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[Whitewash]

Can You Trust China for Outsourcing?
Security concerns continue to dog Chinese suppliers


Can You Trust China for Outsourcing?
Security concerns continue to dog Chinese suppliers

Michael Cooney




While China's outsourcing market continues to grow, recent events highlight nagging concerns. A new study says China's software outsourcing services market reached US$323 million in the first quarter of 2006, up almost 44 percent compared with the first quarter of 2005.

According to Analysys International, Japan is the biggest contracting market to China, accounting for 59 percent of the country's software outsourcing market. Europe and the United States account for 23 percent. The country's leading outsourcing outfits by market share are Neusoft, Hisoft and SinoCom.

Considering how fast the world outsourcing market is growing, it's no surprise that IBM, HP, Microsoft, Siemens, Unisys, Electronic Data Systems and others are all adding staff in China. And even India's outsourcing giants -- Tata, Infosys and WiPro -- have a presence in the country.

But, as in most countries where outsourcing/offshoring is conducted, security concerns are one of the largest issues customers face. India, by far the largest destination for offshored work, has had its share of problems, and it has ongoing programs and plans to try to deal with those issues.

While China hasn't had as many security/outsourcingrelated problems -- that we know of -- the U.S government sent a signal this week that is indicative of underlying concerns that may influence the Chinese outsourcing market: the U.S. government said it doesn't trust one of China's largest manufacturers, Lenovo.

The U.S. Department of State said it won't use Lenovo computers on a classified network because of ongoing concerns about the company's Chinese government ties. The State Department's decision comes after House Rep. Frank Wolf (R-Va.) objected to the use of Lenovo's computers in a classified network connecting U.S. embassies and consulates.

In March, the State Department announced plans to purchase 16,000 Lenovo computers and related equipment for $13 million through a government contractor. While the computers will still be used, they won't play a role in any sensitive government networks.

But one has to wonder if this development will give pause to U.S. firms considering outsourcing work to China. Should this matter?

We would argue yes and no. Yes, obviously you should care about the security implications of outsourcing work to any third party, especially firms overseas where the laws concerning intellectual property and privacy may be looser.

But beyond that, no. China shouldn't be singled out as being particularly dangerous. China and even Russia will likely become world-class players in the outsourcing market, even if our government continues to harbor suspicions.

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