IT Firms Look To China

EDS last month laid out plans for new global sourcing initiatives and expressed an interest in moving some operations to China. The Plano, Texas-based company reorganized itself using a business model dubbed Best Shore.

The goal of the reorganization, which will get under way next year, is to improve profitability by shifting some contact center operations and applications services work to "high-quality, low-cost solution centers" in different parts of the world, said Dan Zadorozny, president of Applications Services for EDS Solutions Consulting.

Meanwhile, Mphasis last month moved its growth plans forward with the strategic acquisition of software development firm Navion Software, based in Shanghai, China.

Jeroen Tas, president of Bangalore, India-based Mphasis, which employs 3,000 people in offices around the world, including four offices in the United States, said India remains a key location. However, he said over the next few years, Mphasis will build upon its investment in China, with an eye toward residual opportunities in Japan.

According to research firm Giga Information Group, offshore development resources are at a premium, as more clients focus on reducing their IT budgets. "It makes good business sense for clients to diversify their risk among low-cost solution centers in multiple regions around the world," said Julie Giera, vice president and research fellow at Giga.

Mphasis is "organizing talent where it makes the most economic sense," Tas said. "Then the focus [will be organizing virtual teams to collaboratively work on projects from anywhere in the world. That's our business model."

Tas said India may still be five years ahead of China in terms of the benefits it offers IT companies, "but there is just no way you can underestimate what's happening in China."

Tas said that because of its solid base of schools and technology companies, Shanghai is being considered as a viable home base for relocating high-tech firms. One disadvantage, though, is the high cost of doing business there, he said. But, he added, Chinese government officials are willing to work with businesses to help address issues like these.

Lower labor costs in other parts of the world are also too significant to ignore, Tas said, adding that early next year Mphasis plans to launch a call center in Mexico, focused exclusively on serving Spanish-speaking customers in the United States.

EDS' global plans call for a $100 million investment over the next five years in establishing state-of-the-art capabilities, including a new contact center in Mumbai, India, set to open in the spring of 2003.

The outsourcing giant also plans to open a near-shore facility in Canada and is exploring opportunities in China, Zadorozny said. "We're going to take a serious look in China and see where that takes us," he said.