A leading information-technology outsourcing company in China, HiSoft Technology International Ltd (HiSoft) serves its clients through offices in China, Japan and the United States. Li Jinsong, vice-president and head of the company's Japan Business Group, talked to InnovAsia analyst Tina Wu about how HiSoft chose to first enter Japan via a joint venture, and then established a wholly owned subsidiary four years later.

When HiSoft was founded in the Chinese city of Dalian in 1996, the company did not consider setting up a full-time foreign presence. At that time, it was far more common for a foreign company to expand into China than for a Chinese company to go overseas. Rapid business growth and the strong potential of the Japanese market, however, inspired HiSoft's core management team to consider setting up operations in Japan.

Once HiSoft made the decision in late 1997, the first question it had to settle was whether to go by itself or through a joint venture.

Li: Local experties needed to open doors

According to Li, though HiSoft was already profitable, the company was still small and lacked capital. More important, it would need a local partner's sales expertise to help open doors to major clients in Japan. Japan's IT market at the time was still fairly closed and dominated by a few giant players. Hence HiSoft began looking for partners despite its unease over the prospect of potentially losing control over the subsidiary.

After over a year of negotiations with several systems-integration companies, HiSoft selected JBCC Co Ltd as its joint-venture partner. JBCC is one of IBM's biggest partners in Japan, employing more than 1,600 people in Tokyo and Osaka. Its scale of business and relationship with IBM guaranteed HiSoft's initial survival in Japan. HiSoft entered into a 40-60 joint venture with JBCC in 1998, and the new company, JBDK Co Ltd, mainly handled projects brought in by JBCC.

Adopting JBCC's management model where appropriate, HiSoft experienced little difficulty during the transitioning period, with annual growth rates of more than 100 %. It soon realised the limitation of the joint-venture model. In 2002, HiSoft established Haihui Sci-Tech Japan Co Ltd, a wholly owned subsidiary. It now serves a broader range of customers.