What an IT services chief executive in Dalian has to know well

Japanese enterprise IT is built through layers of contractors: an end client, a prime integrator, often a second-tier integrator and then an offshore team. Each layer adds review, and each expects the layer below to absorb ambiguity. Our Japan business, RMB 2.06 billion in 2025, works mostly at the second and third tiers for regional banks, insurers, logistics companies and manufacturers. The skill that decides margin is not coding speed but how early a misunderstanding is caught. We employ 620 people in Japan, including 210 bridge engineers who hold requirements meetings in Japanese and turn them into work packages for Dalian, Shenyang and Ho Chi Minh City. I judge the Japan business on three numbers: defects found by the client per thousand lines changed, rework as a share of delivered hours, and the share of specification questions answered within a day. Since 2021 client-found defects have fallen from 0.42 to 0.19 per thousand lines, and rework from 14 to 8 per cent of hours.

About 45 per cent of our RMB 1.78 billion of domestic revenue in 2025 came from projects that move state-owned and private enterprises from foreign databases, operating systems and middleware to domestic ones, and rework the applications that depend on them. The policy demand is real, and domestic products have improved quickly; for most transactional workloads they now perform well. The risk sits in the remainder: heavy month-end batches, stored procedures written in a foreign database's dialect, and character-set and rounding behaviour that differs in ways nobody wrote down. Before we bid, we now run a readiness assessment on a copy of the client's busiest day and give the client a written list of what will not yet migrate at equal performance. We insist on parallel running for anything that bills, pays or settles. That practice cost us RMB 112 million of work at one port group in 2023, and it is also why the same group gave us its bulk-cargo systems in 2025.

Domestic IT services has been in a price war since 2023. Substitution programmes put many similar tenders on the market at once, and several competitors with idle engineers have bid day rates below what those engineers cost them; tenders scored mainly on price reward the practice. In mid-2023 I set a rule that we do not bid below an expected gross margin of 18 per cent, calculated on fully loaded cost with a contingency for the client's change requests, and that any exception comes to me in writing. Our domestic win rate fell from 31 per cent of tenders entered in 2022 to 22 per cent in 2024. Domestic gross margin held at 24 per cent while revenue still grew, because we concentrated on tenders where technical scoring carried weight and on clients who had already lived through an underpriced migration. Slower growth for a few years is the price of not carrying contracts that lose money for five.

Our foreign clients now ask, before they ask about price, who can see their data and their technology. I answer with a classification rather than a reassurance. Work that needs neither personal data nor controlled technical data is done in China, against masked or synthetic test data. Work that needs production data is done from the client's own country, or inside environments the client controls and logs, where engineers in China cannot see the data. Work involving technology the client's lawyers treat as export-controlled is done outside China, in Ho Chi Minh City or Munich. In 2025, 78 per cent of revenue was delivered from China, 8 per cent from Vietnam and 14 per cent onshore in Japan and Germany. Domestic clients bring the mirror-image question: when their data must leave China for an overseas parent or subsidiary, we help them prepare for the security assessment or other routes that Chinese rules require, but the filing and its conclusions remain theirs.

For most of Yanxiao's history we priced Japanese work in yen per person-month and paid engineers in renminbi. The company carried the whole currency risk, which was invisible while the yen was stable and painful when it fell. With our chief financial officer I replaced reliance on twelve-month forwards with a contract clause: a base exchange rate reset at each renewal, Yanxiao absorbing the first 5 per cent of any yen movement, and the excess shared equally in either direction. We still hedge the coming year's expected receipts within a range the board approves. The second change concerns the unit itself. Where AI-assisted tools reduce the hours needed for code conversion and testing, person-month pricing passes the whole saving to the client and teaches vendors to hide the tools. Fixed-price and unit-priced contracts rose from 9 per cent of Japan revenue in 2021 to 31 per cent in 2025, and two of them lost us RMB 23 million while we learnt to estimate.