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Lenovo, the world's top PC maker, is increasingly turning its attention to other segments and moving up the value chain. Tomohiro Ohsumi / Bloomberg News
Lenovo, the world's top PC maker, is increasingly turning its attention to other segments and moving up the value chain. Tomohiro Ohsumi / Bloomberg News

Asian economies turn their attention to quality to boost growth

The information technology industry is central to strategies in Asian countries moving away from traditional agriculture or low-cost manufacturing into the services sector.

The information technology industry is central to strategies in Asian countries moving away from traditional agriculture or low-cost manufacturing into the services sector.

As ITEXPO kicks off in Las Vegas, many are rethinking their approach to business IT and attempting to recalibrate. This is particularly relevant in the regional giant China. These days the thinking in the world's second-largest economy is all about moving up the value chain, away from being a low-grade manufacturing centre to one where the world's IT firms come to outsource high-end component manufacture.

One company to put China on the map in terms of IT is Lenovo, probably China's best-known global brand and the world's number one PC maker ahead of competitors such as HP, Dell and Acer. In its latest quarterly figures, Lenovo showed, for the first time, it had sold more mobile devices than PCs.

Revenue from its Mobile Internet Digital Home segment grew 102 per cent from the same time last year, smartphone sales doubled and tablet sales tripled in the same period.

"While driving profitable growth in our core PC business, we are rapidly transforming our company into a PC Plus company," says Yang Yuanqing, Lenovo's chairman.

"The PC Plus market requires fast, efficient innovation as it moves quickly from premium products to mainstream ones and from mature market domination to emerging market hyper growth. This kind of market plays to Lenovo's proven strengths."

No longer happy with labour-intensive coding work, Chinese companies are bidding for core, sophisticated projects from multinational companies. The idea is this will help to transform China into a country that innovates and is a leader in high-value production.

There are 8,200 companies involved in the offshore IT outsourcing business, employing more than 1 million people in China. According to data from the ministry of industry and information technology, China's IT outsourcing sector grew by 40 per cent to reach US$60.1 billion in 2011, while the combined IT services and software sector, including the internal market, rose by 32.4 per cent to reach $292bn during the year, some 4.4 per cent faster than the industry's average annual growth rate during 2006 to 2010.

IT firms in China now receive 19.2 per cent of their business from manufacturing industry, 18.9 per cent from financial institutes, and 16.4 per cent from local governments.

As in many other manufacturing areas in China, costs are rising but this is an argument for switching from simple manufacturing to added value areas such as cloud computing. The China Daily newspaper gave an example in May Chi Yu, who is trying to upgrade the software industry in Jiangsu province by learning from Silicon Valley in California and aiming to lure senior technicians to join Chinese IT companies.

"We need high-level talent to work on these projects, but it is hard to find such talent in the domestic market. We plan to bring domestic software companies to Silicon Valley and set up offices there, so it is easier to recruit people without asking them to move to China," said Mr Chi, the head of Jiangsu's economic and information technology commission. Jiangsu is a classic example.

For years, IBM and Sony both outsourced low-level production there, mostly coding work, but now there are projects including call centres, IT solutions and information storage. Gao Songtao, the vice-president of the software and information service association, told the newspaper offshore outsourcing from multinational firms was growing by 50 per cent a year.

He Jifeng, from the Chinese Academy of Sciences, says Chinese companies should not try to compete with their western counterparts in the same areas. "We are not able to develop desktop and operating systems as well as the multinational companies, but we can tap other areas such as smartphone applications and smart home appliances."

"The automatic cleaning robot is a good example: it fits the needs of families and doesn't require cutting-edge technologies," Mr He says.

"Coding for marginal projects outsourced from multinational companies is very painstaking and has low margins. The right direction is to leave the office and cooperate with the manufacturing industry."

 

business@thenational.ae

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