Chinese IT major acquires US firm as a challenge to India

Beijing, March 02: Leading Chinese IT firm Hisoft Technology International on Friday announced acquisition of California-based Envisage Solutions as a part of China's effort to boost its it-related services and outbid Indian competitors from the lucrative US and European markets.

"We hope to change the outlook of Chinese ITO players, who have been relying mainly on the Japanese market and unable to crack open the US and European markets, captured by Indian players," Chief Executive Officer of Hisoft International, Loh Tiak Koon said here.

"Indians are our main competitors, which is of course a challenge for US," he said, adding that the 'merger' of Hisoft with envisage solutions will enable the Chinese company to consolidate in the US market.

With this merger, Hisoft is now in a good position in china to offer world class outsourcing and off-shoring services to international companies which target china as a domestic market and as an alternative service base to their providers in India, he said.

"We are in the game because, we can offer the same value to the customer that an Indian vendor could," Loh said while declining to disclose the exact amount Hisoft paid to envisage solutions for the 'merger'.

But he indicated that the company's offer could be as much as two times Envisage's revenue, which is around 10 million dollars. "The exciting part is that we are in a good position now in the US market," he said, noting that the company now has a workforce of 2,300 in China, Japan and the US.

"We think we can compete in the US too. To sustain the growth rate, you have to compete in the US market because Japan, though an interesting market is not as huge as US and Europe," he added.

The US and Europe make up 75 per cent of the software and services markets. "That is the future of software services market," he said acknowledging that the Chinese players are way behind Indian IT giants.

"However, the market is consolidating quickly," he said noting that about USD 300 million of venture capital money has been invested in China into 15 to 20 vehicles an effort to "create an Infosys or TCS in China."

Hisoft, which has five development centres in China, received USD 30 million in second-round investment from us venture capital firms including Granite Global Ventures, Intel Capital and Eplanet Ventures.

China currently has only USD 1.5 billion out of the USD 30 billion market. But, the country enjoys a huge and strong domestic it market. "So nobody wants to focus on the export market," Loh said, predicting that things will change rapidly in china in view of the increasing focus on china and the money floating around.

He also pointed out that it is reported that china accounted for only six per cent of global it outsourcing market in 2004 but is predicted to increase its share to about 25 per cent by 2009.

The sector is expected to grow at an average annual rate of 50.2 per cent to USD 7.03 billion by 2010, a local consultancy specialising in the IT sector forecast recently.