How China-Based Vanceinfo Grows Big Faster

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CASE: HR-34
DATE: 01/23/09

SCALING: HOW CHINA-BASED VANCEINFO
GROWS BIG FAST
Our biggest challenge is that the company is growing very fast and we’re not sure that our systems can withstand such growth.
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⎯ Chris Chen, Chairman and CEO, VanceInfo Technologies

When Chris Chen founded VanceInfo Technologies in Beijing in 1995, the company had 25 employees and one low-end IT services outsourcing project for a U.S. multinational. By August 2008, through a combination of organic growth and acquisitions, VanceInfo employed more than 4,800 people, had numerous Fortune 100 clients, and enjoyed revenues exceeding $80 million over the preceding 12 months. It had attracted big-name venture capital partners and listed shares in 2007 on the New York Stock Exchange. Although small compared to more sophisticated Indian rivals, VanceInfo was well placed to capture an expected explosion in demand for Chinabased offshore IT services. At the same time, rapid growth was straining the firm’s management personnel, systems, and resources. Headcount was slated to quintuple to 20,000 in four to five years’ time to keep pace with aggressive revenue targets. Old ad-hoc ways of doing things no longer could accommodate current or future needs. To succeed, management had to implement new financial, operational, and internal management systems, especially in the critical area of human resources where VanceInfo faced some of its greatest challenges. These included introducing effective processes for rapidly expanding, training, managing, and retaining its workforce in a fast-growth economy characterized by job hopping and a dearth of management talent. Moreover, in its quest to grow its workforce to 20,000 within five years, move into higher-margin business lines requiring new expertise, and beat out domestic and international rivals, management had to strike a balance between quick gains via acquisitions and potentially slower growth through organic expansion. 1

Interview with Chris Chen, Chairman and CEO, VanceInfo Technologies, August 18, 2008. Subsequent quotations are from the author’s interviews unless otherwise noted.
Pamela Yatsko prepared this case under the supervision of Professor Hayagreeva Rao as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2009 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business.

Scaling: How China-Based VanceInfo Grows Big Fast HR-34

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THE OFFSHORE IT SERVICES OUTSOURCING INDUSTRY
In the offshore IT services outsourcing industry, a company in one country exported IT-related work to a firm in a second country, normally to take advantage of lower labor costs. The industry’s growth took off in the late 1990s when global communications infrastructure became increasingly inexpensive and reliable. With a large pool of low-wage, English speaking, technologically savvy workers at their disposal, Indian companies were preferred suppliers. Valued at $17.3 billion by 2006, the global offshore IT services industry was expected to grow at a CAGR of 17. 1 percent between 2006 and 2011 compared to a CAGR of 7.4 percent for the $674 billion global IT services industry (Exhibit 1).2 Five of the world’s top 15 IT services firms in 2006 hailed from India, thanks to their outsourcing prowess (Exhibit 2).3 China in 2004 ranked second to India in attractiveness as an...
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