Business Case Study: Sheen's Outsourcing Unit in Shanghai, China
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Case Study
AI Summary
This case study examines Xin's decision to establish an outsourcing unit for his company, Sheen, in Shanghai, China. The analysis considers the growing demand for software in both the Chinese and international markets, the strategic advantages of Shanghai, and the potential for expansion to nearby cities. The study compares the Chinese software market with India's, highlighting China's dedicated workforce and high domestic demand. It explores the options available to Xin, including establishing a captive office or forming a partnership. The case also addresses the challenges of implementing an agile methodology in a market that favors heavy methodologies. Furthermore, the study details Xin's business background, his motivation for expanding into China, and the factors that influenced his choice of Shanghai, including the strong economy and the high software export rate. This case study provides valuable insights into the strategic considerations and challenges of outsourcing in the Chinese market.

Running Head: OUTSOURCING
MANAGEMENT: OUTSOURCING
MANAGEMENT: OUTSOURCING
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2OUTSOURCING
ANSWERS:
a. Mr. Frank wants to setup his outsourcing unit in one of the main cities in China because
of the growing demands of software in the Chinese market as well as on the international level.
He thought of settling in Shanghai primarily because he has some family connection within the
city but the main reason for his attraction towards Shanghai is because it can act as a strategic
point for the business. Moreover, if the cost of living in Shanghai gets too much high then there
is always a possibility to shift to some of the nearby cities such as Hangzhou and Suzhou which
are famous for its tech parks and they are just a ride of 12 hours in a train from the main city of
Shanghai.
Another reason for choosing China was because of their software market which has been
growing at an exponential rate in the last few years. The demand for the Chinese software’s is
very high within their own country itself and the economy of China is also growing more than
the previous decade and reached double digits CACR. Shanghai has been chosen as the research
and development centre for some of the biggest software companies such as Erikson and HP.
They have been a supporting centre for brands like Microsoft as well. Thus the idea behind
setting up the firm in China was made keeping in mind the efficiency of the employees here and
it would help to create a bridge between the Eastern and the Western countries.
b. China has proven itself to be one of the leaders in the software market and continues to
grow at a very rapid pace. Although the outsourcing industry in India has bloomed and have
mastered the authenticate factory approach to the software solutions but the Chinese outsourcing
software industry is following the lead. India has also been very much successful and has
achieved the CMM Level5 which has been considered to be the highest processing of the
software development. However, compared to the Indian market, the employees in China are
way more dedicated in their work and they have got deep knowledge of computer science and
the traditional methods of logarithms and algorithm development. India is the closest competitor
in outsourcing software for foreign brands but unlike India, the domestic demands for software
in China are also very high. The domestic demands were so high that it can be argued to be
actually more than their foreign demands. In the year 2003, China was expected to export more
than $ 1 billion worth of software and other software associated services. Shanghai was
ANSWERS:
a. Mr. Frank wants to setup his outsourcing unit in one of the main cities in China because
of the growing demands of software in the Chinese market as well as on the international level.
He thought of settling in Shanghai primarily because he has some family connection within the
city but the main reason for his attraction towards Shanghai is because it can act as a strategic
point for the business. Moreover, if the cost of living in Shanghai gets too much high then there
is always a possibility to shift to some of the nearby cities such as Hangzhou and Suzhou which
are famous for its tech parks and they are just a ride of 12 hours in a train from the main city of
Shanghai.
Another reason for choosing China was because of their software market which has been
growing at an exponential rate in the last few years. The demand for the Chinese software’s is
very high within their own country itself and the economy of China is also growing more than
the previous decade and reached double digits CACR. Shanghai has been chosen as the research
and development centre for some of the biggest software companies such as Erikson and HP.
They have been a supporting centre for brands like Microsoft as well. Thus the idea behind
setting up the firm in China was made keeping in mind the efficiency of the employees here and
it would help to create a bridge between the Eastern and the Western countries.
b. China has proven itself to be one of the leaders in the software market and continues to
grow at a very rapid pace. Although the outsourcing industry in India has bloomed and have
mastered the authenticate factory approach to the software solutions but the Chinese outsourcing
software industry is following the lead. India has also been very much successful and has
achieved the CMM Level5 which has been considered to be the highest processing of the
software development. However, compared to the Indian market, the employees in China are
way more dedicated in their work and they have got deep knowledge of computer science and
the traditional methods of logarithms and algorithm development. India is the closest competitor
in outsourcing software for foreign brands but unlike India, the domestic demands for software
in China are also very high. The domestic demands were so high that it can be argued to be
actually more than their foreign demands. In the year 2003, China was expected to export more
than $ 1 billion worth of software and other software associated services. Shanghai was

3OUTSOURCING
accounted for almost 12% of the total exportation of software. The domestic demands will also
help in flourishing his business as China has a very strong economy and the demands of new
software are always on the rise thus making it perfect for setting up an offshore unit. By
comparing their local, domestic as well as the international market it will be beneficial to set up
an offshore location in China.
c. In order to set up the firm in China Xin has to consider some of the possible options that
are mentioned in the following points:
The first choice was to open up a captive office that will come under the subsidiary of
Sheen US.
The second choice was to enter the market in a partnership with an already established
firm. While in this arrangement Xin has to sign an agreement with the Shanghai
authorities and in return they will be provided with some employees.
There are benefits in choosing any of the above-mentioned strategies that the
organization can follow. He can either take a lease of the property and startup with the
business. The first place that has decided to be the start of the business is the Software
Park in Pudang, which is a new tech park and has been located I’m the Eastern Shanghai.
The price of settling up is comparatively less than that of other places in Shanghai.
Moreover setting up a business in this particular area of Shanghai has some of the
financial advantages such as they do not have to pay tax from the profit on the first 3
years after the initial 5 years only 50 per cent of the taxed are asked to be paid for. There
are no limit to organizational goals as they are always in competition with the other
firm’s that at are also located in the city and therefore has to constantly implement new
strategies. So for a new organization to establish themselves in the growing market of
outsourcing software, it will be actually beneficial to start up the business from China.
d. Xin wants to set up his outsourcing unit at one of the cities in China and preferably in
Shanghai as there are lot of demand for the software in the international as well as the domestic
market. So this is a big step and asks for immense competition by the already established firms in
accounted for almost 12% of the total exportation of software. The domestic demands will also
help in flourishing his business as China has a very strong economy and the demands of new
software are always on the rise thus making it perfect for setting up an offshore unit. By
comparing their local, domestic as well as the international market it will be beneficial to set up
an offshore location in China.
c. In order to set up the firm in China Xin has to consider some of the possible options that
are mentioned in the following points:
The first choice was to open up a captive office that will come under the subsidiary of
Sheen US.
The second choice was to enter the market in a partnership with an already established
firm. While in this arrangement Xin has to sign an agreement with the Shanghai
authorities and in return they will be provided with some employees.
There are benefits in choosing any of the above-mentioned strategies that the
organization can follow. He can either take a lease of the property and startup with the
business. The first place that has decided to be the start of the business is the Software
Park in Pudang, which is a new tech park and has been located I’m the Eastern Shanghai.
The price of settling up is comparatively less than that of other places in Shanghai.
Moreover setting up a business in this particular area of Shanghai has some of the
financial advantages such as they do not have to pay tax from the profit on the first 3
years after the initial 5 years only 50 per cent of the taxed are asked to be paid for. There
are no limit to organizational goals as they are always in competition with the other
firm’s that at are also located in the city and therefore has to constantly implement new
strategies. So for a new organization to establish themselves in the growing market of
outsourcing software, it will be actually beneficial to start up the business from China.
d. Xin wants to set up his outsourcing unit at one of the cities in China and preferably in
Shanghai as there are lot of demand for the software in the international as well as the domestic
market. So this is a big step and asks for immense competition by the already established firms in
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4OUTSOURCING
Shanghai. To get an optimum level of work from the employees the firm tries to use their own
adaptation of the agile methodology. This is also known as light weight methodology and the
most famous of them are XP or extreme programming. In China most of the software companies
follow the trend of heavy methodologies and emphasizes on the controls as well as the
documentation. So following the light weight methodology and giving developers the freedom to
work on their own is a really unique aspect of their business in China. Another problem with the
employees working in China is that they are well educated and have immense knowledge of
computer algorithms and programming. Employees generally do not prefer to work in industries
and follow guided orders, instead, they prefer in directly communicating with the clients and
solve their problems. Therefore it will be challenging for Xin to hire the employees that will only
follow his orders. Instead, he needs to trust his employees and give them some space to showcase
their skills but the most important part is satisfying the needs of the clients.
e. Sheen was founded by Xin in the year 2000 and the aim was to provide customized
solutions to the business as well as the entertainment industry. Some of their largest clients
included 20th Century Fox and Disney but the majority of their clients were small to medium
enterprises. They have a small team which looks after the assignments and projects. Most of their
clients were from the local regions such as Los Angeles and other parts of America.
Xin wanted to grow his business and open up a new unit in somewhere new. So after
2003, the bloom of the software industry in China grabbed his attention and he started to look for
places and ideas to start up a business in China. He primarily chose Shanghai as it helps in
producing 12% of all the software that are being exported in other countries. Xin also knows the
Mandarin language which is understandable by the people in Shanghai. Another major decision
that was taken to set up the business in China because after 2000 it has been noticed that the
domestic demands for software had increased many folds in China and is actually competing
with the foreign demands. Those showed a great opportunity to Xin and wanted to make the
most of the opportunity by establishing themselves in the foreign market and firstly take control
of the local market of China. Also, the strong economy of China has m another major role in
making his decisions.
Shanghai. To get an optimum level of work from the employees the firm tries to use their own
adaptation of the agile methodology. This is also known as light weight methodology and the
most famous of them are XP or extreme programming. In China most of the software companies
follow the trend of heavy methodologies and emphasizes on the controls as well as the
documentation. So following the light weight methodology and giving developers the freedom to
work on their own is a really unique aspect of their business in China. Another problem with the
employees working in China is that they are well educated and have immense knowledge of
computer algorithms and programming. Employees generally do not prefer to work in industries
and follow guided orders, instead, they prefer in directly communicating with the clients and
solve their problems. Therefore it will be challenging for Xin to hire the employees that will only
follow his orders. Instead, he needs to trust his employees and give them some space to showcase
their skills but the most important part is satisfying the needs of the clients.
e. Sheen was founded by Xin in the year 2000 and the aim was to provide customized
solutions to the business as well as the entertainment industry. Some of their largest clients
included 20th Century Fox and Disney but the majority of their clients were small to medium
enterprises. They have a small team which looks after the assignments and projects. Most of their
clients were from the local regions such as Los Angeles and other parts of America.
Xin wanted to grow his business and open up a new unit in somewhere new. So after
2003, the bloom of the software industry in China grabbed his attention and he started to look for
places and ideas to start up a business in China. He primarily chose Shanghai as it helps in
producing 12% of all the software that are being exported in other countries. Xin also knows the
Mandarin language which is understandable by the people in Shanghai. Another major decision
that was taken to set up the business in China because after 2000 it has been noticed that the
domestic demands for software had increased many folds in China and is actually competing
with the foreign demands. Those showed a great opportunity to Xin and wanted to make the
most of the opportunity by establishing themselves in the foreign market and firstly take control
of the local market of China. Also, the strong economy of China has m another major role in
making his decisions.
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