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PE Interview With Beyondsoft Founder and CEO Wang Bin
China's software outsourcing market has begun to attract the attention of investors, with several investments in the industry being announced recently. With experienced Indian outsourcing companies beginning to launch operations in China, China appears set to become a major player in the software outsourcing market over the next few years. Beijing based software outsourcing company Beyondsoft Group, which has been profitable since it was founded in 1995, works with companies including Microsoft, HP, IBM, SAP and Siemens. The company received its first venture capital investment from Japan-China Bridge Fund in June 2005 and hopes to list on Nasdaq within the next two years.
Pacific Epoch recently spoke with Beyondsoft founder and CEO Wang Bin about the company's recent round of capital raising, the development of China's software outsourcing market and competition from Indian competitors.
Pacific Epoch: How will Beyondsoft use the recent investment it received from Japan-China Bridge Fund?
Wang Bin: Venture capital is very helpful in accelerating a company's development. Many investors have shown interest in the industry over the past one year because this industry is growing rapidly currently. The market is expected to grow 50 percent annually in the next few years. We are not a start up company. We have spent years gaining experience in this market. Investment firms are looking to invest long-term in some of the leading companies in the industry.
The investment proceeds will be used for two main purposes: One, to improve Beyondsoft's production and marketing abilities by expanding our office space and staff and by improving production management and quality control. We will have over 1,000 programmers by the end of this year. Secondly, we will acquire some other companies in the industry. We will acquire companies in order to broaden our product line and to enter some new local markets.
PE: Had Beyongsoft received any outside investments prior to the recent Japan-China Bridge Fund investment?
WB: No. This is the first outside investment Beyondsoft has received.
PE: What are Beyondsoft's major businesses?
WB: We are an IT outsourcing company. Product R&D is our core business. The clients of our Applications Development & Maintenance Division (ADM) come mainly from the finance and telecom industries; our localization and Business Process Outsourcing (BPO) businesses provide product localization services for overseas companies looking to bring their products and solutions to the Asian market.
PE: Beyondsoft has done work for Microsoft, Computer Associates, Oracle and other software firms. Are the projects mainly developing applications or are you also involved in the development of your clients' core products?
WB: We provide product R&D services for these companies' core products. For example, we have cooperated with Microsoft on its Windows and MSN products.
PE: Beyondsoft has mobile handset clients including Sony Ericsson and Kyocera. What types of services do you provide for handset companies?
WB: After a handset manufacturer designs a handset, we will develop secondary applications for the phones and conduct software tests of the handsets.
PE: For large projects, does Beyondsoft outsource development to other firms or contractors, or is all work done in-house?
WB: We do work with partners on some projects. We will re-outsource part of the project to a partner if they have more experience in a certain area. However, what happens more often than not with Chinese companies is that we will have programmers from our partner companies come to our office and work with us.
PE: What is Beyondsoft's expected revenue for 2005?
WB: We expect our sales revenue to reach US$20 million this year.
PE: What percentage of revenues come from domestic outsourcing services as opposed to outsourcing for overseas companies?
WB: Less than ten percent of contracts come from domestic companies, while 90 percent of projects are for overseas companies. Well over half of our revenue is generated from outsourcing services for overseas companies. The subsidiaries of multinational companies (MNCs) in China are included as domestic companies. Subsidiaries of MNCs in China make up the majority of our clients in China. In the future, we plan to increase our domestic outsourcing business.
PE: When did Beyondsoft first turn a profit?
WB: We realized a net profit in our first year of operation.
PE: How many employees does Beyondsoft have?
WB: We have over 700 employees presently; 90 percent are R&D staff and programmers, the remaining ten percent are administrative, sales and after-sales service employees.
PE: Who are Beyondsoft's main competitors, both in the overseas market and domestically?
WB: Our main competitors in the overseas market are Indian companies, as well as US and Japanese companies.
PE: Will competition increase now that some large Indian software companies are setting up subsidiaries in China?
WB: We have always competed with Indian companies. Indian companies are moving into China with hopes of taking advantage of the low cost of human resources in China. However, in the short run, I think it will take time for the Indian companies to understand the Chinese market and to adjust their strategy for the different cultural environment in China. I believe Chinese companies still have an opportunity to develop successful businesses before the Indian companies become well-established in China.
PE: What is Beyondsoft's competitive edge in the market? How will Beyondsoft manage to retain its leading position among Chinese outsourcing companies?
WB: Our major competitive advantage is experience. We were part of the first group of Chinese software outsourcing companies. We have over ten years of experience. A very important factor when our clients choose an outsourcing company is a company's track record. A good reputation and extensive experience will help Beyondsoft win clients and contracts.
PE: There has been a report that Beyondsoft plans to list on Nasdaq in 2007. Is this true?
WB: Yes, that is our plan. However, the exact time of our IPO will depend on the sentiment of the markets.
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