Achievo Corp. is an international offshore software and information technology outsourcing service provider. Headquartered in Silicon Valley, Achievo Corp. has front-end sales and service offices in the United States, Japan, Canada and Europe, and back end offices in China that provide low-cost IT outsourcing services.
Achievo's customers include Accela, Audi, China Mobile, DaimlerChrysler, Hitachi, Honda, Mitsubishi, Siemens, Toyota, and Vidient. The company employs approximately 1,600 staff across its global operations, and is currently planning for an initial public offering on the Nasdaq. Achievo has executed a series of acquisitions aimed at expanding its business in recent years. In May 2005, the company acquired German software outsourcing company ICS Software AG. It then went on acquire ANS Group in Japan in December of the same year.
In February 2006, Achievo acquired Canadian software-outsourcing company NetStar Solutions Inc. It then acquired Taiwan-based VisualSoft Information System Corp. in March and Shanghai Wintech Software Co. Ltd. in May of the same year. In August 2006, the company also acquired Beijing BBX Information Technology Co. Ltd.
Last week, Interfax talked with Robert Li, chairman and CEO of Achievo, about the company's current operations in the IT outsourcing industry and its plans for the future.
Interfax: How many staff does Achievo employ at the moment and how is the company's business spreading globally
Li: At present, we have over 1,100 employees in China and 500 employees in various other countries. Almost half of our staff employed in foreign countries are located in Europe and America, while the other half are based in Japan. Our figures show that the business is growing quickly. Over 90 percent of the orders we receive are from foreign countries, and most of our customers are foreign companies. Through our front-end offices, located in various locations overseas, we provide most of our services directly to our customers. When broken down by region - around 30 percent of our business comes from North America, 40 percent from Japan and 20 percent from Europe. The remaining 10 percent comes from the Greater China region, including Taiwan and Hong Kong.
Interfax: What do you think differentiates Achievo from other Chinese IT outsourcing enterprises?
Li: Firstly, I think we target different markets. While China is home to many good IT outsourcing companies, such as Neusoft Group, the largest IT outsourcing company in China, and China National Software & Service Co. Ltd., they are very domestically focused. Few of their orders come from Europe or America with most of their orders coming from domestic sources. We, on the other hand, are an internationally focused IT outsourcing company. Secondly, many of our orders are complete software development projects, while the majority of Chinese IT outsourcing companies are more involved in testing. We are able to reap greater profits from complete development projects compared with testing orders, and in a long run, such projects enable us to establish strong working relationships with our customers. Thirdly, we have experienced sales and service staff in our front-end offices that can develop good direct relationships with our customers. This is our main competitive advantage that we have acquired through our global acquisitions. Some of the companies we acquired already had good customer bases, to which we can now provide better services.
Measured by whichever standard, be it staff numbers or revenues, we are one of the top five IT outsourcing enterprises in the China market. In this market, demand is high and success depends on both receiving orders and providing high-quality products.
Interfax: What measures can or have you implemented to keep production costs down?
Li: While some companies have sent out advertisements around the world saying that their programmers work for just $10 per hour, we have taken a different approach. We've put more of a focus on reasonable prices for high-quality products and services. We offer competitive wages to employees. They are able to transfer between our offices in the large cities, receive additional training and travel overseas and have opportunities for promotion. We have sought to cut costs, not by slashing our employee's wages, but by improving their productivity through effective management. Contribution to the company per employee at Achievo is a lot higher than that at other Chinese companies. In other words, we are competing with our rivals by using our different business model.
Interfax: It has been argued that while the technical capabilities of Chinese IT outsourcing companies have reached international standards, they still lack the skills and experience necessary to effectively communicate with foreign customers. Do you agree?
Li: I agree, and I also think they lack management experience too. However, we shouldn't worry too much about experience. As the IT outsourcing industry is still relatively new, how could we have a lot of experienced professionals working in the industry already? There are currently a large number of new graduates coming into the industry every year, and their experience will accumulate over time.
Interfax: Will Achievo continue its global acquisition strategy?
Li: There has been no interruption in our acquisition strategy. While we have also sought to recruit many valuable new employees recently as part of our strategy for growth, our global acquisition plan will continue. We began to develop our acquisition plan around five years ago, and have been very careful in choosing our targets. Our management has the combined experience of the acquisition and merging of over 100 companies. I personally have experience from the acquisition and merging of over 20 companies. We know that acquisitions are important, but the integration that follows can take a long time and can be difficult. I think that most acquisitions that occur in the software industry cannot be described as "successful". According to cost considerations, we have also acquired many programmer teams from other companies as part of an effort to support our ongoing growth.
Interfax: How do you think Chinese and Indian IT outsourcing companies will compete in the global market in the future?
Li: Indian companies currently dominate the global IT outsourcing market. No Chinese company, including Neusoft or Achievo, can compete with them at present. There's no effective short-term plan for catching up with the large Indian companies though, the largest of which has 50,000 employees and an employee base that increasing by between 30 percent and 40 percent every year. Their annual net additions have surpassed our total number of staff. However, once when it gets to the point where we have around 10,000 employees, and they have around 80,000 employees, then their size advantage will be negated. At that point we will be seen to be "big enough" for all customers, and the Chinese IT outsourcing industry will be recognized to be at an international level.
Interfax: You completed a series B round of financing in February. What will the money be used for?
Li: Our series A round of financing was managed by the company's founding team five years ago. Because the company was receiving business from the very beginning, we haven't needed a lot of capital to support the company's business operations. Our series B round of financing, valued at $24 million, will be used towards infrastructure and future acquisitions. We hope to increase our number of employees to 10,000 in the next few years, and to achieve year-on-year increases in revenue of 100 percent.
Interfax: What strategies do you currently have for different markets?
Li: Europe and Canada are important battlegrounds. At the moment most of our European business comes from Germany, with a bit from Britain. IT outsourcing in Europe has not developed as quickly as in other places though, and Indian companies don't have any special language advantages in the region so they're not as dominant there as they are in the United States. The Indian companies are also less dominant in the Canadian market, as they have focused mostly on the larger U.S. market. For these reasons we think we have good chances in both Europe and Canada. In the U.S. market, Chinese IT outsourcing companies are presently unable to compete with the Indian companies. From the perspective of the Indian companies, Chinese companies are little babies. However, the Indian companies do have a weakness. Due to the Indian companies' success and strong market demand, the wages of Indian employees have increased significantly. With such high demand and a limited pool of possible employees, Indian IT outsourcing workers are now receiving many new employment offers and options. This has resulted in annual employee
turnover rates as high as 30 percent to 40 percent in some cases, something which makes successful management almost impossible. European and American customers unsatisfied with the effects of constantly changing developers are beginning to look at Chinese companies as possible replacements. This weakness is our opportunity in the market.
In regards to Japan, we already have the largest Japanese subsidiary out of all the Chinese IT outsourcing companies. Japan passed through a long period of ongoing development after World War II, and their economy is now booming, despite suffering from a shortage of human resources. Chinese companies have an advantage when exploiting Japan's market due to the two countries similar cultural backgrounds. At the same time, China has the largest number of people who can speak Japanese in the world, excluding Japan itself. We would say to our Japanese customers, "We bet you can't communicate in Japanese in any other foreign office, except for those in China."