Private-equity firm Francisco Partners closed a $48 million investment deal with DarwinSuzsoft, a U.S.A.-based IT services firm with a China backend, recently. Around the same time Sierra Atlantic, another U.S.A.-based IT services firm, expanded their service base in China with the acquisition of ArrAy.
Yet, these two steps forward for the Chinese outsourcing industry have a corresponding one step backward, primarily because of intellectual property and data theft concerns, and the lack of English language skills in the country.
According to a recent report by IDC, China needs to tackle the regulations around IT and its protection, especially software, which is a potential area of copying and pirating. And that’s why growth in China is expected to come mostly from non-technical work like billing and data processing.
“Since IP protection and data-theft issues are top of the mind concerns for a customer when he is outsourcing to China, we — the providers — exercise a high degree of security like biometric security and closed-circuit cameras to ensure that no inconvenience is caused to the customer,” says Dan Ross, CEO, DarwinSuzsoft.
As services companies expand to Tier-2 cities in China, such as Xi’an and Suzhou, intellectual property concerns only get exemplified. These cities are not preferred for critical technology outsourcing due to lack of intellectual property protection laws. Still, this is not deterring service providers from setting up service centers in secondary cities, which promise lower wage and real estate bills, and lower staff turnover rates. DarwinSuzsoft, for instance, has four out of its six centers in Tier-2 cities.
Companies like DarwinSuzsoft and Freeborders, another company with headquarters in the U.S. and a backend in China, have an edge over other local service providers in China, because their IP related issues can be handled in American courts. This is a comfort factor for their American customers — they know that they will not have to fight legal battles in Chinese courts where they don’t understand the local laws; they can battle it out on their home turf.
“The legal process in China for protecting intellectual property has improved dramatically in recent years, and severe punishment is given for the crime,” says Ross. “Still the customers tend to move cautiously when first outsourcing to China.”
