China Aims To Move Past 'World's Sweatshop' Rep

Enlarge this image toggle caption Valerie Caviness/AP Valerie Caviness/AP

Six years ago, Anders Brown and Lincoln Popp left their jobs at Microsoft to start their own company. By the summer of 2007, the two smart, likable technology guys were doing quite well -- but they wanted to ramp up their business.

"We are in a global economy," Brown says. "We're not going to go backwards from that."

To remain competitive in building and testing software for major U.S. clients, they decided they needed a global partner. They considered IT firms in Brazil and India, but China seemed to make the most sense. So they went on a scouting trip.

"We'd never been to China," Brown says. "So two guys from Microsoft in the [Pacific] Northwest land in the middle of Beijing, you know, with just our eyes completely open to what was really going on over there in terms of growth and opportunity."

They weren't looking to be acquired; they just wanted a partner. They bonded almost instantly with Chinese executives from a company called iSoftStone.

"One thing led to another, we started working very well together and by February 2008, we had completely merged the companies," Brown says.

Actually, iSoftStone bought their company for an undisclosed amount.

"We had a lot of questions from family and friends: Why China?" Popp says.

For Popp, the answer was pretty straightforward: China has a large IT workforce. But beyond that, he and Brown recognized that the Chinese intend to play -- and play hard -- in the global IT sandbox. They could either join them or be on the other side.

China Invests In The U.S.

Today, the company's software engineers in Seattle and in China huddle around phones and computers, sharing ideas and projects across countries and time zones.

Aside from long-distance conversations about "data migrations" -- and the company's bilingual business cards -- there's not much in iSoftStone's offices to suggest this is a Chinese company.

The Chinese want to move away from just being the workshop of the world — the world's sweatshop.

"In a way, we're almost happy that you don't see a huge distinction there," Brown says. "That's what we want: We want to try to build a global company, not just a Chinese company operating in the United States. Those are very different things."

Despite its overall economic power, China has not yet established global brands, and its direct U.S. investment remains small -- a few billion dollars last year, according to a U.S. government estimate. But there's little doubt that Chinese investment in U.S. will grow.

"The Chinese want to move away from just being the workshop of the world -- the world's sweatshop," says Joe Massey of Sierra Asia, an advisory firm.

Massey, a former senior official with the Office of the United States Trade Representative, says China wants to be part of the knowledge economy "So learning from us is one of the things that they want to do," he says.

In addition to IT firms, for example, one Chinese company has a major stake in a California solar company. Another Chinese company bought an East Coast company that makes patient-monitoring devices.

Natural Skepticism

The specter of Chinese companies buying U.S. firms raises all kinds of questions: Who will run the American companies? Will they be exploited for China's gain? What will happen to our intellectual property?

Michael Rawding, a business consultant who sits on the Washington State China Relations Council, says some skepticism about Chinese buyouts is only natural. Rawding, who spent years working in China, says that Chinese investment is a good thing -- so long as the Chinese companies play by U.S. rules.

"They will become better run, more transparent, with a better sense of governance and global standards -- and that can't help but be good for everybody," Rawding says.

So far, at least, Brown and Popp are pleased with the deal they made. And Popp says they're leaning about doing business the Chinese way. "During decision-making processes, people listening to you and nodding wasn't necessarily consent," he says. "A nod was not a 'Yes.' "

A nod, he learned, was just that, and the real decision would be made over dinner.

Today, Popp and Brown run iSoftStone's U.S. operations largely as they see fit. Their business has grown about 400 percent since the merger in early 2008, and the local staff has nearly quadrupled.

As part of their buyout package, the tech guys from Seattle were given stock in the Chinese company. And last week, iSoftStone went public on the New York Stock Exchange -- and its shares rose sharply out of the gate.