SinoCom Software Group Ltd wants to buy a Japanese software company, a rare attempt to make an overseas acquisition by a small information technology firm from the mainland.

Analysts said, however, such activities will become increasingly common in coming years, as recent developments have made China and India prominent IT outsourcing centres.

Hong Kong-listed SinoCom, the largest Beijing-based software outsourcing vendor to Japan, is targeting companies with more than 100 employees, SinoCom's chairman and chief executive officer, Wang Zhiqiang, told China Daily.

"A consultancy company has been looking for the best choice for us," said Wang, declining to name the consultant.

Established in 1995, the company expanded at a pace of 47 percent annually from 2001 to 2004.

The world's leading IT vendor NEC is SinoCom's largest and most stable customer. NEC invested HK$12 million (US$1.5 million) for a 6 percent stake in SinoCom in 2002.

More than 90 percent of the company's annual sales are generated in Japan. SinoCom posted a 52 percent year-on-year surge in its turnover from January to June to stand at HK$123 million (US$15.8 million).

"As we receive increasing numbers of orders from our major customers in Japan, having a new subsidiary in the country has become necessary," Wang said. The company already has an office with a staff of 72 in Japan. Domestically, it has offices in Hong Kong, Beijing and Dalian.

If the acquisition is made, Wang said the management of the Japanese company will mainly comprise Japanese to avoid a conflict of organizational cultures.

Without giving further details about the deal, he acknowledged that the acquisition would not be easy, as "a small company like ours needs to be exceptionally cautious in penetrating an overseas market."

A Hong Kong-based analyst said the company must prevent a "brain drain" from any newly-acquired company.

"Talent plays an irreplaceably important role in any high-tech firm," the analyst said, who spoke on condition of anonymity.

"There is no point in buying the shell of a company with all its elite quitting," he said, citing Lenovo's acquisition of IBM's personal computer unit as an example. "That was definitely not what Lenovo wanted," he added.

As for future development, Wang said the company, having established a stronghold in Japan, will also enhance its presence in Europe and the United States.

In April, SinoCom acquired Beijing-based software developer ArtM Technology Co Ltd for 1.5 million yuan (US$185,000). Its aim is to break into North America and Europe with the latter's established network and customer base.

"We hope the two markets can account for 10 percent of SinoCom's overall outsourcing sales in five years' time," Wang said.

But a serious challenge for the software developer is a shortage of quality software engineers, he said.

(China Daily November 30, 2005)