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China Becomes Major Tech Player

Quality labor force, universities credited for boom

By Peggy Albright

Nobody questions that China is the center of the world when it comes to manufacturing. But in the last few decades, as it’s opened its economy and participated in global markets, China has also sought to become a center of high-tech innovation. It’s already proven itself a major tech player and formidable competitor. For those pursuing IT and software careers in the country, there’s a lot to be excited about.

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“China is emerging as a technology power, and what comes with that is opportunity. For us, it is like a once-in-a-lifetime opportunity to be a part of it,” said Hong-Jiang Zhang, managing director of Microsoft Advanced Technology Center, chief technology officer for Microsoft Asia-Pacific Research and Development Group, and one of 10 distinguished scientists at Microsoft.

Unmatched potential

A talent base that Zhang says is on par with the US and India is one reason for the excitement about China’s technology development. Each year, a quarter-million college students graduate in China with IT degrees. Furthermore, as domestic businesses grow and multinationals like Microsoft expand operations, Zhang said many Chinese professionals who pursued education and career opportunities elsewhere are returning to help “make a difference.

China’s broad market reach is an even bigger draw. The country has 800 million mobile subscribers and 298 million Internet users, more than any other country. And it’s working hard to develop its telecommunications infrastructure, partnering with foreign firms to help expand its telecommunications networks and as restructure its domestic telecommunications industry to consolidate its previous six operators into three: China Telecom, China Mobile and China Unicom.

The country is regionally diverse, and its provinces and cities have distinct personalities that influence migration patterns, transportation and communications infrastructure, and the types of businesses and industries they can support. The market diversity, broad reach, and scale create sizeable and varied IT, Web and mobile services opportunities.

Special economic zones

Despite liberalization, China is still a planned economy, a structure reflected in its technology industries and markets. The country likes to promote specific industries in individual regions to influence business and commerce.

One early example of this is the city of Shenzhen, identified as a “special economic zone” in the late 1970s and 80s see how free enterprise and investment would work in China. The strategy was also intended to turn Shenzhen into a national manufacturing hub. The SEC program introduced new policies for investing, gaining approvals, and labor regulations to promote business. Telecom equipment manufacturers Huawei and ZTE are both based there.

Another SEC, in the northeastern city of Tianjin, gained substantial business from Motorola, which invested in that city and employs many of its residents.

Separate from the SECs, China is also directing industry to particular regions within the country. The city of Dalian in northeastern China has been turned into a software development center, with plans for it to handle software outsourcing from Japan and Korea nearby, or from Australia, Europe, and North America. The state-owned Neusoft handles much of the outsourcing work.

“You might not see on Chinese documents that this is China’s software city, but it is clear the Chinese have pushed companies to Dalian” for software development, said Paul Taylor, a commercial officer for the Beijing-based US Department of Commerce International Trade Association.

Despite China’s desires to create a software development outsourcing industry, Taylor said its size and success is dwarfed by India’s, and by comparison, “almost doesn’t exist,” he said. The sense of unfulfilled potential creates a “lot of incentive for companies to do software development” in the country, he said.

Beijing: The heart of IT

The country’s capital city, Beijing, has become the country’s most vital software and IT center, its development supported by Beijing University and Qinghua University, two highly rated schools for science and engineering. Both are located in the Zhongguangcun area, considered the Silicon Valley of China.

Taylor characterizes the Zhongguangcun as “the soul of the IT market.” Microsoft’s $300 million research group is headquartered here for the same reason, supported by affiliated research facilities based in Shanghai and Shenzhen, as well as in Taipei, Tokyo, Seoul, Sidney, and Bangkok.

China’s universities play a substantial business development role and own many companies spun out of campus-originated work. Any individual or IT company wanting to come to China to develop business “needs to be aware of the universities and understand partnership opportunities with these schools,” Taylor advised.

Faculty members have close ties with the companies spun out of these schools, so establishing relationships with them is essential. University professors also help students find jobs and companies find employees, Taylor said.

Manufacturing regions

The other areas in China that are important for IT are manufacturing centers. One of these is the Pearl River Delta, a region home to Shenzhen and Guangdon Province, which includes the capital city of Guangzhou and Zhuhai, near Hong Kong and Macau. Many businesses from Hong Kong have established their factories in Zhuhai to take advantage of its labor force. Most of the investment in Pearl River Delta business comes from Hong Kong. The Yangtze River Delta, where Shanghai is located, includes the provinces of Jiangsu and Zhejiang. Much of the business investment comes from nearby Taiwan.

Hangzhou: Self-made tech city

Hangzhou has evolved independently of government initiatives. The tourist city near Shanghai has evolved into an IT destination and Web development hub under the leadership of Jack Ma, a Chinese Internet pioneer and lead founder, chairman, and CEO of Alibaba Group, a global business-to-business, online retail, e-payment platform, social network, and cloud computing service business.

Alibaba’s services have helped local producers in China find overseas buyers for products and in Hangzhou itself, the success of Alibaba’s Internet businesses and its efforts to incubate talent have helped turn Hangzhou into a hub of new entrepreneurial companies formed by former Alibaba employees who are spinning their own software businesses out of the company.

“All of this has come up from the ground rather than the top down. It bubbled up because Jack Ma
grew up in Hangzhou and set up a company there,” Taylor explained.

“It is a progression,” he said. “It is a natural way for a city to become an IT destination.”

Investment in other regions

In the last decade or so China has also invested in second-tier cities and cities in the western provinces in order to bring its businesses closer to its workforce and to develop products near their markets to facilitate distribution.

One important regional city is Xi’an, a high-tech industrial zone attracting foreign investment. Xi’an ranks third after Beijing and Shanghai in terms of scientific and technological strength in China, and first among medium and large cities in terms of the density of technicians. Its key industries include electronic information, optic-mechanic-electric integration, biomedicine, new energy, and new materials.

Dalian is another second-tier city benefiting from new investments. While the government initially pursued that city as a software hub, this city is becoming a manufacturing center, thanks to Intel. The semiconductor manufacturer has committed $2.5 billion to the project--the largest single investment ever made in China by a foreign firm—to build a silicon chip manufacturing plant there.

IT challenges for computer professionals

For all the opportunity in China, there are still challenges for those who want to pursue IT opportunities. Understanding local markets is an ongoing challenge and determining the wants and needs of the sophisticated consumer base is more difficult than in mainstream markets. The cutting-edge market, combined with the pace of innovation and market growth, mean that succeeding in the Chinese market will put even the best of companies to the test, Zhang said.

Protecting one’s intellectual property is another well-known issue. The country has made some improvements in its patent laws to address this and, because it became fifth-ranked internationally in the number of patents filed in 2009, it has more reason now to respect IP. But the circumstances are still risky.

Taylor advises anyone doing business in China to make sure they’ve protected their trade secrets, marks, and brands. His recommendations: Work with partners you know and trust. If you don’t have a partner in the country, partner with a Taiwanese company that has relationships in China and understands the market to help protect your IP. Make sure your partner’s interests are aligned with yours and set up a joint venture so that your partner has as much reason to protect your ideas as you do. CW (28 June, 2010)

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