Building An Outsourcing Company In China: Bleum CEO Eric Rongley (Part 6)

Sramana: Essentially your company has gained traction by focusing on mission-critical application development for top global corporations, is that correct?

Eric Rongley: Exactly. We would argue that a customer should focus on the total cost of the outsourcing versus price per hour. The reason is that we bring a lot of value to the table. We are not just a body shop. We don’t just hire someone because of his or her resume. If you evaluate the options closely, you might find that lower-cost body shops end up costing more in the long run because of opportunity costs, project overruns, or disappointing final products that need to be reworked.

We have customers who had grown accustomed to delivery issues. Now they do not, and now their wish list of items they would like to implement has become exhausted. Everything they imagined they would want to do, they can now do.

Sramana: What is the cost structure right now? Ten years ago India was 1/10 the of the U.S. cost structure; today they are around 1/3.

Eric Rongley: There is a lot of variation in company strategies in China. There are companies that have successful businesses that may be able to offer $10 or $15 an hour. We tend to be between $20 and $30 an hour. We would argue that our results are similar to or better than top-tier firms in India which have the same price structure.

Sramana: What issues do you see the outsourcing industry facing? India is trying to control labor arbitrage, and my hypothesis is that the country will be forced into developing smaller towns in order to do this.

Eric Rongley: China will have a similar experience as India over the next five years as it will become uneconomical to have development teams in the major metropolitan areas. Perhaps the high-end customer-facing stuff will be in Shanghai or Beijing, but the brute force development will have to move out. India did that very well in the first half of this decade.

I think that in the next half decade, Chinese companies are going to have to do this as well. With Bleum we have two offices in Shanghai, which allows us to attract talent on both sides of the city. That being said, we have opened a development center in a smaller locale to the west of Shanghai. That will let us continue to provide the best price to our customers along with better career opportunities for our employees. I do see a trend of moving toward a second-tier city happening now in China.

For the industry as a whole, I believe we are seeing the end of the first phase of the industry. In that first phase, there were a lot of firms that really had labor arbitrage issues. They were just trying to save money. That meant companies just moved the easy stuff. That accounted for the easy stuff moving offshore. Now companies are at a stage where they want more. That next level of stuff becomes much harder to outsource. Companies now want to outsource to fewer firms with much closer relationships.

High-value work is hard to move offshore unless there is a competent vendor that has a lot of trust with their client companies. I see that as the next step. Enterprises are still going to want to cut more out of IT. The only way to do that is to go past the first 30% of the work, which was easy, and focus on the next 30%, which is more mission critical. That will require more professionalism on the provider side as well as on the customer side.

This segment is part 6 in the series : Building An Outsourcing Company In China: Bleum CEO Eric Rongley
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