Neusoft going global: developing North American market through outsourcing

Citation

Yang, X., Chen, R. and Kwong, S. (2012), "Neusoft going global: developing North American market through outsourcing", Journal of Asia Business Studies, Vol. 6 No. 2. https://doi.org/10.1108/jabs.2012.51606baa.002

Neusoft going global: developing North American market through outsourcing

Article Type: Executive interview From: Journal of Asia Business Studies, Volume 6, Issue 2

On October 9, 2009, Dr Roger Chen, Dr Stanley Kwong, Dr Xiaohua Yang interviewed Mr Walter Fang, President of Neusoft America, Inc. and Vice President, Neusoft Corporation in China in Silicon Valley on their business expansion strategies in North America. Below is the excerpt of the interview.

JABS

Mr Fang, would you please tell us something about yourself and your company?

Fang

I am the President of Neusoft America Inc. and Vice President of Neusoft Corporation, responsible for the sales, marketing, and business operations of Neusoft America. I have 32 years of IT experience working for large multinational IT companies in Asia and North America, including 28 years with IBM, and have held many management, technical, and consulting positions in IBM Canada, IBM US, and IBM Asia Pacific.

Prior to joining Neusoft, I was CEO of Computer And Technologies Software Ltd. from 2000 to 2002. I have managed this start-up company in China and grown its software business substantially during my tenure. I am currently also an advisory member of the Expert Commission of CCIIP (China Council for International Investment Promotion) ChinaSourcing Working Committee, and a Senior Consultant for Chinese Software and Information Services Industry Alliance. I graduated from Cheng Kung University in Taiwan with a Bachelor degree in Electrical Engineering. I received a Master of Science in Computer Science from National Taiwan University.

Neusoft is a leading IT solutions and services provider in China. It is the largest software and medical imaging machinery company in China and is ranked as 1 of top 10 business leaders in emerging markets in the list of 2009 Global Services 100 by the US-based Global Services and neoIT.

Neusoft started from Northeastern University and was founded in 1991 (where the name “NEU” is derived) out of a small classroom. Our Chairman and CEO, Dr Jirong Liu, started the company with three people, three computers, and $3,000. Over the last 18 years, the company has grown revenues to over US$400 million. In China, it has hired over 17,000 employees, set up 40+ branches and six R&D centers, built five software parks.

Our three main businesses are medical imaging/IT, software solutions/services, and education/IT training. Our bread and butter business is the software/services business accounting for 70 percent of our business. About 22-25 percent of revenue comes from our medical imaging/IT field. In education, we have about 200,000 students; however, we earn little revenue for trainings. This accounts for about 5 percent of our revenue.

Since 1996, two thirds of our revenue is from China, the remaining revenue from outside of China (or about $182 million). Even though our overseas business is growing 30 percent year over year, our domestic business is growing quite well. Over time, we expect that overseas business will eventually overtake domestic business in China. For our domestic income, we are very strong in the telecom industry.

Our globalization journey still has a long way to go. I am very optimistic based on our success in Japan. We now have over 1,500 employees that are local hires as Japanese citizens. We have other offices all over Asia. Our efforts in America and Europe have come much later. We built our company step by step.

JABS

What is your primary strategic goal in North America? How do you deploy M&As to expand your business abroad? How do you control risks related to M&A failures?

Fang

Our US subsidiary’s growth is measured by my top line and bottom line (revenue, profit, and staff size). Beyond that, there are a lot of additional goals for our subsidiary, including building the brand and doing the business development marketing. Brand recognition starts with people having some awareness of your company. But that is part of the process to make our company known through linking with good organizations and channels to spread the word out.

We hope that in 3-5 years, we will be in at least $50-100 million dollars in North America, with 200+ employees for our software and services.

My growth strategy for America is a three prong approach. They are not in tandem but they are being executed in parallel. First is to grow our team. We need to build a foothold in the US and I have a very aggressive hiring program, but hiring good people takes time. We need to build up our foot soldiers here in the US and by this we do not mean bringing Chinese citizens, but actual US citizens. For middle management, there are not enough Managers to bring from China for practical purposes, so we hire here in the US and Canada. Furthermore, we need to employ marketing service professionals here in the US with organic growth. We already have sectors building in Chicago, New York, and etc. Our second growth strategy is partnership. Partnering with local suppliers and service providers ensures that we have adequate capacity to serve clients and a stable supply of clients giving us business. There are many small IT firms in North America that often face bottleneck problems – Having a big project and not having enough qualified people to work on it or maintaining a large cadre of engineers and other personnel, but not enough projects to keep them busy all the time. Partnering with them create win-win solutions. Our third growth strategy is Merger and Acquisition. Our international M&A strategy has been largely successful. We focus on pre-and post-M&A integration.

JABS

Could you discuss your M&A strategy?

Fang

In any business, you know in Chinese we say that risks and opportunities are like a two-edge sword. If you don’t take any risks, you miss a lot of opportunities. So you are right about the M&A success rate, especially for Chinese companies to go aboard, the outbound investment (M&A) is more difficult because of cultural differences. Last weekend, I was at the HYSTA CEO summit, we had a lot of conversations about the M&A and using the Lenovo and other examples to see what we can learn. In the M&A space, the important thing to look initially is the strategic fit. You got to be very clear about what you get into or acquiring for from the strategic point-of-view and whether there is a strategic fit. And then from then on, to look at the Integration, early on before you are even sure that the deal is going to be successful. In other word, Integration cannot be the afterthought.

JABS

How well is your outsourcing model transferred to North America?

Fang

FANG: When you look at the Neusoft, we are very strong in our product engineering and product R&D. But that is mainly software. Software is our core technology and our competence. We built software for Mobile phones, smart printers, fax machines, YAMAHA pianos, GPRS, DVDs and digital TVs. That’s what I mean by product engineering and product R&D. In many cases, the new generation of products have a lot of software inside, and we are doing all of them. Over half of our overseas income came from that. So you look at the $182 million of our overseas income, actually 52 percent or more are embedded software product R&Ds. Close to $100 million each year. If you look at the product software that are not embedded, for example: like EMC, like Cisco, those product companies, we do product development for them too. It’ll add that another 10-15 percent of that (overseas income). That’s about 2/3 of our software income. Outsourcing software income is really related to product R&D and product engineering.

We are doing more than develop product features and each one is in a very different situation. Take Symantec for instance. We have about 300 people working for Symantec, but in this case, we do help desk, product support for their Japanese customers. This is a Symantec security product. The call will come from Japan into Dalian all in Japanese. The support staff, even though 95 percent of them are Chinese, they speak fluent Japanese and answer their calls for product support, for upgrade, for all of those things. In the Korean market, we have 50-some people in Shenyang, and they are doing telemarketing (they are Korean minorities). They do outbound telemarketing into South Korea selling insurance applications.

In North America, our approaches are very solid, step-by-step. We support Japan, Korea, and China. And then the company feels that English language may be one obstacle you have to overcome, but there are more important things like how do you manage your knowledge base, the cultural differences, the course and disciplines, and the calls. All of those are the same. Then you just add on. We have now added Cantonese, the Chinese support for many customers like V&Wear, Cisco. So, we stop to add those additional languages for voice-based support. But we do a little bit more than high-end. We cannot compete with local call center suppliers; they are booking hotels, tickets.

JABS

What is the advantage of being treated as a North American business?

Fang

The Symantec treats us as a North American business. V&Wear has treated us as a North America business. The contract is actually from their headquarters’ sub-contract or contracting us, not directly. When you come to contracting, sometimes they prefer to contract us, a North American company, because they want to deal with an American company, which we are. Some companies said “I don’t care; I’ve already in China for so many years”, like Cisco and Symantec.

JABS

How did your company develop innovative capabilities?

Fang

That goes back for several years now. It all started it at Northeastern University. We formed a digital imaging institute in cooperation with Northeastern University. The institutes are not big, but they are filled with individuals that have Master’s degrees or above. We leverage that to make our own very capable teams to work with the institute, and create solution for physicians. We send a few students to China and some to Universities in the US such as Stanford University. The institute has very qualified doctorate students on site to develop technologies.

Back then all CT Scanners had to be imported into China from overseas. In Northeastern, they have a very good technologies department, and in this way, we tore the CT Scanners apart, and with reverse engineering we were able to develop and build the fundamental knowledge and technologies and recreate them. As you can see, Northeastern is our origin of development, and we leverage a lot of the research and post-doc students to do R&D. In those days, we did very basic single slice CT’s, and hired more advanced specialists (senior engineers) from overseas to help out with them. We hired those experts to do in house R&D. Overtime we were able to add X-Rays, MRI, and Ultrasound to add a full line of products. Coming back to our origins as a software company, we developed our R&D capabilities that enabled us to offer very good software solutions. In the medical device market, for example, we build 3D reconstruction software and therapy planning system for kidney stones or open heart surgery. For mammography, we can take several slices and analyze all the main areas. We can actually simulate the treatment before doing the actually surgery. So combining hardware and software together contributes to the success, and now we have over 60 units of our CTs on US soil.

JABS

Can you talk about your partnership with Alpine and others?

Fang

We started by working with Alpine, a Japanese company, about 15 years ago, and have been working together ever since. We started building software for Alpine for the navigation systems, audio/video. They were our first customer, and we were actually first called NeuAlpine. Alpine is a very big name, global company that majored in OEM for automakers such Chrysler and Mercedes-Benz. We started by building a relationship and it has lasted till now. They are actually one of our stakeholders. And for example, we have many off-shore development centers. We have engineers working closely with Alpine working on only audio and video equipment specifically for that company. Alpine has become one of our significant stakeholders owning a large percentage of our shares, and partner through a financial agreement. Essentially, Neusoft owns the management and employees that are contracted to work under Alpine. This is similar to an outsourcing model. They send their product managers and use our product teams as their own.

We also have a joint venture with Phillips, which started around 2004-2005. We have teams performing R&D. Because we do a lot of co-development, some of our products are essentially the same as the ones offered by Phillips.

JABS

What recommendations do you have for Chinese firms going abroad?

Fang

My view is that first of all we need to understand that our origin/heritage is from China, recognize that it’s good to be on a journey, and recognize that people’s talent is very important. As we grow we need a lot of talent, management talent especially, with a lot of international experience, by that I mean not just western experience, but Western and Eastern experience. People who have very good working experience in the Western world, but who also know China. The latter part is very difficult. So we need to attract a lot of good people. As I said, the three prong strategy, if executed well, will help a firm to become a global company.

Acknowledgements

The authors gratefully acknowledge the assistance provided by Jason Gurtovoy who taped, recorded, and transcribed the interview with the help of Jia Feng.

Xiaohua Yang, Roger Chen, Stanley KwongBased at the University of San Francisco, School of Business and Professional Studies.