Author: Thomas Kaminsky, Managing Director and Founder

Crescendo Consulting Solutions, LLC

For many companies around the world, India has been the crown jewel of IT and business process outsourcing for the better part of the last decade. However, India as an off-shore haven is now facing greater competition from a rapidly advancing China.

In 1998, realizing they were missing out on the opportunities of outsourcing and it’s economic impact, China drastically shifted focus announcing plans to expand infrastructure, education and business ties with foreign investors. This migration from a state-run economy to a more market-driven economy was a historic shift in business, economic and cultural values.  Coupled with an increasingly expensive India and uncertainty in the global economy, China is now meeting the needs of foreign companies seeking lower cost, higher quality outsourcing alternatives.

So what are the advantages and risks of outsourcing IT and software development to China?

Wage Arbitrage

India initially boasted a wage ratio that was roughly 1:6 versus the US. Now, after years of success and growth, talent and processes have matured in India. Global competition for resources, especially talent, is greater driving wages higher. The wage ratio is now closer to 1:3 and in some cases 1:1.5. In contrast, China’s wage ratio is closer to 1:7.  From a cost perspective, China provides a greater competitive advantage than India.

Access to a Growing Educated Workforce

Previously, China’s lack of participation in the global marketplace hindered their national development.  As part of the host of sea change development projects initiated in 1998, the Chinese government placed a strong focus on funding education.  That investment is now reaping large returns.  In 2008, China boasted college enrollments reaching 20 million students. Last year, a reported 6.1 million students graduated from undergraduate studies to enter the workforce.  More important, several universities have formed alliances with Chinese as well as foreign companies creating extensive technology and application development tracks of study.  The result is an established pipeline of talent enabling China to market its IT outsourcing capability.

One example of this education investment and leveraging the China market for outsourcing is a company called Insigma Hengtian Software Ltd.  Its genus is from a relationship that was formed by State Street Corporation and Zhejiang University in Hangzhou, China. Where its senior management is part of the university faculty, Insigma Hengtian has access to the “best of the best” graduate and post graduate candidates from one of the top three universities in China. This teacher student bond also prevents the typical turnover in company human capital. Given the types of projects the students work on while at University, they leave and enter into Insigma Hengtian having been exposed to “real life” financial services-based process workflow and applications.   Access to University-affiliated advanced research and development expertise separates this company from many purely commercial entities. Because of its partnership with the university and central government, Insigma Hengtian can leverage these relationships and assist its clients who want to introduce their products and services into the China market.

While there is a growing abundance of skilled IT workers, there are fewer interdisciplinary workers skilled in technical issues, business process, management and interpersonal communication.  China is beginning to address these interdisciplinary areas of study in order to compete with India’s mature business environment.

Enforcing Intellectual Property Protection

China has a longstanding history of being lax on intellectual property violations and letting multiple sources cheaply produce and copy applications, repeatedly demonstrating little regard for international law.

This trend, however, is changing. Due to its shift towards a knowledge-based production economy in place of its legacy manufacturing-based economy and greater pressure from foreign investors to align with global practices, China is bringing their intellectual property (IP) laws and standards more in line with other global standards.   Precedent has been set recently.  In many intellectual property lawsuits, the Chinese courts have favored the plaintiff.

One study showed that between 2002 and 2008, the US presented 26% of 179 cases. Of those cases, only 8% involved software IP infringement.  The study also suggested damages awarded are growing. In 2002 the highest sum awarded in an IP case was $50,000.  In 2008, that number grew to $2,780,000.  The Chinese government has established that, in order to provide an environment conducive to foreign investment and outsourcing, it needs to maintain a rigorous intellectual property enforcement policy.

Riding the Infrastructure Boom

China is in the middle of an infrastructure boom.  Initiated as part of its responsibilities for hosting the 2008 Beijing Olympics, the country continues to invest in public works, technology networks and support industries.  Local and foreign investors are helping China identify quality locations to establish service centers with close proximity to local universities, sound infrastructure and quality labor pools.  Working together, foreign investors and the Chinese government are fostering a collaborative environment aimed at establishing China as a key player in the outsourcing industry.

With the advantages of wage arbitrage, a growing, highly skilled workforce, enforcement of intellectual property policy and continued infrastructure investment, global companies are now considering China as the alternative outsourcing partner to India.

Overview

Increasing complex business process and IT requirements require organizations to gather and retain data assets. Organizations face mounting pressure to reduce costs and better manage complex multiplatform database infrastructure by continuing to optimize their growing data assets.

Hengtian DMS (Data Management Service) Group was founded with a goal to provide top-quality global data management services to clients worldwide. The group provides and delivers a set of DBMS solutions, including Enterprise Data Architecture, Data Analysis and Design, DBMS Upgrades and Migration, Database Security& Backup Service, Database Performance Analysis and Tuning etc. The DMS Group’s DBA expertise and value-added service, has supported over 700 production database servers of Oracle/DB2/Sybase/SQL/MySQL, located in the US, EMEA and APAC.

Figure 1 Data Management Service Coverage

Who We Are

Hengtian’s employees include the top and the best from the prestigious Zhejiang University of the Hangzhou Province, with whom Hengtian is closely affiliated. The Hengtian Staff is very well educated; 48% of all employees hold Master degrees while 8% hold Ph.D.’s in Computer Science related fields. Hengtian utilizes accumulated knowledge from an international team of Oracle, SQL Server, Sybase, DB2, MySQL.

DMS Group’s team of certified database specialists provides our clients with trusted professionals of multiple database products on various platforms.

Figure 2 Current Database Inventory

Figure 3 Database & Platform Matrix

The DMS Group handles your data with the utmost care and concern. Database security ensures the encryption of sensitive data, control of access to the data and restricted access from unauthorized users. Additionally, our backup solutions establish the means to restore databases according to your organization policies. Hengtian has corporate information security policies in place, which meet the information security requirements and expectations of both our clients/partners/employees and ISO 27001/27002 specifications. ISO27001, a widely accepted standard for information security worldwide, has been adopted by many international organizations.

Our extensive knowledge in the financial industry provides a complete understanding of your need to protect your data. We know how to get the most out of your database investment, and have acquired the best tools to achieve those goals.

What We Provide

The diagram be low describes the service capabilities our DMS group can provide to help our clients keep up with their ever-changing database needs.

Figure 4 Service Scope

Architect, implement, enhance and support an enterprise-class database infrastructure capable of managing databases:

• Architected to meet the needs of the complex business environment
• Well analyzed and designed & fully documented
• Secured and access control according to Corporate Information Security standards
• Available, recoverable, and responsive according to established service levels
• Stable and reliable database migration and upgrades
• Optimally managed in a cost efficient manner
• Managed according to established infrastructure standards
• Guidance for disaster recovery planning
• 24×7 database production maintenance
• DBA support for development initiatives
• DBA training program

How We Work

Our solution can be adapted to monitor databases based on client requirements. We build a service request system which provides Web-UI to allow clients to submit service requests pertaining to their specific needs.

Figure 5 Work Flow

-    All service requests and the monitoring alerts from clients will be put into the Hengtian DBA work queue.

-    Based on priority and work content, requests and alerts will be assigned to each DBA. The Customers Compliance and Technical Knowledge Pool, a knowledge center containing SOPs, has been built to help our DBA provide quality service to our clients.

-    Using a secure high-speed VPN (Virtual Private Network), we connect directly to your remote IT environment, which gives us secure access to the database.

Our DBA team provides our clients with around-the-clock call support. Any emergency request is responded to within 15 minutes according to our SLA. Our to-the-hour time tracking ensures the time you pay for is time spent actively working on your database security.

Why Choose Us

• Better DBA Expertise and quick response to trouble shooting.
• 24×7 call support and value-added services.
• Improvement of data quality and availability.
• Optimization of data assets by leveraging and reusing existing data assets.
• Reduction of client need-to-hire and the training of costly experts with related technology and skill sets to work 24 hours a day.
• Maximization of returns on expenditures with cost effective and improved business processes.

Our Commitment

Insigma Hengtian Software Ltd. (Hengtian), a professional outsourcing service provider, has successfully provided data management services to over 700 servers located in the US, EMEA and APAC. We believe in implementing technology that transforms our client’s business environments. That’s why we focus on providing services specific to the industries where we have developed deep domain knowledge and expertise. Hengtian’s knowledge and experience will advance your business goals by providing the secure management of your data assets.

I.   Introduction

 Investors looking into China have viewed the nation as a market with great potential for growth. China, in its effort to continually attract foreign direct investment, is aware of the needs and concerns of investors, especially in the area of intellectual property protection. Since China’s reform and opening of its borders to the world, significant achievement has been made in IP protection in China’s IT industry. Environment policy and regulations have been continually improving.

Over the years China has formed a national intellectual property system and operation mechanism, focusing on IP management, review, research, education, enforcement, intermediary services, and IP information services organizations. The government has nearly 10 administrative departments with direct management of intellectual property rights and more than 20 administrative agencies are closely related to the management of intellectual property.

After 30 years of development, China has built a complete and modern intellectual property rights protection system  on par with international standards. Patent law, trademark law, and copyright law, as the three pillars of IP law, are continuously improving every year. And, China has been actively involved in international organizations to address the international concerns of IP protection rights.

II. IP protection of IT industry

2.1    Current laws and regulations

The Chinese government recognizes the great importance and deep significance of IP protection. Abiding by international IP protection rules and continually improving its own protection levels, China has made great progress in both IP legal system establishment  and  administration  practices,  and  it  has  established a system  for  a positive cycle of intellectual property creation and application. The IP legal system ensures sustained, steady and sound development of the software industry. The coordinated, regulatory and security mechanisms of intellectual property promote and guarantee rational competition in the software industry.

 2.2    Intellectual Property Protection in IT Companies

According to research by the CSIP (Ministry of Information Industry Software and Integrated Circuit Promotion), in the following graph, we can see that 91% of the interviewed  corporations  have  IP  regulations  and  policies;  97%  have  relevant provisions of intellectual property protection in  employment contracts; 61% have applied for patents for innovation; 76% have applied for copyright for innovation; 84% have protected intellectual property rights through physical and technical means (such as firewalls, data encryption, etc.); and 80% provided their employees with relevant training in IP protection.

In addition, 96% of companies surveyed have established information security-related rules and regulations; 90% have established information security managers; 89% built strict authentication and access authorization systems; 94% adopted effective network management and data protection measures; 95% use complete system backup and recovery means; and 97% have regular security patches and virus database upgrading.

With confidentiality agreements, 79% surveyed sign it with all employees; 12% of the companies only sign it with official employees; and only 7% sign with important employees. Among all the enterprises interviewed in this research, only 2% did not sign any agreement with their staff.

In conclusion, there are increasing numbers of corporations in China that have realized the importance of IPR and have subsequently taken protective measures.

2.3    Indexes used to evaluate current IP climate

With the implementation of these relevant laws and regulations, and with the increase in awareness, the IT industry has experienced success in recent years in IP protection. These indexes will evaluate the current situation of IP protection of the IT industry in China by the number of patents.

According to the China Copyright Protection Center, in 2008 Chinese computer software   registration   and   copyright   registration   experienced  rapid   growth;   in particular, software registration increased dramatically from September to December, with month-to-month growth rate exceeding 100%. The number of software registrations in 2008 is almost the total volume in 2006 and 2007. The figures below show a rapid growth of software copyright registration over the past five years and indicate that the importance of software IP protection is growing year by year.

III. Awards and recognitions for China IP protection

• China IPR protection has been recognized by Global Anti-Counterfeiting Group (GACG), and four Chinese officials received the “2008 Annual Individual Special Achievement Award” for the efforts and contributions to IP criminal protection and customs protection (06/2009) 1. (for countries)
• China  Customs  received  the  “2005  Annual  Global  Anti-Counterfeiting  for Praising and Encouraging Government Agencies Award” (06/2006) 2. (for national government agencies)
• “World Intellectual Property Organization – Copyright Creative Gold Award” 3.  (for individuals and enterprises).

 IV. Hangzhou’s efforts towards IP protection

 4.1    Cooperation between government and enterprise4

Hangzhou Municipal Government and Microsoft China have signed a three-year strategic cooperation memorandum in May 2009; the close partnership will accelerate the promotion of IT industry development of Hangzhou. In order to build Hangzhou into a model city of innovation and IP protection, bilateral cooperation will focus on

1  http://qbpc.caefi.mofcom.gov.cn/aarticle/c/200906/20090606340466.html
2   Luo lan, People’s Daily Overseas Edition, 14/06/2006
3   http://www.mt.vc/MediaNews/Person/2008/10/6741.htm
4   http://www.microsoft.com/china/press/2009/05/0515.mspx

enhancing innovation capability of local software enterprises and improving the IP protection environment. The two sides will strive to improve the rate of software legalization and to legitimize retail outlets selling computer hardware and software. In addition, the two sides will establish a joint system and special group to promote IP protection domestically.

 4.2    IP protection of service outsourcing5

Service outsourcing industry becomes an important accelerator of economic development in Zhejiang. At the first national service outsourcing forum (12/05/2008), the Ministry of Commerce, Ministry of Science and Technology, and the Ministry of Industry and Information Technology, Zhejiang Province, city of Hangzhou have all signed  an  agreement  to  together  build  a  service  outsourcing  base.  As  a  result, Hangzhou has become the first of many national service outsourcing base cities and has  signed  the  “ministry-province-city-park-enterprise”  agreement.  It  means  that service  outsourcing  in  Hangzhou  will  be  well  supported  with  capital,  personnel training, IP protection, government procurement, etc. throughout future development.

 4.3    The first city issued provisions of IPR protection of service outsourcing6

As one of China’s Service Outsourcing Demonstration Cities, Hangzhou is the first to break through  the “bottleneck” in intellectual  property protection.  It  has recently adopted the “Certain provisions of intellectual property protection of service outsourcing in Hangzhou” on 4th Sept. 2009. This provision will strengthen IP protection work and optimize the investment and development environment for the service outsourcing industry.

 V.    Conclusion

From the discussion above, we can see that significant achievements have been made in intellectual property protection of IT industry in China, and that the government is dedicated to protecting IP for both foreign investors and domestic businessmen. The environment of policy and regulatory of Chinese IT industry has been continually improving. The government realizes the value of IP protection both domestically and abroad, and the issue will remain an area of focus for years to come.

5   Feng Jie, Towards Depth of Service Outsourcing, Zhejiang Economic , 2008 (10): 13
6   http://www.hzIPR.gov.cn/newsmanage/News_View.asp?NewsID=2856