Executive Summary

Leaders of multinational companies cannot afford to overlook the opportunities and benefits that offshore outsourcing brings to their organizations. The industry with one of the longest and most successful histories in offshore outsourcing is Information Technology (IT). IT firms and IT departments of multinational companies have been using outsourcing for many years, most notably employing India based service providers. China has now become the clear second choice destination for IT outsourcing. As an alternative choice and competitor to India, it is a welcome addition for most CTOs and CIOs in the west. With China's emergence as an IT outsourcing leader come the challenges of working successfully in China and with China-based firms. One of the main concerns that multinationals have about outsourcing to China is intellectual property (IP) protection.

In 2004, the US software industry reported that up to 98% of the copies of US software products sold in the PRC were unlicensed or "pirated" copies1. This rampant piracy of software has created a wall of doubt for companies looking to outsource to China. Unlike firms that are interested in selling software in the Chinese market, firms that are solely looking to outsource software development to China have a much better chance of protecting their IP.

An intelligent and well executed strategy in IP protection can reap enormous benefits. The strategy can be centered around three key pillars: selection of the proper offshore model, due diligence on offshore providers' internal IP protection policies and systems; and strict vendor selection guidelines. Achieving the right mix of operational, cultural, and legal considerations is difficult, but companies that understand this are more likely to be successful in China.

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