Dalian: German software giant SAP AG brings its toughest jobs to this port city in China’s rustbelt northeast.
In a sunny, spacious office at a leafy business park, 200 technicians help run software that manages bank transactions in Switzerland and auto manufacturing in Michigan.
“Night time support for a Swiss bank is one of the most difficult things you can do, and we do it in China,” said Andreas Reuther, SAP’s vice president for global support.
Along with SAP, Hewlett-Packard Co., IBM Corp., Britain’s BT Group PLC, Japan’s Yokogawa Electric Corp. and some 230 other foreign companies have flocked to Dalian in the last decade.
Now, a critical mass of development is coming. Ground broke this year for both a $2.5 billion Intel Corp. factory and a $6.5 billion nuclear power plant for the city. Cranes line the busy waterfront as office and apartment towers rise at a furious pace.
Dalian could be model IT city in China
A former Japanese colony on green rolling hills, Dalian is a model for the transformation that Chinese leaders want to see in the rest of their country. Beijing is eager to raise China’s status from low-skilled factory labour to higher-paid technology jobs. A 15-year plan issued last year promises tax breaks and other aid to software, genetics, aerospace and other high-tech businesses.
“Our goal is to build up Dalian as a new leading city in global software and service outsourcing,” said Jin Guowei, deputy director of Dalian’s technology bureau. “We want to be like America’s Silicon Valley, Ireland’s Dublin or Bangalore in India.”
Companies say they are drawn to Dalian by a polyglot work force, local spending on communication and other infrastructure, help in hiring, tax breaks for high-tech investment and free rent in the city’s brick and glass office park. Wages for a new college graduate in Dalian are about $250 per month, company officials said about the same as in India but lower than in Beijing or Shanghai.
The revenue of $1.9 billion generated last year in Dalian by operations such as writing and testing software, operating computer systems and accounting and finance is still dwarfed by outsourcing in Bangalore. The Indian city, Asia’s leader in the industry, brought in $11.3 billion from such operations in 2006.
But Dalian’s revenues grew 50% in 2006, compared to Bangalore’s 32% growth. And, at $11.8 billion, according to the China Software Association industry group, China’s total outsourcing revenues were similar last year to Bangalore’s.
Could score over Bangalore in infrastructure development
Investors say Bangalore is strangling itself by failing to invest in infrastructure, while Dalian spends heavily on roads, power supplies and telecommunications.
“It is becoming a city that is a good alternative to the major software outsourcing cities,” said Conrad Chang, an analyst for the consulting firm IDC.
Private investment is also on the rise, as more than 1,700 Chinese companies have sprung up in Dalian to produce software or sell support to foreign companies doing business here. Investors from Singapore and Hong Kong plan two more technology parks. And it’s not just outsourcing but high-tech manufacturing _ as at Intel’s planned factory that is fueling Dalian’s boom.
SAP looked at Japan, Southeast Asia and the city of Shanghai when it set out in 2003 to open an Asian support center, Reuther said.
People potential high, though manpower shortage is an issue
“In Dalian, we find people with an IT background who can be ‘skilled up,’ and you can find people who speak reasonable English, good Japanese and even Korean,” he said.
HP, which opened in Dalian in 2004, now has 2,500 employees there doing business and technology work for clients in Japan, South Korea, Taiwan and elsewhere, according to general manager Chen Sheng.
Dalian’s biggest weakness, company officials said, is a shortage of talent to fill the new jobs, when 70,000 city residents already are employed in high-tech enterprises here. The government plans to double the annual number of high-tech graduates from the area’s 40 colleges and universities to 80,000 by 2010. It also sends recruiters to job fairs in Tokyo and in Germany and the United States to lure Chinese-born experts with foreign experience.
Dalian’s graduates are equal in quality to those of the U.S or Ireland and “maybe a bit better,” said Kirby Jefferson, the Intel plant’s general manager and a veteran of facilities in Ireland and the United States.
Sprucing up English skills
And India’s lead in English skills is shrinking as more people in China take language classes and deal with foreign customers, said Loh Tiak Koon, chief executive of software contractor hiSoft Corp., which has 3,000 employees in Dalian and elsewhere in China.
“My prediction is that in three to five years, the language issue is going to go away,” said Loh, a Singaporean.
Despite its late start, Dalian’s outsourcing revenues could catch up to Bangalore in as little as a decade, Chang said.
“It has the potential,” he said, “because it has built up the necessary ingredients, while Bangalore has rested on its laurels a bit and not invested in infrastructure.”