Chinese software companies are looking to speed up their development in a bid to grab a larger slice of the global information technology (IT) market and to fend off threats from their Indian counterparts.

HiSoft Technology International Ltd, a top Chinese software service company based in Dalian, a center of software outsourcing in China, announced yesterday in Beijing that it had acquired two rivals; Beijing-based Ensemble International and Hong Kong-headquartered Teksen Horizon Systems.

The companies declined to reveal the value of the deal, but said it was the biggest merger so far in the software service industry.

"Chinese software companies are quite small and weak, but as more international companies are getting into this market and bringing us challenges, we must make ourselves stronger," said Li Yuanming, chairman and chief executive officer of HiSoft.

HiSoft received a US$20 million investment from the World Bank's private enterprise investment arm, International Financial Corp, and Intel Capital, Jafco and Granite Global Ventures last year.

It receives more than 90 percent of its revenue from overseas, mainly Japan and the United States.

However, Li said his company must move fast to prepare for challenges, with acquisitions being a reasonable step to take.

Microsoft is pushing the Indian software giant Wipro to form a joint venture with companies in Beijing, a move supported by the Chinese Government and Beijing Municipality. The aim is to expand the city's software industry.

Another Indian software giant, Infosys, which has over 46,000 developers worldwide, wants to have a 6,000-strong team in China.

These Indian companies, with their advanced expertise and huge development teams, are formidable competitors for domestic firms, which usually have only hundreds of people on staff.

With the acquisition of the two companies, HiSoft has taken the number of its employees to 1,800, making it one of the top three such firms in China.

HiSoft will also get a strong software testing and consulting team, which it lacked before.

Heng Choon Lim, vice president of strategic planning at HiSoft, said his company wants to have 3,000 workers by next year. He revealed that HiSoft is also working on some bigger acquisitions, which could be finalized in the coming months.

Dong Lu, associate with Granite Global Ventures, said with the Indian giants building up their presence in China, many Chinese companies are already increasing their expansion pace.

This year, Microsoft and several partners invested US$70 million in three Chinese software service companies, including two outsourcing-oriented firms, Dalian's Hi-Think and Beijing-based CS&S International.

(China Daily December 6, 2005)