are definitely going. BTW, this was back in the early 90's, too!! Just imagine how far things have come.
A hot-off-the-press World Bank report titled China's Information Revolution: Managing the Economic and Social Transformation says that China already has the world's largest telecommunications market and that its ICT industry has grown two to three times faster than GDP over the past 10 years. Yet, the report notes that legal and regulatory reforms are urgently needed (see PDF pp. 12-13). Key item on their agenda: IPR. More IPR protection; better IPR protection.
In a document on IPR cases, the Supreme People's Court said IPR violators should get heavier punishment, and that serious IPR violators could be sentenced to three to seven years in prison along with severe financial punishment. (This is tougher than comparable U.S. laws.) Fortunately for U.S. firms, international IPR laws will take precedence whenever they are applied in domestic trials even if they differ from domestic laws, a vice-president of the Supreme People's Court told a national conference on IPR-related trials. One goal is to transform WTO regulations such as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) into domestic laws. And to “further allay foreign concerns” on IPR protection, the Standing Committee of the National People's Congress recently approved China's entry into the WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty.
Shifting this discussion specifically to patents (which is the most relevant IPR-related issue for our sector), according to the current annual report on ICT patents released by MII, one of every three patents granted in China is awarded to an ICT firm, making it the top industry for innovation in China. However, two of every three so-called “invention” patents in the ICT sector belong to foreign companies and foreign institutions, with Huawei, ZTE, Lenovo, Haier and HiSense the leading domestic players (the latter two headquartered in the beautiful sailing and beer capital of China, Qingdao; alas, I'm planning to run for Qingdao Mayor one of these days) and Tsinghua (yes, OUR Tsinghua) leading among China's universities. Bottom line: China takes IPR and IP creation very seriously, especially in our sector ... and especially at Tsinghua.
Further, China is planning the third overhaul of its Patent Law and the draft amendments to the law have been turned over to the State Council for deliberation, according to the State Intellectual Property Office (SIPO); more than half of the current 69 provisions have been changed in the draft. The current Patent Law requires Chinese entities and individuals to file applications for inventions developed in China first. The draft extends this requirement to both Chinese and foreigners and stipulates that failure to meet this first-filing-in-China requirement will lead to rejection of the Chinese application. Within the provisions of China's Anti-Unfair Competition Law, China's courts will also balance the encouragement of innovation and fair competition when handling IPR cases. The most notable problem: According to a recent official survey, only 0.03 percent of Chinese domestic enterprises have core independent IP, with 99 percent having no patent applications and 60 percent without independent trademarks, according to Mr. Tian Lipu, head of the State Intellectual Property Office. Some domestic firms hesitate to invest in research and development not because of the cost but because they fear their hard-earned ideas may be stolen; however, the Supreme People's Court has pledged to protect both foreign and domestic trademarks equally.
But there's life beyond IPR. On the flip side, from the procurement angle, China plans to give priority to innovative products produced by Chinese-owned or -controlled enterprises in government procurement. Chinese-owned or -controlled firms can register their products with the National Innovative Products List which is scheduled to be issued later this year. That the government should buy more domestic products to “enhance innovation capability of Chinese enterprises” was a talking point during the Fifth Session of the 10th National People's Congress. Zhu Jian, deputy principal of Zhejiang University, suggested large government equipment purchases should go to domestic enterprises to further their development endeavors.
Lest I forget, there's one more thing Beijing wants you to know and it pertains to a new focus on IPR awareness. In an “only in China” moment, Beijing TV aired a live show, a reality game show contest, on IPR. The Beijing municipal government also sent text messages to 3 million mobile phone users on April 26th to remind them of the importance of IPR, along with advertisements on buses. But it gets better. SIPO also organized a nation-wide singing contest. The first (and I hope the last) such contest by SIPO, they received 76 new songs from 24 provinces and 24 qualified into the final. Yes, only in China.
When it comes to IPR, China will do it their way. They want us to know that they take IPR very seriously, but that we're playing in their sandbox. They'll bend to accommodate international laws, but they'll also do whatever it takes to promote their own companies and institutions. The tone in their English-language press is firm, but also a bit accommodating, whereas the tone in their Chinese-language press is much tougher as I described in last week's column. And remember this: If you lose at “Let's play IPR in China,” you can always go for the megabucks cash prize during the second SIPO-sponsored singing contest.
Originally posted on 7 May 2007 on the Sand Hill Group "Letter from China" blog.
For better or worse, this will likely be the first of many columns addressing IPR issues in China. In fact, the key reason for not doing software development in China has to do with IPR. It's not about English-language skills (even though they're much worse than most imagine; don't believe the hype from China's government or the drivel from American “tourist” executives fooled during visits to elite Chinese universities), it's not about technical capabilities (in hard skills sans apps integration, China can easily match India; only in soft skills like project management does India do better).
For our sector, there is an adequate supply of English-capable (I didn't say “fluent”) engineers. And, let's be honest, at the grad level, China's technical universities absolutely kick India's butt. (Once again, back to my “China vs. India” thread.) What about cost issues? I laughed when I read about Indian firms complaining about high costs in China. The joke is on them (re: TCS, among others), which I'll explain in a forthcoming column, “Why the Indian Globals Will Fail in China” (working title). Cost isn't an issue. It may not be as cheap in Beijing, Shanghai or Shenzhen as some American firms would like, but it's still cheap compared to numerous global alternatives, and let's not forget that BJ, SH and SZ are not the only options in China. So it's not about English or technical skills, or costs. It's really about IPR.
Fortunately, IPR protection is a recurring them in China's tech policy press: It's recognized as the greatest bottleneck to innovation in China. To some (re: many Americans), China makes a good living by copying others. But within China's tech policy community, there is an understanding that China can't continue to copy and must invent its own technology. China also knows that if it wants to attract FDI in high tech sectors, they need to address IPR issues, although foreign concerns are not the driving force behind advancements in IPR protection. So what's the driving force? Answer: Protection of domestic innovation, i.e., innovations by Chinese companies within China's borders.
“IPR Week,” on the other hand, is much more for show to Westerners. For example, there was a disproportional amount of coverage on “IPR Week” in China's English-language press (e.g., China Daily) versus in China's leading national and trade dailies. China's tech policy daily did mention “IPR Week” on its front page, but it was the shortest article on its front page; it was supplemented by a nearly identical article (written by a different author) buried on the last page of that particular edition. But CCTV showed a crowd of thousands interested in learning about IPR. Gotcha!! In fact, the camera showed maybe just a dozen or so ... at most. Hardly a pressing issue on the Chinese psyche.
However, there was one fascinating article on IPR protection that was the lead article in another edition of China's tech policy daily this past week (i.e., during “IPR Week”). It was a report on a conference session held in Beijing that featured five companies from south China. Their topic: How Western firms abuse IP laws to keep Chinese companies off their domestic turf!! Bottom line: According to the Chinese, foreign companies and countries bully Chinese companies by taking advantage of their domestic court systems, challenging Chinese firms with Section 337 actions. Well, this is certainly one way of looking at the world.
One problem with IPR protection in China is a lack of knowledge about IPR fundamentals. Often Chinese firms don't know what is legal, what is illegal. For example (as this is good one), many Chinese companies really don't know that they can't use existing technologies still under patent protection to create a newer technology without paying royalties to the patent holders of the existing/core technologies. This absolutely stuns the Chinese.
However, the biggest impediment to IPR protection has nothing at all to do with the WTO, WIPO, or the legal systems in China or the United States. Fact is, the greatest challenge to IPR protection in China is culture. The anecdotal consensus among mainlanders is that it will take a couple/three generations (yes, generations) for Chinese to fully appreciate IPR. The key problem is that Chinese people don't perceive that they're doing anything wrong when they use/borrow/steal someone else's IP! I give a lot of credit to the Chinese government for taking a gazillion steps in the right direction. But, sorry Beijing, you can't easily legislate cultural habits (although turn the clock back 40 years and maybe they think it's still doable).
Who Says That Watching “24” is a Waste of Time?
Some American firms believe that they can best control their IP developed in China by running a captive operation. Probably true, although not likely the best way to start. Either the captive operation would be too small to matter or there would be too much risk in launching a significant development operation. ODCs – offshore development centers – are a better way to go. Our firm does this: One of our offerings is to help American ISVs set up R&D or software development ops in China, starting with an ODC, often staffed with Tsinghua grads, coupled with a BOT (Build-Operate-Transfer) option that enables the ISV to flip a switch and turn the ODC into a CDC – captive development center. Enough of a commercial, though.
Regardless which route an ISV chooses, it's best to take Andy Grove to heart: Be vigilant, be paranoid. This is where the Jack Bauer analogy comes to mind. Security, security, security. Physical and data. Don't take any unnecessary chances. Chinese companies tend to rely on Rent-a-Cop guards and easily crackable access cards (I know, trust me) for the bulk of their security measures. Sorry, but this isn't enough.
Physical and data security is best ensured through a combination of CCTV video surveillance, biometric access control and verification systems, intrusion detection, perimeter protection, keyloggers, no removable media, restricted Internet access, document destruction, randomized polygraph testing, counter-eavesdropping and zero-day exploit shields. Sounds like something out of Ft. Meade? Perhaps. But most of these measures are a lot easier to implement than they may sound.
For the latest government developments on IPR protection, see my recent Tech China blog post titled, “China’s Action Plan on IPR Protection (or, Why I Have “12312" on My Speed Dial)”. A copy of “China’s Action Plan on IPR Protection 2007” is included in the post. The post mentions the new Blue Book as well.
Originally posted on 30 April 2007 on the Sand Hill Group "Letter from China" blog.
It's all about the Golden Triangle: The U.S., China and India (in this order, although “USIC” makes for a better acronym – and I still prefer “Golden Triangle”). There is some talk about the BRIC countries, stressing that Brazil and Russia should be added to the equation, but this is farcical. Even BRIC protagonists acknowledge the fact that China has a GDP that exceeds the combined GDP of Brazil, Russia and India – and this won't change for the foreseeable future. Frankly, China stands on its own, with India a distant second, and Brazil and Russia both small objects in India's rear-view mirror.
Within the framework of the Golden Triangle, the most important question to be answered has nothing to do with IT, IPR or R&D, but “whether the conceivable rise of China and India to become potential great powers in the coming decades, (and) the accompanying relative loss of power of the USA ... will lead to a renaissance in the power rivalries of great actors and possibly even to violent conflicts.” The February report issued by the Friedrich Ebert Stiftung Foundation goes on to note that “many neorealist authors consider military conflicts between rising and declining hegemonic powers as almost inevitable,” something implied by Henry Kissinger during his recent trip to China. And whether the dawn of a de facto East Asian NATO will make war less likely is anyone's call, especially since China is already developing capabilities designed specifically to thwart U.S. Pacific Command forces. (See the 2007 RAND Report titled, Entering the Dragon's Lair: Chinese Antiaccess Strategies and Their Implications for the United States.) This column, however, assumes that armed conflict is not inevitable. Wishful thinking on my part? Perhaps, but I hope not.
On the macroeconomics level, it's all about trade (which I'll cover in another column) and the RMB. As we all know, there is seemingly endless chatter about the need to revalue (actually, upwardly value) the RMB, although there are voices of reason from the likes of Morgan Stanley's Chief Economist as noted in his testimony a few weeks ago before the U.S. Senate Finance Committee. Besides, a discussion paper published by Japan's Research Institute of Economy, Trade & Industry found that a unilateral appreciation of the RMB wouldn't have a major impact on addressing trade imbalances. (Uh ... hasn't Greenspan been saying this for the past several years?) Fortunately for China, there are also voices, such as Lloyds TSB, crying out for revaluation of both the renminbi and Indian rupee. Very slight advantage to India, if for no other reason than the fact that revaluation of the renminbi gets a lot more mind share in the States than revaluation of the rupee.
Although revaluation is a “big picture” item, it's hardly a show stopper to doing business in or with China, especially when comparing options versus India. So, how does China stack up against India, especially as a destination for software development? This is the main issue I will address in this essay, albeit primarily from the perspective of third-party offshoring and outsourcing options for ISVs.
One key point to consider is that sales of “Made in China” software exceeded $30 billion last year – and this is a conservative estimate. This is a larger number than the combined top line of the top Indian globals, but I realize that it's not an apples-to-apples comparison. Nevertheless, $30 billion is a huge sum, especially considering the ASP of a typical software package in China. Translation: That's a lot of units!! And although some may think that it's primarily embedded, well, think again: UFIDA alone employs over 10,000 software engineers (possibly as many as 20,000) – and their focus is on the enterprise space, not the embedded sector. How many software engineers are employed by Infosys?
Fact: The reason that China's ITO sector is behind India's is not because China's software industry is weaker than India's, but because the main driving force is the domestic (in China) demand for IT services and software engineers. Think Baidu. Think Alibaba. And keep thinking. It's a long, long list. My point is that China should not be discounted; China can do a lot more than just localization (L10N) and manual software testing. How about conversion of UML system models into a rigorous RTPA notation (let's face it, UML is hardly rigorous), model abstraction as a route to cost-effective model checking, using use cases for requirements validation through simulation, or mixed language programming (because sometimes Java just isn't enough)? This is all about state-of-the-art software development; it's also all about what can be done in China.
One problem is that India's ITO sector gets India's best and brightest; unfortunately, the ITO sector in China gets China's dumb and dumber, the better software engineers opting for MNCs or domestic ISVs. Fortunately, there are exceptions to this general rule. Of course, we're an exception. (Hey, we're Tsinghua. What can I say? MIT-ish talent pool.) And other exceptions include Augmentum (a Silver Sponsor of SOFTWARE 2007), Achievo, Freeborders, iSoftStone, HiSoft and Neusoft. Best-of-breed: You're looking at the list. For my money, I'd say it's us and Augmentum – but I'm biased. But any way you slice it, this is the short list. Don't believe the goofy awards you may have seen; they're an absolute joke, groundless or worse. A web design firm hailed as a top five player in China, a “Top Gun” awarded to a firm that has 90+% of their revs from manual testing and L10N. All the awards are meaningless, a better demonstration of a firm's marketing and PR prowess than its technical development capabilities. But show is big in China. Here it's often not what a firm can do, but how well they can dance. Better metaphor: How well they can sing at a KTV bar.
So am I foolishly claiming that China is on par with India? No, I'm not. What I'm suggesting is that there are some good firms and there's a lot of good talent in China. Enter, software development. But there's one area where China is weak, extremely weak: Packaged apps integration. This is really where China falls flat on its face. Freeborders and iSoftStone do some of this, as does Achievo, but few firms in China can do it well. The best, quite frankly, is the China ops of the old IBM Global Services (I don't recall which name they're using this week.) And with 1,900 applicants for every open req, trust me, they get good talent.
But if I really needed packaged apps integration, even in China, I admit that I'd look at IBM and an Indian global, maybe one domestic pure-play. And if I wasn't in China, I wouldn't look for a China-based integration firm, even if the firm is headquartered in the States (in other words, if the development team is in China and you're in America, run as fast as you can). I'd look at Cognizant, maybe one other Indian global, one American SI. I wouldn't waste my time with a China option. Bottom line: When it comes to packaged apps integration, India is your best port of call. But when it comes to software development and ADM, China should, at the very least, be a port of call.
Next: It was recently “IPR Week” in China. I'm not kidding. A report in my next column.
Lou Dobbs, everyone's favorite offshoring gadfly, is right: Jobs are lost as a result of offshoring. The recently published Duke University, Pratt School of Engineering report titled Industry Trends in Engineering Offshoring supports Dobbs' claims. As noted in my last column, Americans view offshoring-related job loss as their greatest U.S. foreign policy concern, so discounting Lou Dobbs out of hand isn't appropriate: His brand of Populism may not be popular in a Libertarian enclave like Silicon Valley, Populism being the opposite of Libertarianism, but it has legs on Main Street, U.S.A.
But Lou Dobbs is also wrong: Companies that are multinationals with corporate headquarters in the States, regardless of size, have no moral or ethical obligation to do what's best for America or Americans – unless directed to do so by their shareholders. MNC executives only have one obligation: To increase shareholder value. That's it. It's that simple.
If offshoring will improve a Company's bottom line, then so be it. If a U.S.-headquartered firm's American shareholders don't approve of a decision to offshore, then they can raise their concerns in a host of ways. One timely example: Disgust over Intel's decision to open a fab line in Dalian as a prominently featured “Comment” in EE Times with the appropriately provocative title “Is Intel evil?,” proof that one does not have to wait for a shareholders meeting or take legal action in order to bring a concern into the limelight. (BTW, I agree with the comment, although more for national security reasons than the reasons noted in the EE Times piece. Fortunately, it's not a state-of-the-art facility.) Bottom line: Executives with multinationals based in the States need to do whatever is necessary to increase shareholder value and this often entails offshoring to China, India, Israel, Mexico, Ireland, pick your preferred offshore destination(s).
Although it's hardly desirable, job loss that may result is irrelevant; executives need to act responsibly and this means choosing among the best shoring and sourcing options. For the record, a recent working paper published by the Stanford (University) Center for International Development notes “that trade with China is, on average, raising the wages of developed world workers and will continue to do so.” (My recent Tech China blog posting analyzes this paper in further detail.) And adding the other three BRIC countries + Mexico, Indonesia and Turkey (the BRIC + 3) into the mix may very well make for an even stronger case for higher wages in developed countries. Yes, offshoring does create job loss, but from a broader, strategic perspective – a global trading perspective – the benefits appear to outweigh the costs.
Taking this a step further from an operational perspective, the smartest and best American executives will pit China and India against each other. And they should. I know that a lot of Chinese and Indians don't like to hear this, but once again, it's a best practice if a firm is trying to optimize their bottom line. To put it bluntly, have China and India grab each other by the throat and go for each other's jugular. Profit from the spoils of war. That's what a responsible executive should do ... needs to do ... alas, must do. Sun Tsu would be proud.
Remember, it's these same American executives who are offshoring jobs and creating job loss back in their home country. Why in the world should they show any mercy whatsoever to China or India? Fact is, they shouldn't. They must not. They must take control of the situation, pit each country against each other as best as they can.
When it comes to manufacturing, look for alternatives to China. Maybe Vietnam. Maybe India (when India can learn to build decent infrastructure). Maybe Thailand. Obviously Malaysia. And don't forget the maquiladoras. Anyway, look for an alternative to China. And when it comes to ITO, look for alternatives to India. Maybe China (actually, probably China). Maybe Israel. Put pressure on China in the manufacturing sector; put pressure on India in the IT outsourcing sector (and BPO, too; don't forget the Philippines). Have no mercy: You've already implicitly approved of job loss in your own home country; to show mercy to China or India would be a sign not just of weakness, but poor executive decision making skills – and to some, it might even be considered an act of treason. Remember, you're not a Christian missionary trying to help Chinese or Indians; you're an executive with the single, laser-focused goal of doing your part in increasing shareholder value.
So now I've said it. I suspect that a lot of American executives feel exactly what I've expressed, but haven't had the courage or platform to make their case. (Yeah, I guess they could write a blog post.) In some ways it's not politically correct. But is creating job loss in your own country politically correct? And who is really, truly stupid enough to believe the nonsense produced by the likes of McKinsey stating that there is minimal or no job loss in the home country (re: United States). We all know in our gut that this is wrong, that McKinsey is being deceptive, trying to make a case that offshoring isn't such a bad thing after all. It's like saying that it was a great thing that your wife had an affair. After all, maybe she learned a thing or two. This is McKinsey's warped sense of reasoning. We all know that this is a pack of lies.
We've all heard the phrase, "God & country." But it should really be "God & company" (assuming you believe in God). And if "God & country" is more to your liking, well, you can always get a job as a civil servant. Multinationals need executives with vision – a futures-driven global perspective – not executives biased by any sense of Nationalism. McLuhan was right: We're in a global village. Act accordingly.
Based in China, David Scott Lewis is SVP with Startech Global Corporation, the outsourcing hub for Tsinghua University (China's MIT). In addition to his bizdev/GAM responsibilities, he authors their Tech China and ADM blogs.
More often than not these days, U.S. firms have to make the dyadic choice of China or India, in essence, pitting China against India, India having the perceived advantage in all things IT and China having the perceived advantage in all things manufacturing. For reasons I'll describe in my forthcoming “Lou Dobbs is Right – and Wrong” column, it's a perfectly legitimate and often desirable situation for U.S. firms. In this column I'm going to discuss the findings of an 18-month study by a U.K.-based think tank that were recently published as The Atlas of Ideas, with a specific focus on their two chapters on China and India. But first, a bit of background.
Although the “China vs. India” debate is hot and few international business topics in our sector generate more discussion (some do, like IPR), the impetus for this column was the recent survey results published by The Chicago Council of World Affairs titled, The United States and the Rise of China and India. It's the first multination survey I've seen that does a deep dive specifically focused on this issue.
Many results were a bit surprising (well, at least to me). For one thing, “Protecting the jobs of American workers is the top-ranking foreign policy goal, considered very important by more Americans than any other.” (Note: There were 14 choices, with two pertaining to terrorism and nuclear weapons; both ranked lower in importance than job protection.) And, “A majority (of Americans) believes outsourcing is mostly bad because of job losses in the United States.” “(T)he top-ranking foreign policy goal”? I find this interesting – and odd – since offshoring is a minor blip on Washington's radar. And if you don't believe me, take a look at the tech-related hearings on Capital Hill: Don't see much about offshoring or outsourcing, do you? Some smart Senators and Congressmen may opt to jump on an anti-outsourcing/offshoring bandwagon next year; it might be a wise political decision, even though nobody reading this may think it's desirable (since I'm in the outsourcing/offshoring biz, I hardly believe it's desirable).
“India is also not recognized as a leading source of innovation today, and while it is seen as rising in ten years more than other countries, it still places low compared to other countries.” Also kind of cute that both Chinese and Indians perceive that in ten years their country will be second only to the U.S. in innovativeness. (My eyeballs are spinning in opposite directions.) And for all the hype about U.S.-India relations, Americans have a “mainly negative” view of India, albeit a better view of India than China, desiring decreased influence for both countries. However, both Chinese and Indians want decreased influence for the States, with Indians wanting significantly decreased influence. I did find it interesting that there are a lower percentage of Indians versus Americans who believe that globalization is mostly good for their country. No surprise here: 87% of Chinese view globalization as a good thing.
The Atlas of Ideas chapter titles pretty much give their take on China and India. The chapter titles: “China: The next science superpower?” and “India: The uneven innovator” Need I really say more?
And when it comes to R&D prowess, note the following: “In December 2006, the OECD surprised policy-makers by announcing that China has moved ahead of Japan for the first time, to become the world's second highest R&D investor after the U.S.” China's leadership acknowledges that their country faces acute challenges, such as pollution and a scarcity of energy resources, but also believes (perhaps idealistically) that these can be overcome only through a new focus on “zizhu chuangxin” -- “independent innovation.” Yes, there's life beyond the illegal copying of DVDs.
Where does IT fit in all of this? As a subscriber to China's science and technology policy daily newspaper, I can say that a plurality of coverages goes to ICT (not just IT, but also including communications; “ICT” is the acronym used in China). When the blurry line (and it's truly a blurry line) is broadened to include electronics and semiconductors, then a majority of coverage is devoted to the IT value chain – from semiconductors to enterprise software, with energy, agriculture, biopharm and environmental technologies also receiving extensive coverage.
Fortunately for American ISVs, China's technoeconomic environment provides many paths to tapping into China's R&D capabilities – for cost savings, staff augmentation and even for access to talent that is hard to find in the States. In the National Academies Press 2005 report, Rising Above The Gathering Storm, it was noted that “for the cost of one chemist or engineer in the U.S., a company can hire about five chemists in China or 11 engineers in India.” In fact, I have personally observed that the labor arbitrage difference is the largest in an absolute sense the higher a firm opts to go on the value chain. For example, a Ph.D. who is paid $125 per hour in the States (whether fully-burdened or on contract) can be billed at about $25 per hour, whereas a $75 per hour Java programmer (an average Joe Java programmer, not a superstar) can be billed at between $16-18 per hour. And a superstar Java programmer: $100-125 per hour in the States, whereas a Tsinghua equivalent is billable by us at $20-23 per hour. As to the 11-to-1 ratio noted by the COSEPUP report, it's certainly doable (not always, but sometimes) in certain areas such as software testing where talent in Tier 2 cites can be tapped. Advice: Don't go to Beijing, Shanghai or Shenzhen for software testing or localization/globalization. And even though I personally don't like BJ, the best high-end talent is in BJ, not in SH, SZ, DL (Dalian), or anywhere else in the mainland.
Now to IIT. As wonderful as IIT is – and I personally believe the IIT produces many of the best software engineers in the world – the Demos report correctly noted that “IITs are not prolific centres of research. They do not produce new inventions, and unlike MIT or Stanford, they do not excel in creating spin-off companies.” And hold on to your seats for this one: In all things I(C)T related (across the value chain), there are over four times as many English-language papers published in China versus India. Over four times as many!! In English. And as measured by the Science Citation Index and the two largest EE/CS databases. (See this data point.) Since Tsinghua publishes the most technical papers (SCI source journals) and has been granted the most patents of any university in China, it's quite possible that Tsinghua alone matches the output of the collective of IITs. Tsinghua (alone) = all IITs (combined). Please remember, it's not about Chinese versus Indians; it's about China vs. India.
In reality, both countries face significant development hurdles. Scientific and technical progress is not guaranteed, regardless how much money is thrown at it. Each country needs to build a culture that thrives on innovation. And both countries need to deal with deep systemic problems like corruption. According to Transparency International, China and India share something in common besides large populations: They both are among the most corrupt countries in the entire world. But as far as our industry is concerned, it's most likely that India will continue to lead China for the foreseeable future. My point, however, is that China should be considered much more than it is, especially by American ISVs. (Note that when it comes to packaged apps integration, don't bother with China; in anything and everything to do with packaged apps, India reigns supreme among all offshoring destinations.) Finally, in the new, hot area of engineering services outsourcing (NASSCOM's favorite new TLA – three letter acronym – i.e., “ESO”), China will most likely beat India for a host of reasons that I'll address in forthcoming columns.
Based in China, David Scott Lewis is SVP with Startech Global Corporation, the outsourcing hub for Tsinghua University (China's MIT).
I like to frequent the coffee bars, especially a particular Starbucks, one of the nicest Starbucks I've seen; not the fanciest or largest, but nicer than any I can think of in the Mid-Peninsula. I go there with my laptop (of course), but I also go armed with printed copies of China Daily, Shanghai Daily and Beijing Review, plus any current notes I have from China's two science and technology daily newspapers. (Yes, China has two national science and technology dailies.) And I have a little trick that I use to attract attention -- I'm trying to engage Starbucks patrons (primary market research). My trick: While I'm reading Shanghai Daily, for example, I leave my laptop open and displaying the title page of a report or article with a catchy (preferably provocative) title. My favorite, and the one that has attracted the most attention, is titled Simulated U.S. and Chinese Nuclear Strikes. Download it and you'll see: It displays quite nicely on a laptop; hard to miss even with a casual glance. My trick is often successful; in a short time, I'm off in discourse with a "citizen". I know that my audience is skewed: In China, Starbucks is mostly for the young, spoiled (or affluent), often with some overseas experience. But although it's a skewed audience, it's certainly different (and a generation younger) than my Tsinghua cohorts.
One of my most interesting encounters was with a women who is the equivalent of a First Lieutenant in the PLA (People's Liberation Army). She walked into Starbucks holding a carry-out bag from KFC and then ordered a vanilla latte. I have no love for photography, but this was one moment I wished that I had a camera (or a mobile phone with a camera): Young, female (and fairly attractive) PLA officer munching on KFC fried chicken and sipping a Starbucks latte. As you might expect, her attention was caught by my Simulated U.S. and Chinese Nuclear Strikes article. We talked about the article for ten minutes, but then she switched the topic to China bashing, noting a recent article published in the Global People bi-weekly People's Daily supplement (the links are listed below; the articles are in Chinese). Fortunately, I was aware of the article so I wasn't caught by surprise. The Global People cover story titled "Who is Viscously Attacking China?" goes on to discuss numerous China bashers. (An episode in finger pointing, as noted by the cover.) She was visibly upset by the article, feeling that there is way too much China-bashing coming from America, Japan and even Russia. To her total surprise, I was on her side.
People who have read my columns know that I'm hardly Polyannish about China. I don't pull my punches -- and I see a lot of problems in China. When I saw "Borat," I almost fell off my couch laughing: Many parts seemed like they were straight from China. All sorts of problems here: Nationalism/neo-Fascism, pollution, the widening gap between the rich and poor, endemic corruption, a lousy (almost non-existent) social net, atrocious health care (and to call some physicians here a "quack" would be paying them a compliment), food and pharmaceutical safety issues, moral decay. But there is way too much China bashing, which I define as stupid, unsubstantiated, anti-China (almost xenophobic) remarks, regardless of venue. What the PLA officer didn't know (and what the Global People cover story failed to mention) is that there's a new cheerleader among the China bashers: Peter Navarro, a professor at UC Irvine. His new book: The Coming China Wars: Where They Will Be Fought and How They Can Be Won.
I'll take a two-pronged (two-part) approach to countering his arguments. First, I'll scrutinize his scholarship, really his lack of scholarship. In the second part, I'll counter the arguments he made in his cover story that appeared in the December (2006) issue of Financial Executive. Neither space nor time permits a more thorough analysis.
The article is based on the book, so let me rip to shreds the so-called “scholarship” supporting many of the most absurd claims made in his book. Regardless that some Amazon reviewers were impressed by his research, the fact is that his research is abysmal. Let's start with his footnotes (a downloadable MS Word document). My primary concern is that his sources are shoddy at best. I'm not terribly impressed with the sources he cited. Not too many scholarly or research publications. Frankly, I download more English-language scholarly or research pubs on China in one month than he cited in his entire book!! Even among English-language business mags and trade rags, he didn't cite a wide variety of sources. My reading list for this past week alone included sources from the Morgan Stanley Global Economic Forum, ADB, World Bank, Brookings, European Foreign Affairs Review, Journal of International Marketing, and the usual stuff published in everyone's favorite dailies and weeklies. For trades, this past week included articles about China published in a dozen different periodicals. All of the above -- consumed in just the past week (and this past week wasn't particularly special). In comparison, it's hard for Navarro to claim that he really did his homework. For a high school civics class, his research is fine. For a professor at UCI, it's pitiful, especially since he makes a lot of sweeping, breathless claims (and with confrontational verbiage).
Navarro didn't cite many English-language China (or related) online dailies, either. He had only three footnotes from Xinhua, only four footnotes from People's Daily, five footnotes from China Daily, four footnotes from Asia Times and nothing from China Economic Net, Shanghai Daily (or their Eastday online edition), Shenzhen Daily, or ChinaTechNews. And let's not forget Hong Kong's best: the South China Morning Post (SCMP; only one footnote) or The Standard. Or my favorite English-language source, the PLA Daily. (Rats, no business section! Perhaps they should add a “doing business with the PLA” section. I admit, I read this for amusement purposes only.) Unfortunately, many of these seventeen footnotes are rather dated, pre-Hu Jintao era. Considering what recently happened to Chen (the deposed Party chief in Shanghai) and many other Jiang Zemin cronies, what's important to consider today is the reality of the Hu/Wen dynasty ... a dynasty in power until 2012.
What's also unacceptable is that he didn't even cover the "basics" among China's leading Chinese-language dailies, namely the government-sponsored Renmin Ribao (the "real" People's Daily), Ta Kung Pao and Wen Wei Po; the three main government wires (sans Xinhua variants), i.e., Zhongguo Tongxun She, Zhongguo Wang (which has an English version) or Zhongguo Xinwen She (also with an English version; he had one footnote from ZXS); or, the relatively independent Ming Pao, Sing Tao Jih Pao (well, this is somewhat pro-Beijing -- kind of like the KMT kissing up to the CCP) or The Hong Kong Economic Journal.
I consider all of the above "must reading" for any writer of a book about China, and for Navarro to simply skip over a lot of potentially relevant sources is inexcusable. Perhaps he consulted some of the aforementioned sources and made a conscious decision not to use them. But if he did, then he's playing into his own biases; like it or not, there's some pretty good analysis -- let's call it what it is, "apologetics" -- in some of the leading China dailies and Party journals. Hard to give a balanced perspective when one chooses to ignore possibly conflicting sources. In order for his book to have legs, he needed to demonstrate not just pithy journalism skills, but true scholarship. Instead of the New York Times, his book has the credibility of the National Enquirer.
I have a problem with Navarro's tone, too. He sounds omniscient, as if he's the only one that can notice the problems that China is facing. In fact, the central government is well aware of the challenges facing China (as are most Chinese). But if you listen to the book's audio excerpt or to his Bloomberg interview (the link is to a MP3 file), you'd likely come away with the impression that he's an alarmist at best, racist/extremist at worst (and with a bad attitude, to make things even worse). Bottom line: Discount and skip Navarro (and I'll continue to substantiate and reiterate this conclusion in my follow-up column).
For one of the best and most balanced pieces I've read about China's rising, see the recent cover story in TIME. I feel that it ends way too abruptly, so I'll pick up the pieces in my forthcoming “Letter from China” column that also tackles Navarro's absurdum in FE (i.e., the second and concluding part of this column). And if you'd like to read a balanced e-newsletter that focuses on China's challenges, I'd like to suggest China Brief from the Jamestown Foundation; China Brief often cites Chinese-language sources, the lack of which is one of the main criticisms I have of Navarro's so-called “research”.
Note: “03” is an introduction to this special section; “11” and “12” have the most interesting analysis as to why there is a lot of China bashing. I don't agree with their reasoning (it's almost as paranoid as Navarro's drivel), but it's a good read.
Originally published as a Sand Hill Group "Letter from China" column on January 26, 2007.
Based in China, David Scott Lewis is SVP with Startech Global Corporation, the outsourcing hub for Tsinghua University (China's MIT). In addition to his bizdev/GAM responsibilities, he authors their Tech China and SD (Software Development) Frontiers blogs. He has held the following positions: VP, E-Business Strategies at the META Group (now part of the Gartner Group); Director, E-Business at Oracle Corporation; Director, Strategic Planning at Samsung; Manager, New Market Development at Microsoft; President & CEO of the largest web systems integration firm in Southern California; and, VP, Business Development for the two largest U.S.-focused, China-based IT outsourcing firms. He can be reached at letterfromchina - at - sandhill d-t com.