Background information
iSoftstone began business in 2001as Beijing iSoftstone technologies Limited. The main pioneer was Tianwen Liu. He owned the company and was known as the core founder. Later in 2005, the company changed its organization and took up the name iSofstone Holdings limited. It had three major branches and was registered in the Cayman Islands. One of its branches was Consulting and Solutions.
This branch mainly dealt with high end consulting and providing the clients with business reengineering services. The IT services branch provided IT infrastructure services to its clients in China. Lastly, the Business Process Outsourcing Branch provided services such as backend business processing and Call Centre services. These services mainly targeted the US and European clients.
The company became fully operational in 2009. Its various branches were estimated to have earned approximately $134.4 million in total. The Consulting and Solutions branch earned a total of $44.5 million while Business Process Outsourcing earned $3.8 million. During that very year, the IT branch earned a total of $86.1 million.
Liu saw an opportunity in the rising demand of IT services in China and the rising interest in offshoring of developing software to China. He had a clear insight as to how exactly he would establish and differentiate ISS. His initial idea had two sides to it when he sought to establish ISS as a leader in the domestic IT services market.
Firstly, he knew there was a strong business foundation base upon which to build a global business enterprise. Secondly, an establishment of ISS would attract many US, European and Japanese clients who sought to enter the Chinese market. His main target was the telecommunication, technology, financial services and energy companies.
He wanted his company to service customers with IT services that would be initiated through consulting and solution design assignments. This would result in software development projects and business process outsourcing.
He hired personnel with proven track records in one or more of the company sectors and with time he managed to acquire small outsourcing companies that allowed his company to build a good basis for human capital and global IT services expertise. Between 2001 and 2010, the company experienced a rapid growth rate and success as a global enterprise.
His growth in human personnel took place through a two-fold approach to acquiring human capital. First, he actively pursued acquiring domain competencies where the targeted market fit with the ISS market strategy.
His previous work relationships with associates that worked in these organizations soon saw them become senior executives within ISS. Secondly, Liu recruited his workers from the Chinese higher education engineering programs. He also partnered locally to establish curricular offerings that would align to the needs of his IT Company.
ISS also went ahead and founded a joint venture with Carnegie Mellon University in the US. The main purpose of this venture was to provide training to engineering consultants and junior management. The top third of the graduates were hired by ISS each year.
ISS mainly offered three services: consulting and solutions, IT services and business process outsourcing. The successful implementation of these services ensured that customers went back for other ISS services such as software application development and maintenance. They also offer outsourced and development in areas that involve specific areas such as software and hardware devices that contain software applications and systems.
iSoftstone Business Model
A business model is used to describe how an organization creates, delivers and captures the economic, social or other forms of value (Armstrong, 2006). The collective business model is whereby a business is composed of a large number of businesses or professionals in the same profession.
They in turn pool resources and exchange information that is mutually beneficial. iSoftStone has done this by merging with other business enterprises such as Microsoft, IBM, etc. in order to attract international customers.
ISSS’S competitive advantages
One of its competitive advantages is providing good quality services to its people and hiring qualified personnel with good success records. In addition, the company has a deep and geographically balanced client mix and service capabilities. Another strong asset of the company is its strong domain knowledge and client relationships in target industry verticals (Nag, Hambrick & Chen, 2007).
The company offers end-to-end service offerings and a scalable China –based delivery system that is within the global market reach. Systems of development and management of human capital have been put in place.
The company has managed to partner with various other companies such as SunGard in order to offer IT services to clients in the finance and insurance industries in China and across the Asia Pacific region. SunGard is a well-known IT solutions company in the financial and insurance industry. The company currently serves over 25, 000 clients in 70 different countries.
SWOT analysis of challenges faced and how to counter them
One of the main challenges that the company is facing is how to manage its growth. However, they have turned this challenge into a great opportunity for them. A SWOT analysis will be used to analyze the company’s Strengths, Weaknesses, Opportunities and Threats.
A SWOT analysis can be defined as a planning method that is used to analyze the Strengths, Weaknesses, Opportunities and Threats within a particular company. The objective of the business venture and the external and internal factors that favor the attainment of this objective are critically analyzed using this method.
The strengths in this case are those factors that give the organization a higher competitive advantage over other businesses. iSoftstone has a higher competitive advantage over other organizations due to the partnerships it has managed to acquire in order to improve its business.
For instance, it has partnered with organizations such as Microsoft, IBM, UBS and PetroChina. This put it in a position whereby it was able to get additional client work and product vendor representation. The more these relationships matured, the more the client work increased.
In addition, the company has managed to recruit experts that have a good track record of success. Instead of hiring MBA graduates as most organizations did, Liu preferred to hire senior engineers who had information knowledge technology that would develop a solution set for any client. MBA graduates on the other hand only possessed good analytical skills.
China is believed to have an appealing business environment. As compared to India, this is also a leading country in IT outsourcing, China has less English speaking people and a weaker labor force. However, it is geared at improving this situation by introducing English as a language in most school curriculums.
This will serve as a great advantage to the country especially since it is also geared toward hard sciences and technology. This will increase its labor force and the IT outsourcing industry will in turn serve a wider English-based clientele. The government promotes the new growth of industries that will replace manufacturing. China can easily use the outsourcing industry to leverage.
Since it is people intensive and is an emerging industry, it can be used by China to achieve its goal of sustained self-reliance and an upwards economic growth. China boasts of good infrastructure as compared to its competitor, India, and can therefore utilize this as an asset. In order to ensure copyright protection, China has adopted strong copyright laws that protect against intellectual copyright infringement.
Cultural ties have worked to China’s advantage especially when serving countries in the Asian region. Such countries include Japan which is the world’s second largest economy. It still remains un-penetrated and therefore China remains its primary service provider.
Weaknesses are those factors that place the company at a disadvantage over its competitors. iSofstone realized that they needed to penetrate into the Japan and Korea markets. In order to make up for this weakness, Mr. Juro Nakauchi, a former cooperate advisor for iSoftstone was recruited back into the company.
His role was to become chairman of the Japan and Korea business group where he would focus on strategic business development and management. This recruitment however presents a certain risk to the company. Competitor companies recognize the value of Mr. Juro and are putting forth efforts to woo him into their companies. His loyalty may change due to competitive salary packages.
In order to counter this risk and minimize the loss that may be incurred should Mr. Juro’s loyalties shift the company needs to build confidence in their entire team such that the relationship value that resides in him will be transferred to the iSoftStone company.
Another significant area of weakness is the duplication of efforts, missed opportunities and other inefficiencies caused by a lack of a standardized process that governs the integration of newly acquired business units.
In order to effectively counter this risk, the company can benchmark other companies that have successfully executed the growth by acquisition model. The company could then model their approach to match their business and market.
Opportunities are those factors that are known to improve the company’s performance in the long run (Moore, 1995). China and India are believed to be the largest markets of outsourcing in the current recession. Companies that seek to outsource to China could be at an advantageous position.
This is because China has adequate resources and a higher level of development. iSoftStone, which is a leading IT outsourcing company should take advantage of this opportunity by expanding their customer base to the Western region. This will enable them to build a good reputation which will facilitate negotiation processes.
Offshore suppliers prefer to keep a diverse client base because they can handle various tasks and as such, a certain size is helpful to offer a variety of solutions. Size builds up a good reputation and plays an important role in attracting international customers. The increasing number of companies that are looking to China so as to find outsourcing companies that are dependable could provide a good opportunity for iSoftStone.
Lastly threats are those elements that could potentially cause trouble for the company. An unfavorable global economy and difficult times make the outsourcing of IT a difficult task. Globalization has called for a need to adjust management models and business strategies.
China and India stand at the forefront of the global outsourcing movement. India has a labor force that poses a great threat to China’s outsourcing industry (Duncan, 2010). They have a larger scale and richer international experience in the industry as compared to China. Security threats such as cyber-attacks pose a great threat especially to companies that are looking to gain ground in IT outsourcing in China.
Businesses are forced to ensure that security policies are specific and access control systems are up to date. This is done to ensure that there is constant security monitoring especially when working internationally with China.
Companies are therefore looking for quality by investing in good governance models that provide good practices for knowledge transfer. A collaboration of the Chinese companies and the government are working hard to ensure that offshoring IT work to China doesn’t necessarily mean a reduction in cost. In order to attract major players worldwide, the Chinese IT industry needs to consolidate.
This is due to market fragmentation which is a major threat that is facing IT outsourcing companies. The Chinese IT industry is divided into smaller units and this is not enough to appeal to the international clients.
Therefore, what needs to be done is that the companies need to merge and form a single unit that will prove to be solid and reliable. iSofStone has seen this as a major threat and has since tried to merge with other companies in order to increase its size and presence (Intechno China, 2009)..
Restrictive government regulations prove to pose a great limitation to China’s IT outsourcing companies. The security of intellectual property of clients calls for a transformation in the organization and structure of China’s software industry.
Software copyright piracy needs to be eliminated and this can be facilitated through government efforts. Software copyright piracy is a great threat to China’s IT outsourcing industry. Statistics show that in 2007, most firms were using copyrighted software. As a result, the government ordered that municipal authorities purchase computers that were already pre-installed with licensed software.
References
Armstrong. M. A. (2006). Handbook of Human Resource Management Practice. Kogan Page, London.
Duncan, E. (2010). Outsourcing hubs: China, India, Eastern Europe. Web.
Intechno China. (2009). Three Engines for the Growing of Outsourcing Enterprises in Size and Strength & the Promotion of Delivery. Web.
Moore, M, H. (1995). Creating Public Value: Strategic Management in Government, Cambridge: Harvard University Press.
Nag, R, Hambrick, D. C, Chen, M.J. (2007). What is strategic management, really? Inductive derivation of a consensus definition of the field. Strategic Management Journal.