Chengdu turns into service outsourcing hub

Large talent pool, local government backing boost miraculous growth

When US software engineer Duc Hang arrived in Chengdu in 2006, he had difficulty finding anyone who specialized in Oracle Corp's e-commerce software.

Most graduates from the city's information technology schools went to Shanghai or Shenzhen to find work.

But the intervening years have witnessed the explosive growth of the city's software sector.

Now more than 35,000 software engineers are working for the city's more than 300 software and service outsourcing companies.

Hang, now executive director of global delivery and head of AAXIS Software (Chengdu) Co Ltd, said 80 percent of his 200 employees have a Chengdu background.

This means that they are either graduates from Chengdu's colleges and universities, were born in Chengdu or the surrounding area, or have relations in the city.

This composition of workforce provides a precious stability to Hang's company, a US-based technology consulting firm with a client base that includes 20th Century Fox, Universal Cinema and Disney. A highly fluid workforce is a common complaint of many IT company bosses.

In addition to the city's strategic location, convenient international transport links, and strong local government support, the cost of labor was another major factor that prompted Hang's company to move to Chengdu.

"Chengdu produces 46,000 college graduates in the IT field every year. Think if only half of them stay, that potential could be massive," Hang said.

The vision is exciting, but the reality was tough for Hang and his team in 2006. They had to start from scratch in Chengdu as there were few talents in the city with the skill-set they required.

As a result, the company launched an e-commerce software training program, which involved experts from the United States.

For AAXIS, this has cost millions of dollars annually, and the Chengdu center has yet to make profit for the parent company.

But Hang said he believes this is money well spent as employees of his company have become skilled engineers and project managers in this niche software market. From the Chengdu center, they can provide professional consulting services directly to AAXIS' customers, according to Hang.

"For IT consulting firms, it's very difficult to deliver services to China and the Asia-Pacific from a European or a US-based team, due to language and cultural factors," Hang said.

"As of now, the best capability in terms of e-commerce technology in China now exists in Chengdu," Hang said.

When asked if he could catch the latest trend of his industry in Chengdu, he said he didn't have to because his company is the trend.

Expanding domestic market is one of the reasons that supports his pride.

In the fourth quarter of 2012, his company signed a short-term contract with a British multinational with a presence in Shanghai.

This January, it signed a multi-year project contract with a large multinational in Suzhou. However, he declined to name the multinationals involved.

Inspired by these projects, he is planning to increase his workforce by 20 percent this year, and move his office space to another building in Tianfu Software Park.

"In the first five to six years, we were focused on 'capability building'. Since last year, we began to expand our local business, and we expect more and more local clients in our business portfolio," Hang said.

He appreciated the "ecological environment" created by the Tianfu Software Park, which houses 350 similar companies, of which 40 percent are foreign invested.

"We are situated close to each other. It is very easy to reach out and network other executives in the park," he said.

A bigger story

AAXIS' story is just one of many in the park, an emerging service outsourcing hub that aspires to become "the next Silicon Valley".

In 2012, Chengdu's 1,200 service outsourcing companies executed offshore outsourcing contracts worth $986 million, up 61 percent year-on-year. By 2012, the output of Chengdu's outsourcing companies totaled 44.5 billion yuan ($7.15 billon), according to the city's commerce department.

The story of service outsourcing is also a part of the bigger success story of Chengdu's IT sector, now the largest industry in the southwestern metropolis.

The IT industry now plays an essential role in Tianfu New Zone, which is situated in southern Chengdu and covers the outskirts of Meishan and Ziyang.

With modern manufacturing and high-end service industries, this zone is turning into a modern international urban area favorable for business and living, creating another growth point for Chengdu.

Chengdu is now home to world-famous high-tech companies such as Dell Inc, IBM, Texas Instruments Inc and Symantec Corp. In 2012, Chengdu's software and IT service industry was worth 175 billion yuan, and the industry has maintained an annual growth of more than 40 percent over the past five years, according to Du Tingting, general manager of Tianfu Software Park.

Hang is among hundreds of expatriates who have witnessed the city's miraculous growth. He said he didn't know any other place in western China that was experiencing this level of growth.

"Just seeing it develop is amazing: from no subway lines to two subway lines now, and to eight subway lines in the future. When you compare that type of growth and investment in Chengdu with other places, it's indeed a very exciting place to be," he said.

"I believe Chengdu is not just another tier-two city. It's kind of between tier one and tier two. If you compared the investment in the software park with other tier-two cities in China, there is a big margin between them. Hopefully it could become a top-tier city in the future," he added.