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Originally published July 6, 2011 at 10:01 PM | Page modified July 7, 2011 at 12:31 PM

Chinese entrepreneur building 'dual-shore' software company in Kirkland

Four years ago, Chinese entrepreneur Tianwen Liu met two Microsoft veterans and eventually bought their small technology-consulting firm. He merged it with his fast-growing software company headquartered in Beijing. ISoftStone aims to find a niche by creating software for specialized industries, such as banking and telecommunications, and by helping U.S. companies gain a foothold in China. Liu calls this model "dual-shore," combining skills from the U.S. and China.

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At first blush, iSoftStone seems like your standard Eastside software company: executives with a Microsoft pedigree, a prime location in Kirkland (Google was the last tenant; Bill Gates' private office is just down the street), a large mural of snow-capped Cascade peaks and a deck with views across Lake Washington.

But subtle touches reflect iSoftStone's place in the rapidly changing world economy.

The red doors of its conference rooms, for instance, are named for the Chinese cities where iSoftStone has major operations: Beijing, Wuxi, Shanghai, Tianjin, Guangzhou. Company executives said they chose the location in part for its feng shui.

"Water means wealth and profit in traditional Chinese culture," said Edward Yang, president of iSoftStone's North American business.

"I believe we'll be successful here."

Four years ago, Chinese entrepreneur Tianwen Liu met two Microsoft veterans and eventually merged their small technology-consulting firm into his fast-growing software company headquartered in Beijing.

Since then iSoftStone has listed its shares on the New York Stock Exchange, raising $141 million in its initial public offering, and hired more than 200 people in Kirkland. It's poised to double the number there in the next two years, Liu said.

Liu, who goes by "T.W.," has an easygoing, low-key manner that contrasts with big ambitions. He embodies an effort by Chinese companies to "go out" and establish their brands, moving China from the world's sweatshop to a technology powerhouse.

With teams and customers on either side of the Pacific, iSoftStone is blending cultures to produce a new kind of global company.

ISoftStone specializes in information-technology outsourcing, building websites, integrating software systems and creating mobile applications for its customers — Chinese and multinational companies including UBS, Citi and Huawei.

With more than 9,000 employees in 14 offices throughout China, it can do the work at a relatively low cost and deliver it around the clock.

While Indian companies have long dominated the market for offshore software development, Chinese companies are trying to catch up.

ISoftStone aims to find a niche by creating software and services for specialized industries, such as banking and telecommunications, and by helping companies gain a foothold in China.

That includes developing technology appropriate for the market, finding a partner and promoting the product locally.

"We're trying to position the company differently," Liu said. "We don't want to just provide low-cost services, like outsourcing, taking jobs away. We want to create a win-win solution for our partners, and help them do business in China."

Microsoft customer

In the Seattle area, one of the biggest customers is Microsoft. In China, iSoftStone launched Microsoft's HealthVault, an online account that lets people store and monitor their health information and connect to various health systems and services.

Most hospitals in China are government-owned, so iSoftStone promoted the technology to city officials and is now implementing the system in the eastern city of Wuxi, near Shanghai.

When iSoftStone bought Akona, a consulting company started by Microsoft veterans Lincoln Popp and Anders Brown, it made Seattle's technology hub the jumping-off point for iSoftStone's expansion in North America. Liu said iSoftStone has invested about $10 million in the Seattle area, and the company plans more acquisitions.

Both Brown and Popp have stayed on and managed the business in Kirkland as the company increased fivefold over the past three years, despite the economic downturn.

"Most of our employees are very excited and interested in what's going on around the globe, in the global economy and in particular the connection to China," Brown said.

Liu, 48, grew up in central China and studied engineering in Wuhan, and then received a master's degree from the University of Massachusetts and his MBA from the Massachusetts Institute of Technology.

He worked at Siemens, Bechtel and Digital Equipment Corp. before co-founding AsiaEC in China. That became China's largest online-office supplier and was bought by Office Depot in 2006. He founded iSoftStone in 2001 and owns 17.8 percent.

ISoftStone Vice President Weiling Li said Liu is unlike some CEOs, who rule from the top down "like emperors."

On business trips, "many executives bring two secretaries with them," Li said. "T.W. comes alone with his laptop," flying economy class.

"I always have to be a leader, to do everything; yi shen zuo ze," Liu said, a Chinese idiom meaning to lead by example. "You have to have high standards for ethics, treating people fair. And learning fast."

The advantage of being based in China also presented one of the company's biggest challenges. Rising after its IPO, iSoftStone's stock then dropped more than 30 percent in the past month after another Chinese company, Hong Kong-based Longtop Financial Technologies, became the target of an SEC investigation.

The SEC is evaluating claims by Longtop's auditor, Deloitte Touche Tohmatsu, that the company falsified financial records and interfered in the audit process.

While the alleged fraud at Longtop "dragged down the whole sector," Liu saw an opportunity to stand out from the competition. "I think this is a good chance to show to our investors we are different. We really follow a high standard of governance. We are a U.S.-listed company. We comply 100 percent with the U.S. SEC."

The investigation comes amid increased scrutiny of Chinese accounting practices by the SEC, which has revoked the registrations of eight China-based companies since December, according to Reuters.

"Investors are anxious about the Chinese IT space and Chinese governance and transparency in general," said James Friedman, an analyst with Susquehanna Financial Group.

ISoftStone has some key elements of good corporate governance: a chief financial officer who is also a U.S. certified-public accountant, and a board with independent directors, Friedman said. But with other Chinese firms under scrutiny, "it's sort of guilt by association."

ISoftStone's stock recovered somewhat after UBS analyst Arvind Ramnani upgraded his rating to "buy" from "neutral," saying the company's financial situation is solid and its customers satisfied. Shares closed Wednesday at $15.75.

New offices

Last month iSoftStone moved into a new 13,300-square-foot office and threw a welcoming party with 100 guests — state and city government leaders, technology partners and others.

The company worked with King County to map the county's trail system using Windows Live and Bing. It's also helping an aerospace company with online marketing in China.

ISoftStone expects a profit of $15.5 million to $17.5 million this year on sales of $260 million to $275 million.

"We are highly committed to Washington state," Liu said. "I strongly believe that our culture, as a global company, continues to improve as we have shared goals and common values."

Kristi Heim: 206-464-2718 or kheim@seattletimes.com

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