Ready for the next leap

Neusoft banks on multiple growth routes for further success in overseas markets

Ranked as the largest Chinese IT solutions and service provider, the Shenyang-based company posted revenues of more than 5.75 billion yuan ($900 million, 743 million euros) last year and looks well on course to surpass that figure this year. Next on the company's agenda are more joint ventures, and mergers and acquisitions in the overseas markets.

"By 2021, we expect overseas business to account for 60 percent of the total revenue, compared with just 30 percent now. We also expect overall business volumes to grow five-fold during the same period," says Wang Nan, senior vice-president and board secretary of Neusoft Corp.

The company posted overseas revenue of 1.85 billion yuan last year, up 17.9 percent from 2010.

Listed on the Shanghai bourse, Neusoft has 20,121 employees, six software bases and eight regional headquarters in China along with a comprehensive marketing and service network spanning 40 cities in China.

Though it has a strong overseas focus, Neusoft's current business strategy is sure to raise eyebrows in industry circles, experts say.

Starting this year, Neusoft plans to demolish the boundaries between its domestic and overseas businesses. What this means is that there will be an equal emphasis on both businesses with an overall aim of making them competitive and sustainable, Wang says.

Some business segments like medical systems and car electronics have already started to yield considerable returns from both the markets.

Unlike most of its Chinese peers, Neusoft has not been affected much by integration hurdles in the overseas markets.

"Chinese companies need to be thorough and familiar with the laws and regulations in the foreign markets before they finalize and execute expansion plans," says Tang Tongmei, an analyst with US-based consulting company Gartner.

"Different countries have different laws and regulations. It is important for companies to understand the business environment in the respective countries to make profits in the long run. They should also have talent who are well-versed with the target markets," Tang says.

In this regard, Neusoft has already accumulated a fairly good global talent pool. In the past few years, the company has conducted several mergers and acquisitions in Europe. It has more than 4,000 engineers specializing in car electronics and mobile terminals worldwide, among which 500 engineers are in Europe. Nearly 90 percent of its employees in Europe are from the continent itself.

Liu Jiren, chairman and CEO of Neusoft, says that these acquisitions have greatly accelerated Neusoft's steps in mobile terminal software development and overseas expansion.

Wang says that the company will continue to focus on mergers and acquisitions as it considers them the best way to expand its business both in China and overseas.

Collaboration with strong global companies such as SAP and Intel Corp is also another key factor for Neusoft's successes in innovation in both domestic and overseas markets.

In 2010, the company entered into a partnership with Harman International, an audio and infotainment equipment company headquartered in the US.

The two companies agreed to jointly set up technology development centers in Shenyang, Liaoning province and Hamburg in Germany, to develop technologies for automotive and consumer electronics.

Wang says that the company has benefited a lot from its long-term partnership with foreign companies. Neusoft has also acted as a consultant for many foreign companies.

According to Wang, no matter how strong the overseas companies are, they still need local partners in China. Many of them choose to collaborate with Neusoft as they find it suits their strategic needs in both the Chinese and global markets.

"For instance, Neusoft has in-depth cooperation with SAP in enterprise resource planning business, which helps to promote its growth in this sector. At the same time SAP also needs Neusoft's local experience and mature network to understand the Chinese market and incubate their ecosystem," Wang says.

Tang from Gartner says that many foreign companies are now teaming up with Chinese outsourcing companies to save costs and provide more China-tailored products for the domestic market.

"Chinese outsourcing services providers are more familiar with the needs of the Chinese market, which is an obvious advantage," he says.

"Many overseas clients will prefer to outsource their business to Chinese companies because of the booming demand and strong growth potential of the Chinese market," Wang says.

However, there are still some gaps between India and China in the outsourcing sector, such as scale of business and degree of maturity.

"Chinese outsourcing companies are not that strong in marketing, compared with their Indian counterparts," Tang says.

Wang Gang, an analyst with CCID Consulting, a Beijing-based technology information consultancy, says it will still take some time for Chinese companies to undertake high-end outsourcing businesses like financial outsourcing.

Wang from Neusoft says in the future, local outsourcing companies will have to sustain their clients with more value-added solutions and services.

"Traditionally, outsourcing serves as a major method for clients to reduce their costs and provides a competitive service with a reasonable price. This is the core of the outsourcing 1.0 era. But with growing labor costs and yuan appreciation, the profit margin will be narrowed, and price-sensitive clients might prefer to outsource their low-end business to somewhere cheaper such as the Philippines, Vietnam and East Europe. But in outsourcing 2.0 era, outsourcing is driven by the market and innovation."

Neusoft expects to gain revenue of 6.9 billion yuan this year. To achieve that, the company is trying to gain higher growth through more innovation and diversification of its business model.

Wang says that providing more value-added services has become the norm for the outsourcing industry. This has also increased the R&D expenses considerably, Wang says. "It means that we need to constantly upgrade our business, and offer more added value to clients through innovation, technology and market experience."

Contact the writers through linjingcd@chinadaily.com.cn

(China Daily 07/27/2012 page6)