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Digital Investor's news roll & commentary

Australian companies group at ATRE 2006 Beijing

ATRE 2006 starts today in Beijing, and Digital Investor and Business Strategies International (BSI), working together, who are committed to helping Australian early-stage technology companies grow and succeed internationally, brought a first-ever "Australian Team".

We are proud to be working with the following clients to enable and assist in their participation in ATRE 2006:

AURA is Australia's leading mobile technology service provider specialising in interactive wireless marketing, mobile ticketing and m-commerce. AURA has a team of industry experts who are globally recognised as some of the pioneers of mobile barcode solutions used for ticketing and coupons.

Contact: Adam Dunne, adam@aura.net.au www.aura.net.au

InterAcct Solutions are the global leader in the provisioning and delivery of USSD solutions to mobile network operators. Our Ezy-Info product suite allows operators to deploy extremely quick direct dial interactive data services to all their customers today via their existing handsets.

Contact: Chris Eyles, chris.eyles@interacctsolutions.com www.interacctsolutions.com

Webit Technologies has created some of the world’s first online registration systems for Fortune 1000 companies. Most recently Webit received a 24th ranking in the Australian Business Review Weekly, 2006 BRW Upstarts Awards.

Contact: Felix La Spina, Felix.LaSpina@webitgroup.net www.webitgroup.net

Digital Futures China is a China-based company which holds exclusive territory rights for the Australian pxidigital digital print and digital media distribution kiosk, in association with leading technology, financing, and franchising partners.

Contact: Leigh Baker Leigh.Baker@digitalfutureschina.com www.digitalfutureschina.com

Digital Investor works with its early-stage clients in IT, telco and mobile content to achieve and sustain profitable growth. BSI, using its Investor Forums and unique network of 300+ high net worth individual investors, accelerates capital acquisition and business expansion.

We wish to thank Red Herring/DASAR for their enthusiastic support for our mission to bring the first Australian group of companies to ATRE.

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What's your view of Asia's potential dominance in mobile and software development?  Post your Comments.  How can I help? Email me; Call (Australia) +61 403 345 632 (direct); +1(817) 382-4453 (SkypeIn USA); +852-8199-0189 (SkypeIn HK);

"We hired Walter to complete a technology audit, but he gave us much more -- he has the ability to identify business opportunities that benefit all sides, creating networks of customers, suppliers, investors and intermediaries. His breadth of knowledge and willingness to push himself beyond the brief are tremendously valuable." Zenon Pasieczny, Director, Saphet Capital Management

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Telcos shift risks to shareholders in grab for outsourcing contracts

Here's an interesting article quoting Mike Ettling, CEO of Unisys Australia and NZ, where he says telcos are taking on financial risks that are unusual to the IT industry as they try to muscle in on the outsourcing market.

Mr Ettling says the Australasian telcos have strong balance sheets compared to their northern hemisphere peers - thanks to the lower prices they paid for 3G spectrum licences in government auctions.

They have been using their cash-rich position "to accept risks in the outsourcing market which the industry as a whole would not accept", he says. The types of risks they are taking on include accepting liability for "knock-on" damages if their customers' businesses are disrupted because of failure to perform.

Unisys has been in the outsourcing business for a long time, like the other major IT players, and Ettling's comments are worth noting by telco shareholders as they pick up risks that the IT industry as a whole believes are unacceptable.  Time usually shows the newcomers to have been foolhardy in their outlook, and poor in risk management.

- read the article in STUFF NZ.

The answer to Koch's pickle - new generation zero-pain enterprise software upgrades

When Christopher Koch, CIO's Executive Editor - Investigations, wrote about the The Erp Pickle (DEC 20, 2004) he hit a nerve with me, and caused a tingle of excitement.

QUOTE: "CIOs were forced to tinker with the innards of these packages to avoid losing valuable chunks of business processes and it made their lives hell... When a new version of the highly integrated suite arrived with cool new features, customers literally could not afford to install them...

Gradually, enterprise software vendors came to realize that to serve customers better, they needed to break up their suites into application components and create complex ways to link to them over the Internet so that customers would not have to rewrite connections to pieces of the suite like financials, which didn't change much.

But when they broke up the suites, they broke up the value proposition that had been so enticing in the first place - "free" upgrades.

Freed of the suite model, enterprise software vendors started charging fresh license fees for the new components they developed. And CIOs stuck with the suite began wondering where all their maintenance fees had gone.

They couldn't afford to upgrade to the newer, componentized version of the vendors' software models and if they could, they'd pay a new license fee for their trouble."

- for more from Koch see CIO's Koch's IT Strategy

The tingle of excitement was caused by the reinforcement Koch's "pickle" gave to my recognition of the value of the enterprise software of one of my clients.

MidComp International set out 5 years ago to solve this, and other, "ERP problems".  In fact as technologists with an already successful international software business their mission was to develop and implement sound technology solutions based on a strategy to reduce costs and increase customer value for clients of enterprise software.

The result, after developing the platform for 3 years without writing a line of user application code, is a Distribution System called Odyssey.

All user business process modifications remain intact and without change, and the upgrade proceeds transparently while at the same time retaining high availability and systems backup. —Odyssey CEO Steve Bridges.

Odyssey has intentionally addressed the nightmare of both user modifications and upgrading to provide a point of difference.

This is achieved by using user-selectable 'plug-in' business processes (objects which they call Policies). And the base software engine can be upgraded whilst retaining what might be considered custom processing logic.

Odyssey's embedded Total-Availability (TA) solution has the capability to upgrade the entity model and processing logic on a Disaster Recovery fail-safe machine whilst in Production Mode on the other.

Total Availability, with careful planning, is used to eliminate downtime during updates of programs and data entities.

The update of programs and data entities is performed on the fail-safe machine and once the entity model and program upgrade is complete, the two machines can then be seamlessly and transparently synchronized. All production changes are applied to the new system and data entities during this synchronization .

All user business process modifications remain intact and without change, and the upgrade proceeds transparently while at the same time retaining high availability and systems backup.

This gets users out of the pickle, provides cost-effective upgrades at the user's convenience, allows tailoring to business processes without lock-in, and forms a sound architectural platform with which to link to other enterprise systems.  (Remember Odyssey is a Distribution System, not an ERP system - other systems are necessary.)

More details: Odyssey Enterprise Edition ships with a fully integrated Total Availability and Data Replication (Data Storm) option.

Total Availability (TA) is the concept of having two systems remain perpetually in synchronization. Odyssey supports this concept through the Cyclone Engine, which maintains the transaction integrity. At any time the connection between the source and target be lost, without disruption to any of the systems. Upon successful reestablishment of the connection, the two systems will automatically synchronize.

Both systems are not required to be the same hardware and/or software.

Data Storm is the Odyssey term for replicating one instance of the Odyssey Application to another.

There are two purposes for this functionality:

1. Initiating a cross-platform Total Availability system.
2. Upgrading from one technology platform to another where direct data restore is unavailable.

Essentially a Data Storm allows all data from one instance of Odyssey to replicate itself into another database, regardless of platform.

The replication process takes place over TCP/IP and does not require the source system to be stopped whilst the replication takes place.The replication can be performed independent of the type of Relational Data Base (RDB) used in the source and target system, and indeed the two RDBs can be from completely different vendors on completely different platforms.

An Odyssey Enterprise Edition target system can switch seamlessly from being Data Stormed to acting as a Total Availability system.

Sure, successful enterprise systems implementation is "not about the technology!"

But the technology, and technologists, can offer new solutions to reduce costs and increase customer value.

Those with memories dating back to the SAP R3 revolution in manufacturing know well enough that all ERP systems have their roots in a basic methodology directed exclusively at the needs of a highly integrated manufacturing-driven company.

Odyssey has intentionally recognised the problems arising from this heritage and intentionally presented new more-effective user solutions and also intentionally distinguished itself from "ERP" by noting its focus as a Distribution and Accounting business system build for distribution enterprises.

For distribution-focused enterprises Odyssey provides a path towards freedom from Koch's tyranny of ERP.

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What do you think is the highest-priority issue for mid-sized businesses contemplating upgrading their enterprise systems in 2005? Post your Comments.How can I help? Email me; Call (Australia) +61 403 345 632.

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The Coming China Private Equity Bubble

Venture capital conferences in the U.S. or Europe over the past year have all buzzed about China. Investment in China comes with risks, and while some firms are comfortable that they can handle the risk the fact that many will not invest under the current conditions succinctly illustrates the challenge.

Even though the investment regime has been liberalised many experienced Asian VCs like George Hara of Defta Partners believe that China remains an insider's game and the name of the game is unfair competition against the foreign venture investors.

And almost all others would agree that if not all than at least a large percentage of the opportunities are only manageable by insiders.

At the same time the "fear and greed" syndrome about China haunts VCs. They fear missing out and being beaten by their competitors, and their greed drives them to want to get in early to get the highest multiples.

China is attractive from a venture capital perspective because it is the number one market for cell phone handsets, the number one market for fixed line subscribers, the number two market for cable subscribers, the number two market for PC ownership and the number one growth market for DSL. Another important factor is China’s deep talent pool, a key condition for venture capital. China is second only to the US in terms of number of PhDs produced annually.

Thus China is an irresistible magnet for the money becoming more freely available again for investment in early-stage companies. This means that there is inevitably going to be a strong flow of funds into China chasing deals.

Bear in mind that China is already a bigger venture capital investment market than every other market in the world except California, Massachusetts and the UK. Zero2IPO tracks incoming VC investment – which is expected to be about $2.5b this year.

But local companies with high quality management and teams already have access to knowledgeable Chinese investors. These are Taiwanese and Hong Kongese and overseas mainland Chinese who know their way around the provinces, the officials and the dealmakers within China.

This means that the truly foreign money will have to chase the best local deals, not the other way around.

In this competition history has shown that proper process is often the victim - and that the results are inevitable. A fair proportion of foreign VC investment will go into higher priced deals that are put together without proper process and diligence, and into lower priced deals that are second-rate opportunities from the start.

Of course the major global funds such as 3i, the Carlyle Group and Intel, plus the regional specialists such as Walden International and WI Harper, know what they are doing. But this leaves a huge bandwagon of followers and increases the fear of missing out among those followers.

At the ETRE conference in Cannes in October China again loomed large, not the least because the next Asian cousin of ETRE – ATRE – will be held in Beijing next year. What emerged at ETRE is that Chinese companies are developing, perhaps faster than expected, with global potential and these are the magnets for VCs.

However there is another "fear" that haunts VCs, aside from the fear of missing out. That is the fear of an economic downturn in China and the effect on the technology sector.

In April this year at ATRE in Shanghai those knowledgeable about such matters were confident that the Chinese government was very adroitly managing a soft landing. It was doing this by slowing consumer spending, and putting the brakes on major construction and infrastructure projects across key provinces.

At ETRE this topic was not on the agenda but in private conversations it seems that the outlook for a controlled slowdown is not so certain. Major strains are expected in the economy over the next 18 months including from water shortages, power shortages and labour problems.

In this case, with regard to attending to and further regulating private equity the government is a long way from focusing on this issue and less likely to attend to it in the near to medium term.

Therefore "fear and greed" syndrome of VCs will almost certainly lead to a PE bubble, and its subsequent bust, in an environment where the insiders game protects only those who know how to arrange their risk through insiders' connections.

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For specific business commentary on telecoms see:

i-mode Business Strategy at www.imodestrategy.com
Australia's 3G Party and Why Hutchison 3 is Attractive to Telstra's i-mode Strategy
Ca va? DoCoMo's i-Mode Clone Grows Quietly in France
Telstra's 3G Decision - Where the Analysts Missed the i-mode Play
Redesigning the i-mode Sales Process for Success - Part 3 Creating Excitement
As It Happened - i-mode History - Exploding the myths of a well-planned birth

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Complete and Free Articles on Broadband and Asia at www.digitalinvestor.com.au

Asian Broadband Cooperation Leads Standards-setting
Presentation to the Australian Telecommunications and Network Applications Conference 2003

What do you think about the potential of a PE bust in China for a large number of foreign VCs? Post your Comments.

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How can I help? Email me; Call (Australia) +61 403 345 632.

Open minds, management authenticity and self-awareness lead Siebel's strategy into hosted CRM

When James Harkin rose to speak at Paul Budde's Roundtable* I was expecting a CRM sales and marketing overview for the telecoms industry. What I heard was far more impressive, as it touched on one of my perpetual hot topics for IT company executives.

James explained how Siebel, as successful as it was in the enterprise space, came to grips with what it was not when it decided to enter the "software as a service" market.

All too often I've seen IT company executives blithely decide to enter a different segment of the industry, with different dynamics and requiring different competencies, and different sales channels and cultures, and even different R&D budgets and focus, just because it appears to be part of the "IT business". This is all the more a problem when a company has been successful in its chosen segment.

In many cases it is not even a case of informed misjudgement, but one of ignorance of the industry dynamics outside of their segment, and inflated egos.

Siebel clearly recognised that they were a software products company - and obviously that self awareness included a deep understanding of what it means to be a software products company.

Therefore, to enter the hosted services market they needed to do something for which they had no experience and for which they were not suited. They then set about to construct a business ecosystem that would allow them to enter the managed services business. This in effect would be an extended corporation, almost a virtual networked corporation in the sense of Cisco's John Chambers.

This may seem obvious, but in practice such clarity and openness of thinking is rarely achieved. This is also especially impressive in Siebel because it emanated a reputation as a "we can do it all" corporation.

Siebel's strategy was a high dollar strategy, meaning it took a lot of money to support it. By building a strong vertical CRM applications set, it attacked a substantial number of markets in which it wanted to be the only player, reinforcing the "we can do it all".

To the great credit of its leaders it was able to recognise its "as is" strengths and weaknesses, and was able to dispel the "we can do it all" reputation, and come to grips with a new business model in which it was to rely totally on partners for joint success.

The partner it chose was IBM, with the strategy dubbed "CRM for everyone".

IBM has overwhelming credibility as a hosted service provider, and as a "on demand" utility services providers, and as a trusted name as a guardian of the hosted CRM customer data. These attributes were lacking in Siebel, particularly the lack of expertise and competence in running hosted services.

The Siebel-IBM OnDemand CRM service is a strategy to provide cheap customer relationship management software to users who are unable to implement the more expensive and complex enterprise version. This is also a large shift in the previous strategy and a large addition of new competencies is required - a substantial part of which is supplied by IBM's salesforce.

Seems simple to be so self-aware and to make such a clear decision?

Not really - in fact in my experience it is uncommon.

Take for example in the Australian market in the 1990's when BHP Information Technology a 2000 person services company tried many times to convince Mincom a software products company to come to a joint arrangement to promote our combined solution. Mincom, being a typical smaller and successful business, told me that "a dollar was a dollar" and they would chase every service dollar they could get. This led to them eventually thinking that they had a good professional services business, but ultimately they stumbled through lack of focus on their core product. After a string of reorganisations, new CEOs, and failed capital raisings, they are hopefully going to do well. I believe that their lack of ability to understand their core was a significant contributor to them failing to reach their full potential in the 90s. Mincom's sales have now regained about the same level as in 1998.

Take for example the Kaz Group, recently acquired by Telstra, who purchased Aspect Computing - a really excellent software development company. Kaz was an outsourcing and managed services company. I could never conceive of how they could combine the two businesses successfully. Even if they overcame all the cultural hurdles and different business dynamics for each, they would always face an insurmountable hurdle in the management attitude towards and necessity to fund R&D for two totally different business profiles. And in any case they could not afford to fund real R&D in both sectors - it was not sustainable even if they had convinced themselves that it was feasible.

Kaz's share price declined by 80% over the period from that purchase, reaching a low of 10% of their previous highest value in the year before the Aspect acquisition. Kaz was snapped up by Telstra in April 2004, for AU$333m at $0.40/share, giving the founders a 100%+ profit but returning a loss for the shareholders who came in on the prospects of the Aspect acquisition - see my blogs Telstra's Queer Eye for a Kaz Guy and Tactical Success batters against Strategic Intent as Telco buys IT Services Group.

In the case of Kaz's share price we could charitably say that the market was efficient, but I doubt that this 'efficiency' was anything to do with an understanding of the basic flaw of the merger.

That is why the Siebel story to me was very impressive. It lifted my respect for the company because to be realistic about your successful business is and what it is not requires open minds, breadth of view, clarity of insight, and extreme authenticity in the sense of GE's Jack Welsh. That's something to respect!.

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*At Roundtable with Paul Budde and Industry Experts: Expanding through a virtual company. Sydney, June 24, 2004.

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How can I help? Email me; Call (Australia) +61 403 345 632.

How and Why India's and China's World Class Outsourcing will Continue to Grow

I was talking with a colleague recently about offshore outsourcing and he said with a solid conviction about India "Forget all that CMM stuff, we have just been through a major project and what you get is cheap average quality software".

And a CIO recently told me how he now regretted outsourcing to an Indian company. He said that although the project was delivered on time change requests take months and are jeopardizing the total acceptance and benefits from the system.

On the other hand, NASSCOM, the chamber of commerce of the Indian IT software and services industry, recently announced their review of the past year and their forecast for the coming years for software exports. Jerry Rao, the Chairman, said that India was "riding on the crest of a wave" caused by the squeeze on IT budgets in the west over the last couple of years.

Indian IT-related exports are predicted to rise +32% for the current year to March 31, 2005, and that on top of a 31% rise for the 2003/4 year. The predicted export value is US$16.3b, and by March 08 is predicted to reach $50b. The US remains the largest buyer, representing 70% of Indian exports, and the UK 15%.

To me, it doesn't make sense that a $50b export industry can be built on cheap and average quality software alone. Perhaps the bulk can be built on "average and cheap", but there must be a core of top quality world-class software practices underlying such growth. Even if this top quality work is only 10% of the total that will still represent a $5b industry by 2008.

So what's the missing ingredient leading to the comments quoted in the opening?

Probably faults on the buyers' side – the main one being inadequate due diligence and the second poor management and the third mis-aligned objectives and expectations.

This means that where due diligence is done properly, and where world-class software is required, then Indian for certain can produce it, now and into the future.

How about China and how does it compare to India?

In simple terms China is a viable option now, but with a different risk profile.

The facts speak for themselves to China's role in becoming a major software and IT exporter. For example, IT-related activities account for 6% of GDP, and the GDP is growing at around 9%, leading to massive compounding of IT activities. IT export related activity grew 31% lat year, and in fact Chen Kai CEO of Comlent Holdings believes that China will be the world's #2 IT exporter by 2008, as well as being the #1 semiconductor producer and exporter.

The number of college graduates will exceed 2.8 million in 2004, passing India’s 2.4m and 1.2m from the US. While in India the market is "hot", as acknowledged by NASSCOM’s characterization of "riding the crest of a wave", in China there is still underemployment of graduates in IT. Thus while India is approaching saturation of recruiting opportunities, and suffering from wage escalation and difficulties in retaining stable teams, China will be immune from these problems for a considerable time ahead.

India has the obvious advantage of English, and of course this is so obvious that the Chinese are addressing this need by insisting on English skills in their recruits, and sometimes enforcing an all-English policy at work.

There is no doubt that Indian has the benefits of experience in producing world-class software, and a long history of good training, both of which are lacking in China. On the other hand China offers raw engineering talent and huge pools of it.

In terms of sheer cost-competitiveness I don't know how to compare the two countries, but for China most commentators see raw ratios of about 1 to 8 in favor of China versus the US (Silicon Valley costs) for programming costs. But of course this is not comparing "apples with apples" since the US programmers have actually developed world-class software and the comparable Chinese employees have not.

According to Frank Yu from Augmentum the real ratio of all-up fully absorbed costs to the company is 1 to 5 in favor of China, bearing in mind escalating costs in the major Chinese cities like Shanghai where development is centred.

Silicon Valley VCs are all too aware of these cost ratios. The first outsourcing company to produce a solid track record in delivering world-class software from China will be in huge demand to reduce burn rates and to allow investment dollars to be directed towards marketing and sales.

The key for outsourcing to China is to select the right local partner, by doing a full and extensive due diligence and ensuring objectives and expectations are aligned.

Don't make any assumptions about experience since the experience is not in delivering world-class software (this is India's advantage not China's).

Make sure that you have your right management team in place but do not impose your foreign "world-class software team" structures and processes on the local team. Choose a partner that understands how to build a Chinese world-class software team being cognizant of the local work ethic and culture. Putting this another way, China can produce world-class software but not by imposing a "US world-class software team" on the local culture.

And finally, put in place a proper risk management process and apply it diligently in order to offset the different risks in China from India, and involve the local partner deeply in this process.

The truth is that successful outsourcing requires a lot of effort and planning, and in China training, and the best return will be derived over the medium term of say 3 years, not on a single short-term transaction.

In the case of both India and China they will continue to grow and succeed, and in China's case begin, in producing world-class software and be attractive to global partners. The industry and country and demographic forces are unstoppable as enablers for this outcome.

The challenge for the established countries like the US and Australia and the UK is how to most effectively enhance their productivity through engagement with Chinese and Indian IT service providers.

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More on Industry Strategy and IT/Telco Services at www.digitalinvestor.com.au

Related Free White Papers at Digital Investor:
Why Telcos Should be Intelligent Outsourcees, not Outsourcers
Asian Broadband Cooperation to Lead Standard-Setting
Outsourcing Publications Sourcing Strategies at Digital Investor
Related Blogs: (see Categories, top left)
Sourcing Strategies for Telco IP Core Network
Can you trust China with your Software IP?
China's Own 'Goldman Sachs' - Not Just a Nation of Cooks and Engineers
Venturing into China in IT Investments

What's your take on the quality and future of Indian and Chinese outsourcing, do you agree that it will continue to grow and produce world-class software? Post your Comments.

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How can I help? Email me; Call (Australia) +61 403 345 632.

Can you trust China with your Software IP?

The current street price of MS Office in China is 50 Yuan, about 73cents, and that doesn't please Frank Huang, General Manager Microsoft China, who has invested in a large R&D center and global support group in China (which represents just 1% of Microsoft's global revenue).

However this type of rampant software piracy often clouds the picture when considering the general question of software IP protection in China.

As Frank Yu, COO and President of Augmentum pointed out at ATRE2004 in Shanghai, the MS Office piracy is more straight property theft than theft of intellectual property. Noone buying the 50 Yuan copy of Office is set on reverse engineering or re-creating a competitive product.

Yu says that protecting enterprise-class software is a whole different matter, and one that is complicated but solvable in China. And in fact George Hara, a former Chairman of Borland, says laughingly that they used to let people copy their software in China because to use it stimulated the sale of professional services. So one key in thinking about this issue is to differentiate between the street vision of copyright theft and the development and protection of enterprise-class software.

Another key, according to Yu, is to differentiate between prevention and enforcement.

As in most fields, the key is prevention. Augmentum pays intense attention to putting in place best practice in prevention measures, which are not dramatically different to elsewhere in the world, and include employee contractual restrictions and obligations.

The perception that enforcement is difficult in some ways arises because of inadequate prevention measures that have previously been accepted in China. Whereas although India has a 10-year start in establishing a reputation that enforcement is not an issue, in practice the enforcement is equally uncertain due to parochial influences. In China, attention to prevention and an avoidance of enforcement debacles will lead to it having the same reputation as India.

China cannot build a 10-year reputation overnight. But proof of the pudding in the quality of prevention measures lies in Augmentum's blue-chip base of clients, which include 20 leading global software companies. In many cases Augmentum is producing software central to the core of these client's IP, not at the fringe.

The lesson to be taken from Augmentum is that by having the right relationships, and the right commercial and legal approach to prevention, China is a place where your software IP can be protected.

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More on Industry Strategy and IT/Telco Services at www.digitalinvestor.com.au

Related Free White Papers at Digital Investor:
Why Telcos Should be Intelligent Outsourcees, not Outsourcers
Asian Broadband Cooperation to Lead Standard-Setting
Outsourcing Publications Sourcing Strategies at Digital Investor
Related Blogs: (see Categories, top left)
Sourcing Strategies for Telco IP Core Network
How and Why India's and China's World Class Outsourcing will Continue to Grow
China's Own 'Goldman Sachs' - Not Just a Nation of Cooks and Engineers
Venturing into China in IT Investments

What's your take on the protection of IP in China, do you have direct experience of what works and what to avoid? Post your Comments.

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How can I help? Email me; Call (Australia) +61 403 345 632.

China's Own 'Goldman Sachs' - Not Just a Nation of Cooks and Engineers

Tackling the Morgan Stanleys and other global investment banks from a domestic base is the dream of a new VC firm just established in Beijing. The Hina Group, led by Hong Chen, is forging a new China-based investment bank using Chen’s extensive and successful track record in founding and floating US technology start-ups.

Chen believes that China "needs their own Goldman Sachs" and he intends the Hina Group to be that company.

Chen has the track record, since he started the first "Communist Chinese"-led company in Silicon Valley in 1994 and then became the first Chinese company to float on NASDAQ (GRIC). It seems unremarkable now, but the idea then of a communist Chinese starting a Silicon Valley company and taking it public was not at all easy to come to terms with.

He believes that Hina Group is in the right place at the right time. Already some 5-10% of Nasdaq IPOs are Chinese companies, but this is small fry with what Hong believes is coming. For example on the Shanghai Stock Exchange there are now around 1000 IT firms, but Hong says there are "a few thousand coming" in the immediate future.

Add to that the 170,000 State Owned Enterprises that have been mandated to commercialise, and the scope is almost beyond imagination. Now throw into this mixture the fact that it is beyond the imagination of any one of these firms to now how to create a Silicon Valley-driven IPO.

That, at a top level, is the opportunity, and it exceeds that available anywhere else in the world.

Of course there will swarms of VC bees at the honeypot. But China remains a risky place for private equity and in the fallout from the "fear and greed" caused amongst VCs by the very conditions outlined above there will be many regrets and unhappy investors (see Venturing into China in IT Investments).

While more reforms will eventually cure some of the risk challenges. the fact is that investment in an emerging VC market like China will continue to hold out litigation and collection nightmares for a long time to come.

Powerful Chinese forces, both government and private, can change the groundrules to thwart all kind of investor-led actions such as capital realization or recapitalization, and especially attempts to collect even if litigation may have been favourable.

For venture investors China still not only has an immature legal and financial system, but also has rigid restrictions on currecy expatriation. This is one reason why large listed Chinese firms such as China Netcom buy foreign assets like Asia Global Crossing to create cash flow abroad.

So, the current ground rules are complicated and present risk management challenges. But on the other hand the opportunity is immense, even in just one field like software.

Hong Chen has no doubt that China will one day become a global power in technology, and exports of technology. This includes in software, where he believes that China becoming a global software exporter is inevitable, and that the best Chinese software companies will acquire many overseas companies.

The Hina Group will help them acquire these foreign firms. But why will the Hina Group be the one?

Chen's success is tied in many ways to China’s current condition of still being extremely provincial. You need to know the local governments and people, and yet at the same time you need to be global and technical experienced.

Chen believes that by being a local company with a global perspective that he will succeed.

Fifteen years ago Hong Chen's dream was to start a mainland Chinese-led business in Silicon Valley and take it to the US public through an IPO. He succeeded. Now he has a vision to change the perception of the global business community and prove to the world that China is "not just a nation of good chefs and engineers".

If I were a venture investure, I would invest in Chen's vision!

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More on Industry Strategy and IT/Telco Services at www.digitalinvestor.com.au

Related Free White Papers at Digital Investor:
Why Telcos Should be Intelligent Outsourcees, not Outsourcers
Asian Broadband Cooperation to Lead Standard-Setting
Outsourcing Publications Sourcing Strategies at Digital Investor
Related Blogs: (see Categories, top left)
Can the US Retain its Power to Set Technology Standards?
How and Why India's and China's World Class Outsourcing will Continue to Grow
Can You trust China with your Software IP?
Venturing into China in IT Investments

What's your take on the potential of growing a China-based "Goldman Sachs", do you think that Hong Chen will succeed? Post your Comments.

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How can I help? Email me; Call (Australia) +61 403 345 632.

Strategic Dissonance, and the Timing of Business Reinvention

Business reinvention means reshaping the business to create new wealth while not placing it at risk of not being able to make the transition.

This requires a couple of key skills in the beginning - one to be able to think through the basic planning steps and the second to be able to recognise the timing of such an intervention.

I approach reinvention tasks in an appreciative inquiry mode - seeking positive growth terms and focusing on what works best, what ideals we are trying to accomplish, and what visions for the future we can bring.

The key elements of the method are:

1. Appreciating what is,


2. Valuing what is;


3. Envisioning what might be;


4. Dialoguing what should be; and


5. Innovating what will be.

In this mode of working I build from an immediate challenge(see step-D below) and aim to build capacities for clients to be able to independently continue.

These elements are packaged into my four-step A-B-C-D planning process:

Relationship between ABCD and Appreciative Inquiry
A - As Is	(1a) Appreciating what is (1b) Valuing what is
B - Strategic Intent	(2) Envisioning what might be
C - Constraints & Criteria	(3) Dialoguing what should be
D - Design of Pilots	(4) Innovating what will be

• A is the AS IS position - which is Acknowledging and Appreciating the current state;
• B is the STRATEGIC INTENT - the Belief in the new vision of what might be;
• C are Constraints and Criteria bearing on the path to the Intent - forcing reality into the planning;
• D is DESIGN of Pilots - prototypes of the new business model as the platform for mobilisation.

Strategic Dissonance as an Indicator of Timing

Perhaps surprisingly, the task of identifying the A Stage, the AS IS, is often much more difficult than first imagined.

This is because the business may be seemingly in good shape from the inside perspective.
Acknowledgement of outside forces and reshaping industry dynamics is either hard to see, or is seen as just another "normal" management or marketing challenge to be overcome. Intuitive and free-flowing reasoning needs to be applied to develop the range of options, and then deduced down into the optimum set.

Senior management are often hampered by the inertia of success. They got to where they are by being good at what they do. Over time, they have learned to lead with their strengths. So, not surprisingly, they continue to implement the same strategies and tactics that have worked for them during their careers, particularly during their "championship season".

Strategic dissonance is the divergence between actions and statements. This is one of the surest indications that a company is struggling with a strategic inflection point.

I often find that the process of adapting to change starts with employees, who, through their daily work, adjust to new outside forces. So, while front line staff and middle managers are implementing and executing strategic actions that say one thing, senior management is issuing high level pronouncements that say the exact opposite.

This dissonance must be engaged and turned into a positive commitment to action and change. It requires that management at all levels "communicate communicate communicate". It also requires complete consistency of values and words and action, and involvement of the right people at the right time to bring about the mutual understanding of the journey going forward.

In my ABCD model this dissonance would be acknowledged from the start of Step A and ways found to make the planning as inclusive as practical, and carry through particularly into Step C where contraints and criteria in going forward are resolved. From Step C, and in association with the Pilots of Step D, the dissonance must be addressed through project plans.

Ulitmately the dissonance must be made to disappear through alignment and progress towards the new strategic intent - the B objective from the A-B-C-D planning process.

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Click on the Business Reinvention menu item and check under Publications for Reinvention Strategy to read my free papers.

What's your most important re-invention tip, have you observed that getting management to recognise their true AS IS is often the most difficult initial challenge? Post your Comments.