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Outsourcing companies affected by earthquake and tsunami

03-15-2011 16:14 BJT

BEIJING - Last weekend was a worrying time for Liu Jun, the president of a major software-outsourcing provider in China.

On Sunday, the company's staff were summoned to respond to Friday's massive earthquake and tsunami in Japan.

"We have been gearing up to contact our employees in Japan," said Liu Jun, who heads Dalian Hi-Think Computer Technology Corp, which was China's third-largest software-outsourcing company by transaction volume in 2009 according to the research company CCID Consulting.

Liu Jun said the company's business in Japan, which is based mainly in Tokyo, is unable to function normally because of damage to the electricity supply and transportation problems in the aftermath of the earthquake.

"It (the earthquake) has had a huge impact for sure, but it's hard to say how big it is. We are still evaluating," he said.

About 80 percent of the company's business comes from Japan; last year, the transaction volume reached $120 million.

"We will talk with our customers about how to move the business on only after we have dealt with the safety issues affecting our employees," Liu Jun said, adding that the company's staff members in Japan - numbering more than 300 - are safe.

A call to Liu Jiren, the chairman of China's biggest software outsourcing company Neusoft Group Ltd, went unanswered on Monday. However, an employee at the company president's office said its 200-plus employees in Japan are safe, and the company is busy coping with the fallout from Friday's events and is unable to comment on the impact.

The companies are just two among many in China that earn a large part of their revenue from contacts with Japan.

"China's software-outsourcing industry may be affected by an economic slowdown in Japan as the latter is the major source of business, accounting for 60 percent of the total," Essence Securities Co Ltd said in a research note.

"It's a bit like the Sept 11 attacks in United States in 2001, India's software outsourcing exports to the US fell noticeably after the incident," said Wang Gang, an analyst with CCID Consulting.

However, he said that the negative impact is not likely to last for too long because rebuilding work in Japan will benefit Chinese providers.

"Japanese companies are likely to outsource their non-core business to China as part of the rebuilding work after the earthquake, so in the long term, the (business) impact of the disaster may not be that big," Wang said, adding that software outsourcing contracts are signed for a certain time period, and are therefore not likely to be canceled because of the earthquake.

The revenue of China's software industry surpassed 1.3 trillion yuan ($203.5 billion) in 2010, an increase of 31 percent from the same period in 2009, according to the Ministry of Industry and Information Technology.

Editor:Xiong Qu |Source: China Daily

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