Expansion into China is nothing new for European multinational corporations. And despite the most serious economic downturn in nearly a century, companies continue to look to the world’s most popular country to grow their businesses.

According to greenfield investment monitor fDi Markets, China was the top destination country in 2008 for global investment projects, registering 1483 compared with India’s 958, the world’s second most popular FDI destination.

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In a more risk-averse global business market, which has seen many companies put expansions on hold, US-headquartered IT services firm Exigen Services has gone countercyclical by expanding into the Chinese market with the creation of Exigen Services China in April. The company decided that acquisition was the best route into the market and acquired Suzhou-based software outsourcing services provider Taihoo Technologies. The company anticipates it will expand its client base throughout China, providing local support for Western companies in Asia as well as increasing its geographical diversity – the company already has an extensive network spread across eastern Europe, Russia and the US.

 

High-tech base

But it was no easy journey and chief executive Alec Miloslavsky had been looking for a suitable proposition in China for a year and a half before he met Qili Zhang, CEO and founder of Taihoo Technologies. Mr Miloslavsky started his search for a location in Guangzhou province but soon shifted his focus to Suzhou Industrial Park (SIP) – an hour from Shanghai and a much more developed location. The industrial park is a joint venture between the Chinese and Singapore governments and houses about 14,000 high-tech companies. SIP was considered the right choice compared with the expensive Shanghai and Beijing technology parks, which would bring too much competition for talent, and compared with locations in Guangzhou province, which were not mature enough.

SIP has had a lot of experience in dealing with technology companies, ranging from fairly mundane matters such as providing high-speed internet to the most advanced of law and intellectual property (IP) protections. The technology park has its own court set up for IP protection cases, the first of its kind, which is being used by the Chinese government to improve the overall situation of IP in the country. The available labour pool, which will allow the company to expand, was also a draw to the area, which has a large number of small and medium-sized companies. “The location is also close to a number of universities – it is no accident that the park is located there,” says Mr Miloslavsky.

 

Ideal partnership

More important than selecting the right location was finding the right local partner. Mr Zhang’s key staff have been with him throughout several entrepreneurial ventures, the most recent of which was a product sold to Oracle. Among the present team of 100 staff, more than half have very good English skills and have taken part in large-scale international projects. That kind of experience is not easy to find in China, according to Mr Miloslavsky. The staff have already been part of a development team that had corresponding teams in the US, Germany and India and had experience of working with other global development centres. “I knew that would be the key because they would be able to work and integrate with my development teams in eastern Europe,” says Mr Miloslavsky.

Mr Zhang founded Taihoo Technology in August 2007, after selling the successful IT outsourcing services business he had built, he will still be very much involved in the new incarnation of the company and will become general manager of Exigen Services China. Mr Zhang is a well-regarded high-tech entrepreneur in Suzhou and had co-founded several companies before Taihoo Technology, including Prisma Software, Starfics Software, Jiexun Technology and Suzsoft International.

The importance of finding the right partner was a mutual concern. Just as Mr Miloslavsky looked long and hard for the right match, Mr Zhang recognised the same affinity that his business partner felt for him. “I have a lot in common with Alec: we’re about the same age, both entrepreneurial and we’re both workaholics,” says Mr Zhang, who reiterates that the most important thing for him was to find the right profile of buyer.

One of the main drivers for Mr Zhang’s enthusiasm for an acquisition was that the company’s growth would have been slower without it. The acquisition has given the business a bigger platform for Mr Zhang and his employees to operate within. “Most of my key employees are friends and have been working for me for the past six or seven years and I would like to give them the opportunity to grow in their careers,” he says.

 

Positive feeling

Integration with the rest of Exigen Services worldwide is not a big deal as far as Mr Zhang is concerned. Most of the firm’s key employees have been involved in Mr Zhang’s previous business ventures and therefore have experience of being acquired by other companies and of working with partners in Europe. The general attitude among the company’s 120 employees towards the acquisition is particularly positive, says Mr Zhang. “The employees are very excited, particularly because this isn’t a very good time financially and in China people like the security of working for bigger companies,” he says.

The new and improved company will focus on expanding its customer base across China, developing a local customer base alongside serving Western multinationals. The firm’s current customer list includes companies including Logica, GE Healthcare and Sony. “US customers like having a US company to deal with so there will be a benefit from the customers’ point of view in this acquisition too,” says Mr Zhang.

 

 

COMPANY PROFILE

EXIGEN SERVICES

 

Headquarters

San Francisco, USLaunched

2000Employees worldwide

1900Compound annual growth rate since 2004

35%Revenue

$90m (2008)Business activity

Application development outsourcing in financial services, telecommunications, healthcare, public sector, technology and media industries