Whether to increase market share, satisfy shareholders or increase service offerings, it is inevitable that a successful company will eventually look at expansion from its current position as a means to achieve corporate goals. In the localization industry, the desire for expansion typically manifests itself in the establishment of an overseas office.

However, expansion to a foreign market often puts a company squarely into the middle of an age-old quandary, “Is it best for a company to build an office in its likeness, or should it acquire an existing operation and merge best practices?” Benefits and drawbacks for both approaches can be debated, but the choice often comes down to the very uniqueness of the individual companies facing this decision. For one company, Moravia Worldwide, “Build or Buy” became the focal point of debate when the company made its decision to expand its corporate presence eastward into China.

The choice to build or to buy comes down to the uniqueness of the individual companies facing this decision.

Moravia Worldwide chose “homegrown” in 2002 when it opened an office in Nanjing, China as a way to better meet its clients’ needs for linguistic quality control and cost-efficient software assurance testing. Although an arguably slower process, Moravia chose to follow the “build” route upon completing an audit of its internal production capabilities, as well as a strategic needs assessment on where the company wanted to be long-term.

Moravia realized that the current cost advantages of its Czech Republic production headquarters would rapidly disappear with accession to the European Union.

The data harvested from this self-critique showed that it needed to be vigilant in its push to keep production costs down. However, because of the company’s roots and entrepreneurial spirit, it felt that absorbing another corporate culture could potentially offset the working environment that Moravia had so vigorously tried to maintain throughout its history. Another key factor resulted from its comparison of the Chinese and Indian marketplaces with regard to potential cost savings and future growth. Once the data was gathered and sequenced, Moravia evaluated its options and ultimately settled on Nanjing, China as the location that best suited its requirements.

Building a presence in China was no easy achievement for Moravia as, obviously, it found that doing business in and with China required much diligence and a specific understanding of local culture. But why did Moravia willingly take on this challenge?

Like many of its clients and competitors, Moravia watched as the mounting pressures of the global economy severely affected production budgets with “the need to do more for less” as the oft-repeated mantra. While Moravia already operated a production headquarters in the Czech Republic – which, when compared to America and Western Europe, offered significant cost benefits – it recognized that its current cost advantage would rapidly disappear with Eastern Europe’s impending accession to the European Union. As a result, Moravia decided that the rewards outweighed the risks and tackled the difficulties of entering a market as unique as China.

Why China?

In areas such as software testing, China offered Moravia a pool of highly qualified resources at low cost, with the advantage of being able to maintain this position for the foreseeable future. Moravia was also attracted to the fact that on average, Chinese universities graduate 325,000 engineers a year - three times the rate of India. This means that Moravia could be selective with the staff that it employed with regards to personality compatibility, while still being able to maintain the valuable skill-sets that it equally coveted.

Chinese universities graduate 325,000 engineers a year - three times the rate of India.

In addition to the seemingly limitless pool of talent, Moravia was also encouraged by the Chinese central government’s economic development plan that places an emphasis on creating a leading internal software development and testing industry. This comes not only through education, but also through a combination of private and publicly funded works programs focused on building a world-class IT infrastructure. Lastly, China is fostering its own domestic software market, which complements its international export business, thereby providing a degree of insulation should an economic downturn occur in the West. Moravia views this fledgling domestic market as a potential source of revenue in addition to its current stable of Western-based customers.

Why Nanjing?

Where to build in China was a big decision for Moravia. While a majority of service providers in the GILT (globalization, internaionalization, localization, translation) industry have chosen to establish operations in better-known areas such as Beijing, Guangzhou, Shanghai and Shenzhen, Moravia relied on its own history when deciding on where to put down roots. Moravia is located in Brno in the Czech Republic, which to the casual observer might seem an odd place to build an international company. In comparison to cities such as Dublin, London or Paris, Brno may not seem as glamorous. But beneath the surface, Brno offers a highly educated work force with employee costs that are a fraction of the previously mentioned cities. Additionally, Brno has yet to suffer from the “job-hopping” phenomenon that has afflicted other IT-focused regions. This means that an employee in Brno is much more likely to stay with a company for many years in favor of jumping to the next ‘hot’ job prospect. When Moravia analyzed Nanjing, the similarities to Brno were striking.

Nanjing lags behind other Chinese cities in rent, wages and IT costs, while providing a work force that is equal to that of its well-known peers.

Comparing favorably to Brno, Nanjing, located in Jiangsu province, is also a university city that boasts 48 universities and colleges, the third largest concentration in China. This makes Nanjing an important base for teaching and research in China. Because of its academic position, Nanjing tends to attract some of China’s best and brightest students, many of whom remain in Nanjing once their studies have concluded, thus creating a highly educated community in comparison to many of the more industrial cities. Nanjing also lags behind other Chinese cities in rent, wages and IT costs, while providing a work force that is equal to that of its well-known peers.

Factors considered when selecting an optimum city location also included the science and technology strengths of the large Chinese cities. In this sense, Nanjing’s software development infrastructure and IT infrastructure are developing at rates comparable to those of Beijing and Shanghai. For Moravia, this means that not only is the talent available, but so is the technology to support the broadband demands of its clients. Moravia is also wagering that rents and wages in Beijing, Shanghai and Shenzhen will rise faster than in Nanjing, thus, creating a cost disparity between Moravia’s own production costs and that of their competitors.

Building in China

Before making its final decision, Moravia carefully monitored industry trends. Although it considered both solutions, it ultimately favored building in favor of acquisition. In order to do this, the company had to consider the legal structure for establishing a business in China. This required a limited joint venture with a small Chinese-owned agency, but only so far as to gain a legal entity presence in the country. The actual Moravia operation, although in conjunction with an existing Chinese company, is wholly separate.

The reason for separating the two operations was Moravia’s commitment to retaining absolute control and influence over its staff development and training. It sought to build a team that would learn and embrace the Moravian culture that had existed from the company’s founding, all the while maintaining a Chinese feel. With this structure, the company felt that it could ensure the reliability, quality and ease-of-doing-business that Moravia’s clients had come to expect – all at a reduced rate.

Understanding, and more importantly, mutual appreciation, are the keys to healthy and positive cooperation.

Finding the right location and overcoming administrative issues was also not without its challenges. Not least was understanding and appreciating the cultural approach to business in China. Moravia overcame this obstacle by sending reliable members of its executive and production staff to China to both train and learn from their new Chinese colleagues. The result was a better internal understanding of how business is done from both sides. To further the knowledge transfer, Moravia intends to rotate members of its Chinese staff to positions in Brno in order for them to gain experience in working directly for the mother company. Moravia believes that understanding, and more importantly, mutual appreciation, are the keys to healthy and positive cooperation.

Conclusions

While many in the localization industry look to China as a long-term way of reducing costs, all companies must confront the question of how best to go about establishing their operations. “To build or to buy” will be in the thoughts of any executive who looks eastward towards the Middle Kingdom as a way of ensuring the future health of his/her company. In the end, a company needs to deliver to its clients the same things that it always has – quality, reliability and ease of doing business – but at a continually reduced rate. China makes this opportunity possible, but success is dependent on a company making the right choices when evaluating its initial investment in China. Moravia Worldwide was able to create a successful operation in China only because it was able to look at all sides of the Chinese “build or buy” equation to determine what was right for it. Only through careful research and internal evaluation can a company make the right choice for itself.

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Terry Shidner has a degree in Asian studies and has lived and worked for many years in the China. He is currently a Business Development Manager for Moravia Worldwide and can be reached at tshidner@moraviaworldwide.com.

Gráinne Maycock is Country Manager for Moravia’s Irish Office and the Business Development Manager for the company’s QASight testing unit with locations in Brno, Czech Republic and Nanjing, China. She can be reached at grainnem@moraviaworldwide.com.