Outsourcing to China: the Yin-Yang of building a global business

The post below appeared in last Friday’s Irish Times’ Innovation Magazine.   The editor,  Michael MacAleer,  briefed me a couple of weeks ago that the issue would be focussed on outsourcing to China,  and asked whether I could write an article based on my own experiences.  In the event,  Clifford Coonan – whom I have met several times in Beijing since he relocated there a few years ago – wrote an interesting article based on interviews with Brendan Waldron (current Chair of the Ireland China Association,  which I founded a few years ago),  Deirdre Walsh (of China Green), and Niall O’Reilly (China Director at the Irish Exporters Association).

Anyway,  here’s my article….

My decision in 2003 to create a software development group in Beijing caused apprehension amongst my existing development teams in Dublin, Boston and Washington DC. As the CEO of an Irish company, I was also concerned that both Enterprise Ireland and perhaps even the Irish media at large would view the decision as in some way unpatriotic. Meanwhile, my Board of Directors were worried that key intellectual property and trade secrets would be misappropriated by our new staff in China.

I first made a decision not to outsource to an independent company, but rather to build our own team in China. I wanted commitment to our company, and control over the engineering development processes and standards which we globally used. I spent a few months visiting several different software parks across China, and ultimately chose Zhongguancun (“Jong-gwan-sun”) right beside Tsinghua University (“ching-hwa”) in Beijing because it attracts the very top software engineers from all across China.

For me, expanding our global capability for software development by opening our our engineering centre in Beijing made sense. It filled a gap to enable my company to have a 24 hour, round the planet, capability. It enabled us to build a larger global team from our relatively limited financial resources than would otherwise have been the case. While we had grand strategic plans for our company, and excellent proposals for new products and new features, all of these would remain but pipedreams unless we also had the capability to put them into practice.

Ability to execute is often a challenge for start-ups. Young companies dream dreams: but they then have to put flesh on their visions. The management team not only needs to be strong, but implementing their insights and innovations also needs to be cost efficient. Every euro saved on implementation is another euro that can be invested in business development activities such as marketing and sales. Working directly with a competent team – whether out-sourced or in-house – in China may provide additional momentum to make success more achievable.

By contrast, large and established companies usually have the ability to execute: they have comparatively substantial resources, large engineering teams, and global channels to markets. They have a credible customer base and partner network. Sometimes however, big companies become set in their ways, and complacent about serving their audience. They then find it difficult and challenging to innovate, and have difficulty committing to new projects which at an early stage are immaterial to their core established business.

Hence the yin-yang of innovation and execution: interconnected and interdependent, a successful company needs the duality of the conception of new innovations and of the capability to put them into practical effect. Young companies may innovate, but struggle to execute. Older companies may execute well, but struggle to innovate.

Innovation itself has its own yin-yang. Prospective investors test a business plan of a young company, often to reassure themselves that there are adequate barriers to entry to prevent the established market – the competitors – from out-executing the young company. If the young company has an innovation which is so wonderful, then what is to prevent the competition from themselves adopting it and beating them in the market ? But on the other hand, an innovation needs to have very low barriers to adoption: it should be easy, natural and cost-effective for the market to shift over from their existing systems and established procedures to start using the new innovation. To be successful, an innovation needs to simultaneously offer high barriers to competitive entry, but also low barriers to market adoption. You cannot succeed having one without the other: interconnected and interdependent, a successful company needs a strategy for both.

Execution too has its own yin-yang. Existing customers have to be kept satisfied and accommodated. They have been expensively acquired as a result of marketing and wooing, and disenfranchising them is the quickest way to damage cash flow and destroy a company. But on the other hand, any successful innovation brought to the market should grow a company. Deeper allegiance from existing customers, and enthusiastic enquiries from prospective additional ones: you cannot succeed having one without the other.

Innovation and execution. High barriers to entry, and low barriers to entry. Keep existing customers content but expand the business. CEOs and company strategists continuously struggle with these dualities. My own experience has been that building operations in China significantly helped my company put our innovations into effect, heightened our barriers to entry whilst catalysing our ease of adoption, and satisfied our existing customers while releasing resources to expand our business. I was, and am, convinced that our Irish company was strengthened as a result.

We had the extraordinary honour of Premier Wen Jiabao visiting our headquarters in Dublin in May 2004. After discussions with our senior team and myself, he walked the building with me. One of our Bejing staff in our Dublin office at the time, a young developer, was astounded to personally meet the Premier. Wen told him to “work hard, respect his employer, and honour his parents”: I could not have put it better myself.


About chrisjhorn

This entry was posted in China, IONA, Irish Times, Uncategorized. Bookmark the permalink.

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