Bangalore used to be the preferred Asian destination for international companies looking to outsource software development, data processing or even debt collection. But Last July, IDC (International Data Corporation) introduced a new indicator called GDI (Global Delivery Index), and compared and contrasted 35 cities in 18 countries in the Asia Pacific region which have the potential to be global delivery destinations. Surprisingly, Dalian beat first-tier cities like Beijing and Shanghai, and even managed to rank fifth overall. IDC also predicted that by 2011, Chinese cities like Dalian would outstrip Indian cities and become the most suitable global delivery locations in the world.
In his book The World is Flat, Thomas L. Friedman wrote about his amazement at the development of software outsourcing in Dalian, apart from China’s software and service industries. Business Week has even called this small scenic city “the Bangalore of China”.
In 1998, the total sales revenue of Dalian’s software industry was a mere RMB200 million (US$29 million), and the software export turnover was less than US$10 million. Ten years later, in 2007, the sales revenue of its software industry rocketed to RMB21.5 billion (US$3.1 billion), and the software export turnover reached US$720 million. And the rapid growth continues. It is estimated that the city’s total sales revenue in the software industry will exceed RMB30 billion (US$4.3 billlion) and the software export turnover will exceed US$1 billion by the end of this year. In fact, in 2006, Dalian’s software export turnover had already surpassed that of Beijing.
Dalian people have their eyes on the future and they want to be the leader in global outsourcing for software and services. The city is now aiming for RMB90 billion (US$13 billion) in the software industry and US$ 4.5billion in software exports by 2012. By 2017, the size of its software industry and services will be able to match the global market leaders. Outstripping Bangalore will no longer be a dream by then….
From dawn to dusk, overseas visitors wander through a curved grey office building at the No. 1 Digital Square, Dalian Software Park. As they study the spectacular diorama of the Software Garden in the hall, they often ask the same question: how did Dalian accomplish all this in just ten years?
Rewards for Persistent Efforts
Jin Guowei joined the Dalian Bureau of the Information Industry ten years ago. Since Dalian was the first city to establish such a bureau in China, Jin used to have trouble finding his counterparts in other cities when he travelled out of Dalian on business trips. Now, he is the vice-director of the bureau.
Gao Wei, the president of the Dalian Software Park Co., Ltd. (DLSP), is an authoritative figure in the software park. When he left Yida Group, the main shareholder of DLSP, and took up his current position ten years ago, there was actually nothing on the site where the software park is now located. They started the business by setting up a sign outside their office building that read “Northeast Asia Outsourcing Centre”. That office building was actually a renovated guesthouse of a machine tools factory. Over the next ten years DLSP gradually earned a nationwide reputation and Gao intends to continue his career at the software park.
The software industry in Dalian owes a lot to consistent government support over the last ten years. “In China, the government still has a critical role to play in the development of an industry,” says Jin.
Bo Xilai, the gutsy mayor who initiated the software strategy, helped lay a solid foundation for the development of the software industry in Dalian. In 2001, Bo was transferred to Liaoning province and Li Yongjin took over his position. As soon as he started his new job, Li led a delegation to Japan in a bid to attract overseas business for software and outsourcing services. It was the first time that Dalian companies had approached Japan for business opportunities. During his first month in the Mayor’s office, Li also held a general meeting with the heads of bureaus such as water, electricity, police and municipality management. The gathering identified all the issues, challenges and difficulties and solutions were worked out on the spot. Shortly after the meeting, a memo was released as a guideline for future problem solving.
Xia Deren was the vice mayor responsible for science and technology when Bo Xilai was still mayor of Dalian, so it was natural for him to continue government support for the software industry after he succeeded Li Yongjin.
Once the strategy was established, choosing which way to proceed was critical. Instead of producing products similar to those of Microsoft, Dalian chose software outsourcing and services as its breakthroughs. And instead of the larger European and American markets, Dalian chose to focus on the nearby Japanese market.
It turned out to be a wise decision. After 2002, the growth in the Chinese software industry shifted from software products to software services, and Dalian subsequently gained a leading advantage thanks to its early entry into the market. In addition, although the outsourcing demands in the European and American markets have been growing fast in recent years, Chinese software outsourcing service providers only get about 25% of the orders from these markets. In contrast, they get about 60% of the orders from Japan. Dalian has gained a virtual monopoly on outsourcing orders from Japan.
The booming software industry in Dalian relies on some committed entrepreneurs. Li Yuanming, the ex-chairman of HiSoft Technology International Ltd., left the company this past May and started his own business, which is also a software outsourcing service provider. “I believe this industry has great potential, and there are abundant opportunities to provide outsourcing services to the Japanese market.”
There are plenty of software outsourcing service providers in Dalian, including star companies like Neusoft Corporation, Dalian Hi-Think Computer Technology, Corp. (DHC) and HiSoft Technology International Ltd., the top three software exporters in China. The competition and cooperation between these domestic software outsourcing powerhouses and international giants like GE, Dell and HP, have shaped Dalian’s prosperous software industry landscape.