The Status and Conditions for Success of Offshore Software Development in China by Japanese Enterprises

No.233
July 2005
Senior Research Fellow Jianmin Jin

1. Beginning in the late 1980s, the Japanese software industry engaged in various forms of international expansion, including offshore development and utilizing locally based installations, primarily for four reasons: 1)pressure to reduce costs, 2)technological advancement and structural changes in software content,3) client companies' global expansion, 4)overseas market expansion and cultivation. Recently, Japanese companies are directing the majority of their subcontracting toward China. However, the scale of individual offshore projects in China by the Japanese software industry has remained small, and the rate of operation of locally based installations is still low. There are even some companies reporting losses through their offshore activities.
2. Case studies of a total of five companies were carried out, including four Japanese companies (two first-tier large companies, one second-tier systems engineering (SE) company, one third-tier software house) and one ethnic Chinese company. The investigation revealed the following characteristics of Japanese offshore business:
   
   1. A tendency for companies to own their own installations with capital ties,
   2. An inclination to employ recent graduates rather than skilled labor,
   3. The structure of contracts includes pre-fixed unit prices in partial contracting,
   4. Systems, standards, and manuals related to offshore business in the head offices are ill-equipped,
   5. Offshore ordering is decided by the desires of field system engineers rather than corporate staff,
   6. Administration of offshore development is conducted under the "Bridge SE Model".
   
   
3. The results of the case studies allow us to make the following suggestions:
   
   1. Gradual business development away from onsite dispatch and toward Turnkey commission and ODC (Overseas Development Centers) for subsidiary companies,
   2. Development of relationships with independent local subsidiaries that, while not including capital ties, nonetheless encourage stable, long term ODC structures,
   3. Innovations in the management of QCD (quality, cost, and delivery), including the standardization of guidelines for kaizen (Japanese-style improvement),
   4. Clarification and restrictions of standards for the definition and measurement of checkpoints, dates of delivery, and quality, as well as the introduction of plus/minus incentives for deviation from these standards,
   5. Establishment of systems and standards for offshore operations,
   6. Linkage of profits from offshore activities with the creation of new businesses.
   
   
   

More Informations

• Japanese
• Full text is not available in English for this report.
  The original Japanese full text is PDF here [1.67 MB].
  Please let us know the serial number of this report (233) to submit a request for translation.