Getronics, the Dutch technology solutions provider, has steadily grown its China operations since 2004. It now has offices in Shanghai, Beijing, Guangzhou and Shenzhen and employs 130 staff on the mainland.
Getronics provides services like application development, network design and ‘workspace management’, or outsourcing a client’s tech support department. Getronics’ China clients, which include Isetan and 7-11, are drawn from the retail, financial and manufacturing sectors.
Sean Davidson, Getronics’ Greater China managing director, shares his analysis of China’s tech services market.
Q: What’s your take on China’s technology services sector?
A: The biggest challenge with China’s ICT (information and communications technology) services is probably around the bidding process.
At the moment a lot of companies select vendors based on personal relationships, and probably less on ability to deliver. In some ways, this disrupts market forces. It means companies are not always getting the best value for money or the most efficient services.
Q: Is service coverage a problem?
A: The pure geography of China means it’s very difficult to find one company that can really provide consistent services across the whole of China. There’s a lot of partnering going on, so services can be very inconsistent across regions.
[Our service coverage] is pretty typical for companies of our kind. We cover all the provinces and major cities. We do the tier one cities direct, but if a customer has a small office in a tier-two city, Wuhan or something like that, in those cases we will probably use a partner.
Q: What’s your experience been like working with partners in China?
A: Highly variable. In the case of one well-known company, they actually forged documentation to say they had done the job when in fact they hadn’t. Also, partners often subcontract work to someone else, and that might happen two or three times. So by the time someone actually fixes something on-site, it might be two or three companies removed from the original company who outsourced it. The chain of command would be too long.
Q: What trends have you observed among technology services clients?
A: We have seen some local companies are learning that paying less [for IT services] in the short term may mean paying more in the long term. So local customers are becoming more interested in international-level services.
We do see some inquiries from some of the bigger local companies about providing services in other countries as well.
Q: What’s your experience been selling to multinationals in China?
A: They tend to have a split-personality profile. Selling to them is very challenging because [on one level] you may have sold to a senior expatriate decision-maker, who has a different set of requirements and drivers, then you also deal with local managers, who may not be looking for exactly the same thing. So that’s quite challenging, because we have to bridge the cultural gap within companies in China.
Q: How do you bridge that gap?
A: We have a mix of expatriate and local staff, and we try to recruit people who fit the profile. So we try to hire more local people with international experience, and focus on international people with more experience locally. We don’t hire expatriates on large packages, because we find that it insulates people too much from the real life in China.
Q: Are these candidates hard to find?
A: Both finding and retaining them is difficult. We’ve actually found that international people who speak Chinese are easier to recruit; they tend to stay longer, than local people with international experience. In actual fact, we find that if you hire local people with international experience, the cost is very high and the time they stay is quite short, because they are in very high demand.
Q:How do you solve that recruitment problem?
A: We would like to find those people if we can, but in practice, we find we get more stability in the market by hiring maybe someone from Singapore who speaks good Chinese and has good experience in the area.
Q: Where do you recruit?
A: When recruiting, we tend to stay with countries in Asia, not so much the United States or Europe. China is not a hardship posting, in my opinion, so the days of the expatriate are pretty much gone. We tend to focus on people from New Zealand, Australia, maybe Singapore, Taiwan, those sorts of places.
Q: How does China compare to India as a technology services hub?
A: It compares quite favorably, but differently. If you go to Bangalore or something, and then Dalian, the overall impression is Dalian is a lot more organized. They haven’t been doing it for as long, but they are more organized. You really get the feeling that the government and local authorities really want to help you. Whereas India, they’ve got enough businesses now, they don’t really focus on that. China’s infrastructure is also newer, whereas in India, they maybe haven’t invested so much in it.
Q: What are China’s minuses?
A: On the downside for China are some of the labor laws and the market demand. In Dalian, for example, you have recruitment agents standing outside large companies’ offices during lunch hour approaching people. So that means you have to move further out of the major cities in China. [Chinese] labor laws mean there is a huge amount of people changing jobs as salaries start accelerating rapidly. For a company like us, our staff numbers have to go up and down. But it’s quite expensive to adjust staff up or down according to business requirements.
Q: What’s your outlook for the technology services sector in 2007?
A: It will probably be business as usual. I think you will see some expansion in the financial market, especially with foreign banks coming in. They’re coming in with a lot of tools and technology, and local banks have to do a lot of work to catch up. But I really think the market is two or three years away from maturing to a more international level, to be honest. We still haven’t really built up; companies are still in the investment phase. A lot of international companies who are here are not making money; they’re here to invest and build. So it’s like the calm before the storm.
Q:.What about Chinese companies in the domestic market?
A: At some point in the future we will target them more. It really depends on maturity. A lot of less mature customers see that the initial price is high, and that’s the end of the discussion. But in reality, we see that the reason initial cost is high is because you’re going to save money over the next five years, a lot more money than if you take the lower cost option.
Q: How can you convince local companies that they get what they pay for?
A: For China, we need to be a bit more creative, because cashflow is a big factor here, and people do negotiate harder. If we can do something like hire-purchase or financing over a period of years, as opposed to a lump-sum payment upfront, approaches like that may be more successful, although in the scheme of things, it actually costs more the customer a lot more.