Offshoring mistake

Western executives often make a big mistake in assessing offshoring and outsourcing options.  They undertake a detailed comparison of current capabilities and then make their decisions based on this snapshot.  But snapshots miss the point.  This approach misses the fact that many offshore locations, especially in China and India, are building capability at a much faster pace than comparable companies in the U.S. and Europe. It's relative pace that counts - executives need to watch videos, rather than staring at snapshots.

Here's a case in point. The Economist ran a story in January 2005 called "The struggle of the champions" that expressed considerable skepticism about the real capabilities of many of China's leading companies, including Huawei, the country's leading telecom equipment vendor. Here's one brief excerpt:

Yet the true extent of Huawei's international reach is hard to gauge. Much of its overseas business is in emerging markets where there is little competition. Though it is pushing into Europe, it lacks the muscle of rivals. . . . That Cisco, the industry leader, successfully sued Huawei for intellectual-property theft suggests weaknesses in its technological base.

Three months later, in its March 3 issue, the Economist ran another story "See Huawei run" with a much more positive spin on the company.  What changed?  Well, for one, the Economist covers a recent survey of over 100 telecommunications service providers worldwide conducted by Heavy Reading, a market-research firm based in New York.  It turns out that, in the course of the twelve months since the last survey, Huawei had increased its ranking among global wireline-equipment providers from 18th to 8th. Not only that, Huawei ranked fourth in the world in terms of service and support. So much for the skeptics who are inclined to attribute Huawei's growth simply to low prices.  As the Economist reports:

The report calls Huawei's ascendancy “astounding” and says it has already surpassed several incumbent vendors in perceived market leadership.As a result, incumbent western firms should be “very scared” of Huawei, says Jean-Charles Doineau of Ovum, a consultancy.

What a difference a year makes or, in the case of the Economist, three months. This underscores the importance of relative pace. Western executives need to figure out how to position their companies in these offshore locations in ways that enable them to leverage this significant difference in relative pace.

Comments

[fCh]

A telecom customer of mine from a developing country in Central Europe (hence, price sensitive) had been faced with 3 options for equipment: Siemens, Nokia, and Huawei. Both Siemens and Nokia offered deals on equipment and services on terms this customer could not take. So, he made the decision to explore Huawei. To his surprise, he was treated very well, great price, and a year long of service and equipment tune-ups at no extra-cost. Granted, this was Huawei's first customer in that country, but still...

[Kwanda]

This is a very interesting debate. It also brings some challenging thoughts to the special areas that our (South Africa) companies need to focus on in order to be competititve in the global markets. I would love to be in touch with these developments and perspectives on a frequent basis