Building An Outsourcing Company In China: Bleum CEO Eric Rongley (Part 7)

Sramana: In the manufacturing supply chain, you have the tier 1, tier 2, and tier 3 suppliers. In many cases, the tier 1 suppliers are system integrators and they source from the tier 2 and tier 3 suppliers. Do you foresee that type of model developing in the software and IT outsourcing industry? In that model, the Accentures of the world are tier 1 suppliers, serve as system integrators, and source skill sets that they do not have internally or geographically with tier 2 suppliers.

Eric Rongley: It is definitely possible. Accenture and IBM do business that way now.

Sramana: Are you able to work with IBM or Accenture that way?

Eric Rongley: Not with IBM. While they are able to extract a high price from their customers, they extract a low price from their subcontractors. They also insist on having the right to hire our people. I refuse to work under those circumstances.

I have worked with Accenture on several engagements where they were the general contractor, and we were one of the portfolio companies contributing. We have had inquiries from Indian companies about this, but I have not seen that they are set up to work that way yet.

Sramana: Companies like IBM and Accenture have been operating as true multinational corporations for many generations, whereas Indian companies are just learning how to become multinational companies. Culturally, they are still very much Indian companies.

Eric Rongley: That is an important point. The Indian companies are not global companies. They are Indian companies that have offices in other places. It took American and European companies decades to get good at that.

Sramana: It is a difficult change, and it will not happen overnight.

Eric Rongley: No, but they are well positioned to do it. They definitely have the market momentum and the customer relationships to do it.

Sramana: What about acquisitions? Indian companies are beginning to make acquisitions in order to fill capability gaps.

Eric Rongley: Indian companies definitely should look at acquisitions. It is appropriate in their case. I often see companies in China talking about doing acquisitions so that they can become larger and compete with the Indian companies. I have a problem with that model. None of the Indian companies got big by making acquisitions. They got big by having good execution engines. It was only because they had good execution engines that they were able to accumulate a lot of cash. Once they were large, they could make smart, strategic acquisitions. Chinese companies would do it out of desperation.

At Bleum, we are not looking to make any acquisitions pre-IPO. The game plan we are following is working very well, and I think an acquisition would trip us up. The first time we do it, I am sure we will make a lot of mistakes. We don’t want to make mistakes now because this model is working very well. We do get offers to be acquired several times a year, some of which come from the top Indian companies. To date, it has not been the right move for our shareholders. We are a rapidly growing company that has the profitability and discipline that no other company in the Chinese market has had. We grew from my first $100,000 investment by earning more money before we had any to spend. We have had to keep our business in line with our cash flow all along. We have great cash management and strong ability to deploy the cash we have, and we have a good cushion. The shareholders see that it is likely that an independent path would prove to be in their interest.

Sramana: Who are your shareholders?

Eric Rongley: Largely me and some friends and family. There were a few times that friends and family helped us get through the transition from local market work to global outsourcing work. They look to make out very well in the future, but for the most part I am the primary shareholder and I drive the company.

Sramana: Thank you. It was good talking to you, and it sounds like you have a great company.

This segment is part 7 in the series : Building An Outsourcing Company In China: Bleum CEO Eric Rongley
1 2 3 4 5 6 7