Chinese Outsourcer Sees Industry Surge After Crisis

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Chinese outsourcer Neusoft is pushing to expand in Europe and the U.S. ahead of an upswing in outsourcing the firm expects after the global recession.

Neusoft, one of China's bigger outsourcers, has appointed new top executives in Europe and the U.S. in recent months to help crack those markets, said Walter Fang, the U.S. head for Neusoft since last fall. That will diversify foreign clients for the firm, which drew 80 percent of its overseas revenue from Japanese firms last year, he said.

"Outsourcing will probably surge after the crisis is over," said Fang.

Outsourcing has suffered along with the global economy, but a continued need for cost-cutting at firms will help the industry rebound, Fang said. Rising pressure for firms to quickly develop products that keep up with changing technology will also boost outsourcing demand, he said.

Neusoft's main business is in embedded software outsourcing. It counts Intel and Nokia among its clients, though Chinese customers last year accounted for two-thirds of its revenue of 3.7 billion yuan (US$544 million).

India remains the top offshoring choice for most firms despite saturation in its market and a recent financial scandal at outsourcer Satyam Computer Services. Almost all of Neusoft's U.S. clients have outsourced to India or say they think about doing so, Fang said.

But China is among countries including Vietnam and Mexico that will benefit as customers start to consider destinations besides India, said Frances Karamouzis, a Gartner analyst. China offers a large pool of untapped, cheap labor and better infrastructure than India in telecommunications and transportation.

Offshoring to China is especially attractive for firms like financial service providers that aim to build their businesses in the country, Karamouzis said.

China's outsourcing appeal still suffers from weak enforcement of intellectual property laws. Clients rely on the internal standards of outsourcers rather than China's courts to shield against the loss of trade secrets, said Karamouzis. The outsourcers with such mature standards are usually U.S. or Indian firms with operations in China, she said.

Neusoft has worked to shake free of China's reputation by conforming to industry standards for the protection of intellectual property, Fang said. Neusoft is one of the few firms allowed access to the source code for Symbian, the operating system used by Nokia's smartphones, he said.

Neusoft's work on Symbian occurs in a restricted access room built to meet security needs. The room's computers are blocked from networks in other areas and made without USB ports to guard against the copying of data, Fang said.

(John Ribeiro in Bangalore contributed to this report.)

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