PACT Pactera Technology International Ltd ADS (MM)

B.

Capitalization and Indebtedness

        Not Applicable.

C.

Reasons for the Offer and Use of Proceeds

        Not Applicable.

D.

Risk Factors

Risks Related to Our Business

There can be no assurance that the going private transaction will be successfully consummated. Potential uncertainty involving the going private transaction may adversely affect our business and the market price of our ADSs.

        On October 17, 2013, we entered into an agreement and plan of merger relating to a going private transaction. See "Item 4. Information on the Company—A. History and Development of the Company—Going Private Transaction." There can be no assurance that the transactions contemplated by the agreement and plan of merger, including the proposed merger (as defined below) will be successfully consummated. The proposed going private transaction, whether or not consummated, presents a risk of diverting management focus, employee attention and resources from other strategic opportunities and from operational matters. Uncertainty about the effect of the proposed going private transaction on our employees, customers, and other parties may have an adverse effect on our business.

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Such uncertainty may impair our ability to attract, retain, and motivate key personnel, including our senior management, and could cause customers, suppliers, and others to seek to change existing business relationships with us and thus may adversely affect our business and the market price of our ADSs. In addition, the agreement and plan of merger include covenants to restrict us from making certain acquisitions and investments, from accessing the debt and capital markets, and from taking other specified actions until the proposed merger occurs or the agreement and plan of merger terminates. The restrictions may prevent us from pursuing otherwise attractive business opportunities and taking other actions with respect to our business that we may consider advantageous. We have incurred, and will continue to incur, significant costs, expenses, and fees for professional services and other transaction costs in connection with the proposed going private transaction. All the fees and costs will be payable by us even if the proposed merger is not completed.

Global economic downturn or any future economic downturn, particularly in our key client geographies of the United States, Greater China, Japan or Europe, could adversely affect our business.

        In recent years, the global financial markets experienced significant disruptions and the United States, Japan, Europe and other economies went into recession. The recovery from the recession was uneven and it is facing new challenges. Economic conditions in China are also sensitive to global economic conditions, changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. In 2011, 2012 and 2013, respectively, 49.3%, 43.2% and 39.3% of our net revenues were derived from clients headquartered in the United States, 18.0%, 29.0% and 38.7% of our net revenues were derived from clients headquartered in Greater China, 8.6%, 6.8% and 9.4% of our net revenues were derived from clients headquartered in Europe and 18.6%, 16.2% and 7.6% of our net revenues were derived from clients headquartered in Japan; we expect that a significant majority of our net revenues will continue to be derived from clients in these geographic areas in the future. If the economies of the United States, Greater China, Japan, Europe or other countries where our clients are located experience continuing difficulties in recovering from the global economic downturn, or if there is another general economic downturn or a recession in these countries, our clients and potential clients in these countries may substantially reduce their budgets for outsourced technology services and modify, delay or cancel plans to purchase our services. Additionally, if our clients' operating and financial performance deteriorates, they may not be able to pay, or may delay payment of, amounts owed to us. Any or all of these events could cause a decline in our net revenues and materially and adversely affect our business and results of operations.

If we do not succeed in attracting new clients for our technology services and/or growing revenues from existing clients, we may not achieve our revenue growth goals.

        We plan to significantly expand the number of clients we serve to diversify our client base and grow our revenues. Revenues from a new client often rise quickly over the first several years following our initial engagement as we expand the services that we provide to that client. Therefore, obtaining new clients is important for us to achieve rapid revenue growth. Our ability to attract new clients, as well as our ability to grow revenues from our existing clients, depends on a number of factors, including our ability to offer high quality technology services at competitive prices, the strength of our competitors and the capabilities of our marketing and sales teams to attract new clients and to sell additional services to existing clients. If we fail to attract new clients or to grow our revenues from existing clients in the future, we may not be able to grow our revenues as quickly as we anticipate or at all.

If we are not successful in expanding our service offerings and managing increasingly large and complex projects, we may not achieve our financial goals and our results of operations may be adversely affected.

        We have been expanding, and plan to continue to expand, the nature and scope of our service offerings. We also plan to add other new capabilities within our existing service lines. The success of

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our expanded service offerings is dependent, in part, upon demand for such services by new and existing clients, allocation of our resources between existing and new service lines efficiently and our ability to meet this demand in a cost-competitive and effective manner. Moreover, we cannot assure you that we will be able to attract existing and new clients for such new services or effectively meet our clients' needs.

        To successfully market our expanded service offerings and obtain larger and more complex projects, we need to establish closer relationships with our clients and develop a thorough understanding of their operations. In addition, we may face a number of challenges managing larger and more complex projects, including:

•

maintaining high quality control and process execution standards;



•

maintaining high resource utilization rates on a consistent basis;



•

maintaining productivity levels and implementing necessary process improvements;



•

controlling costs; and



•

maintaining close client contact and high levels of client satisfaction, while at the same time preserving continuity in personnel engaged in a particular project while also rotating personnel to ensure that periodic wage adjustments do not adversely impact our margins on a particular project.

        Our ability to successfully manage large and complex projects depends significantly on the skills of our management personnel and professionals, some of whom do not have experience managing large-scale or complex projects. In addition, large and complex projects may involve multiple engagements or stages, and there is a risk that a client may choose not to retain us for additional stages or may cancel or delay additional planned engagements. Such cancellations or delays may make it difficult to plan our project resource requirements.

        If we fail to successfully market our expanded service offerings or obtain engagements for large and complex projects, we may not achieve our revenue growth and other financial goals. Even if we are successful in obtaining such engagements, a failure by us to effectively manage these large and complex projects could damage our reputation, cause us to lose business, impact our net margins and adversely affect our results of operations.

If we are not successful in integrating and managing our past and future strategic acquisitions, our business and results of operations may suffer and we may incur exceptional expenses or write-offs.

        We have completed numerous acquisitions in recent years and intend to continue to pursue strategic acquisitions in line with our business strategy and expand into new geography. See "Item 5. Operating and Financial Review and Prospects—A. Operating Results—Acquisitions." While we identified and may identify expected synergies, cost savings and growth opportunities in connection with these transactions prior to their completion, we may not achieve, and have not always achieved, the expected benefits. For example, in 2012, we recognized an impairment loss of trademarks and trade names of $5.5 million as our management determined not to use certain trademarks and trade names after the merger with VanceInfo.

        For companies we have acquired or may acquire in the future, we could have difficulty in assimilating the target company's personnel, operations, products, services and technology into our operations. The primary value of many potential targets in the outsourcing industry lies in their skilled professionals and established client relationships. Transitioning these types of assets from the acquired companies to our business can be particularly difficult due to different corporate cultures and values, geographic distance and other intangible factors. Some newly acquired employees may decide not to work with us or to leave shortly after their move to our company and some acquired clients may decide to discontinue their commercial relationships with us. Also, although we believe such risks are remote

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based on our due diligence performed prior to completing our acquisitions, we may be unsuccessful in obtaining qualifications or consents necessary for the operation of all or part of the acquired businesses. These difficulties could disrupt our ongoing business, distract our management and current employees and increase our expenses, including causing us to incur significant one-time expenses, impairment charges and write-offs. Furthermore, any acquisition or investment that we attempt, whether or not completed, or any media reports or rumors with respect to any such transactions, may adversely affect the value of our ADSs.

We may not succeed in identifying suitable acquisition targets, which could adversely affect our ability to expand our operations and service offerings and enhance our competitiveness.

        We have pursued and may continue to pursue strategic acquisition opportunities to increase our scale and geographic presence, expand our service offerings and capabilities and enhance our industry and technical expertise. However, it is possible that we may not identify suitable acquisition or investment candidates, or, if we do identify suitable candidates, we may not complete those transactions on terms commercially favorable to us or at all. Any inability by us to identify suitable acquisition targets or investments or to complete such transactions could adversely affect our competitiveness and our growth prospects.

We face challenges hiring and retaining highly skilled professionals, especially senior engineers, project managers and mid-level technology professionals. Our results of operations and ability to effectively serve our clients may be negatively affected if we cannot attract and retain highly skilled professionals.

        The success of our business is dependent to a significant degree on our ability to attract and retain highly skilled professionals. In China, there is currently a shortage of, and significant competition for, professionals who possess the technical skills and experience necessary to act as senior engineers, project managers and consultants for IT and research and development outsourcing projects, and we believe that such professionals are likely to remain a limited resource for the foreseeable future. Moreover, similar to India, the outsourced technology industry in China has experienced significant levels of employee attrition. The attrition rate among our employees who have worked for us for at least six months were 16.4%, 18.5% and 21.6% for 2011, 2012 and 2013, respectively. Due to the cost of hiring and training new professionals, high attrition rates can negatively affect our cost of revenues and net income. In addition, we may face increasing difficulties recruiting the talent we need to staff our outsourcing facilities in less developed cities in China with lower average wages and living standards. If we are unable to hire and retain highly skilled professionals, our ability to bid on, obtain and effectively execute new projects may be impaired, which would adversely affect our results of operations.

Any inability to manage the growth of our operations could disrupt our business and reduce our profitability.

        We have experienced significant growth in recent years. Our net revenues grew from $219.0 million in 2011, to $359.0 million in 2012 and $670.0 million in 2013. The total number of our employees grew from 7,321 as of December 31, 2011, to 23,270 as of December 31, 2012 after our merger with VanceInfo. As of December 31, 2013, the total number of our employees was 22,068. Our operations have also expanded in recent years through increases in our service delivery capabilities and acquisitions of complementary businesses. We expect our operations to grow in terms of both headcount and geographic locations. Our rapid growth has placed and will continue to place significant demands on our management and our administrative, operational and financial infrastructure. Continued expansion increases the challenges we face in:

•

recruiting, training and retaining a sufficient number of skilled technical, sales and management personnel whilst streamlining overstaffed departments and reducing administrative expenses;



•

creating and capitalizing upon economies of scale;

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•

managing a larger number of clients in a greater number of industry sectors;



•

managing our days of sales outstanding;



•

maintaining effective oversight over personnel and offices;



•

coordinating work among onshore and offshore sites and project teams and maintaining high resource utilization rates;



•

integrating new management personnel and expanded operations while preserving our culture, values and entrepreneurial environment; and



•

developing and improving our internal systems and infrastructure, particularly our financial, operational and communications systems.

We operate in an intensely competitive environment, which may lead to declining revenue growth or other circumstances that would negatively affect our results of operations.

        The markets in which we compete are changing rapidly and we face intense competition from both global providers of outsourced technology services as well as those based in China. There are relatively low barriers to enter into our markets and we have faced, and expect to continue to face, additional competition from new market entrants. We believe that the principal competitive factors in our markets are breadth and depth of service offerings, reputation and track record, ability to tailor service offerings to client needs, industry expertise, ability to leverage offshore delivery platforms, service quality, price, scalability of infrastructure, financial stability, and sales and marketing skills. We face competition or competitive pressure primarily from:

•

global offshore outsourced technology services companies such as Cognizant Technology Solutions, Infosys Limited, iGATE Corporation, Tata Consultancy Services and Wipro Technologies;



•

China-based technology outsourcing service providers such as iSoftStone, Beyondsoft, Chinasoft, Dalian Hi-think Computer (DHC), Neusoft and SinoCom;



•

certain divisions of large multinational technology firms; and



•

in-house IT departments of our clients and potential clients.

        China-based outsourced technology services companies compete with us primarily in the China and Japan markets, while global offshore outsourced technology services companies compete with us primarily in the United States and Europe markets. Many of our international competitors have significantly greater financial, human and marketing resources, a broader range of service offerings, greater technological expertise, more experienced personnel, longer track records, more recognizable brand names and more established relationships in industries that we serve or may serve in the future. Moreover, a number of our international competitors have established operations in China.

        To compete successfully in our markets, we will need to develop new service offerings and enhance our existing service offerings while maintaining price competitiveness. If and to the extent we fail to develop value-adding service offerings that differentiate us from our competitors, we may need to compete largely on price, which may cause our operating margins to decline. Our ability to compete also depends in part on a number of factors beyond our control, including the ability of our competitors to attract, train, motivate and retain highly skilled professionals, the price at which our competitors offer comparable services and our competitors' responsiveness to client needs. In particular, outsourcing of technology services by domestic Chinese companies is a relatively recent development and it is not yet clear how this industry may develop. Our inability to compete successfully against competitors and pricing pressures could result in lost clients, loss of market share and reduced operating margins, which would adversely impact our results of operations.

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Our competitiveness depends significantly on our ability to keep pace with the rapid changes in information technology. Failure by us to anticipate and meet our clients' technological needs could adversely affect our competitiveness and growth prospects.

        The technology services market is characterized by rapid technological changes, evolving industry standards, changing client preferences and new product and service introductions. Our future success will depend on our ability to anticipate these advances and develop new service offerings to meet client needs. We may fail to anticipate or respond to these advances in a timely or cost-effective manner or, if we do respond, the services or technologies we develop may fail in the marketplace. Furthermore, services or technologies that are developed by our competitors may render our services less competitive or obsolete. In addition, new technologies may be developed that allow our clients to more cost-effectively perform the services that we provide, thereby reducing demand for our outsourced technology services. Our failure to address these developments could have a material adverse effect on our competitiveness and our ability to meet our growth targets.

Our revenues are highly dependent on a limited number of clients, and the loss of, or any significant decrease in business from, any one or more of our major clients could adversely affect our financial condition and results of operations.

        We have in the past derived, and believe that we will continue to derive, a significant portion of our revenues from a limited number of clients. In 2011, a United States-based multinational IT company accounted for 10.9% of our net revenues and our ten largest clients accounted for a combined 50.1% of our net revenues. In 2012, our largest client, another United States-based multinational IT company, accounted for 8.3% of our net revenues; and such United States-based multinational IT company further accounted for 10.4% of our net revenues in 2013. In 2012 and 2013, our ten largest clients accounted for a combined 41.7% and 39.1% of our net revenues respectively.

        The volume of work performed for specific clients is likely to vary from year to year, especially since we are generally not our client's exclusive technology outsourcing service provider. A significant client in one year may not provide the same level of revenues for us in any subsequent year. The technology outsourcing services we provide to our clients, and the revenues and income from those services, may decline or vary as the type and quantity of technology outsourcing and other services we provide change over time. In addition, our reliance on any individual client for a significant portion of our revenues may give that client a certain degree of pricing leverage against us when negotiating contracts and terms of services with us.

        There are a number of factors that could cause us to lose major clients. Because many of our engagements involve functions that are critical to the operations of our clients' businesses, any failure by us to meet a client's expectations could result in cancellation or non-renewal of the engagement. In addition, our clients may decide to reduce spending on technology services from us due to a challenging economic environment or other factors, both internal and external, relating to their business such as corporate restructuring or changing their outsourcing strategy by moving more work in-house or to other providers. For example, it was announced in September 2013 that one of our significant clients would sell substantially all of its devices and services business to another major client of us. Currently it is still unclear whether the latter client will continue to engage us for the business it acquired. Furthermore, our clients, some of whom have experienced rapid changes in their business, substantial price competition and pressures on their profitability, may demand price reductions, automate some or all of their processes or reduce the services to be provided by us, any of which could reduce our profitability.

        The loss of any of our major clients, or a significant decrease in the volume of work they outsource to us or the price at which we sell our services to them, could adversely affect our financial condition and results of operations.

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If we fail to continue to achieve the planned integration effectively within the time frame that is contemplated or to the extent that is planned, the merger with VanceInfo may not produce the benefits we anticipate.

        In August 2012, we entered into a merger agreement with VanceInfo with respect to a tax-free, all-stock merger of equals. Upon completion of the merger with VanceInfo on November 9, 2012, we became the surviving company with our ADSs continuing to be listed on the Nasdaq Global Select Market while VanceInfo became a privately held company. The success of our merger with VanceInfo will continue to depend, in part, on our ability to realize anticipated synergies, cost savings, operational efficiencies and growth opportunities by combining the businesses of the two companies.

        It is also possible that the continued integration process could result in diversion of our management's attention from their normal areas of responsibility to address integration issues, which could adversely affect our ability to maintain good relationships with our customers, suppliers, employees and other constituencies, or to achieve the anticipated benefits of the merger with VanceInfo, and could increase costs or reduce our earnings or otherwise adversely affect our businesses, financial condition, results of operations and prospects.

We have transferred certain of our outsourcing business with our major telecom client, and we may be exposed to the credit risk with respect to receiving the proceeds from this transfer.

        We entered into several transfer agreements with ChinaSoft International Limited (SEHK: 354), or ChinaSoft, and its affiliates, under which we have sold and transferred certain of our outsourcing business with our major telecom client, including accounts receivable, to ChinaSoft and its affiliates. In accordance with the transfer agreements, we have sold, and ChinaSoft and its affiliates have purchased the relevant business with our major telecom client, including relevant business contracts, assets and leases, and we have procured the transfer of relevant project teams. As part of such transaction, in order to diminish the uncertainty in collecting certain accounts receivable from this client, we have also agreed to transfer such accounts receivable to ChinaSoft. The transactions contemplated by the transfer agreements have been completed in the first quarter of 2014. However, we may be exposed to the credit risk of ChinaSoft, the transferee of the above business and accounts receivable. The inability of ChinaSoft to fully pay the amount of the purchase price of the above business and transferred accounts receivable may require us to make bad debt provisions and may adversely affect our results of operations and liquidity.

        In addition, the revenues that we derived from this client historically represented a significant portion of our net revenues. In 2012, we and, prior to the completion of the merger with VanceInfo, HiSoft Technology International Limited, or HiSoft, and VanceInfo, generated approximately $96.1 million of net revenues from this client, which was the largest client as measured by net revenues. In 2013, net revenues from this client declined significantly to $50.5 million due to the anticipation and discussion of the above business transfer, which has adversely affected our revenues, resource utilization and productivity levels. We do not expect any significant revenues from this client during 2014.

The non-competition clauses contained in some of our business contracts with our existing clients may affect our ability to explore new business relationships and to procure new clients.

        Some of our business contracts contain non-competition clauses which restrict our ability to provide services to competitors of our existing clients. Such clauses provide that, during the term of the contract or for a certain period of time after the completion of the service (typically 12 months), we or our employees who worked for a client may not provide similar services to such client's competitors. Some of our contracts provide that, although we are free to render other services to clients' customers prior to the receipt of statements of work, or SOWs, from our clients, such services may not create any conflicts of interest with the services we provide to those clients, and we must obtain our clients' prior written consent to continue providing services to their customers before we begin rendering similar services to our clients. In addition, some contracts restrict us from competing with the client in quoting,

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tendering or offering services or solutions, whether by ourselves or with others, directly or indirectly, to such client's customers. These restrictions may hamper our ability to compete for and provide services to other clients in a specific industry or market in which we have expertise and may adversely affect our revenues and future profitability.

        In addition, some of VanceInfo's business contracts executed prior to the merger with VanceInfo contain similar non-competition clauses. As such, we currently provide services to some customers and competitors of our existing clients as a result of the merger with VanceInfo, which may constitute a breach under the related client contracts or result in the termination of such client contracts, which in turn could adversely affect our business, future profitability and client relationships.

Our clients operate in a limited number of industries. Factors that adversely affect these industries or IT or research and development spending by companies within these industries may adversely affect our business.

        We derive a large proportion of our revenues from clients which operate in a limited number of industries, including high technology, banking, financial services and insurance, or BFSI, and manufacturing. In 2013, for example, we derived 58.0%, 27.1%, and 12.3% of our revenues, respectively, from clients operating in these industries. Our business and growth largely depend on continued demand for our services from clients and potential clients in these industries and those industries where we are focusing expansion efforts. Demand for our services, and technology services in general, in any particular industry could be affected by multiple factors outside of our control, including a decrease in growth or growth prospects of the industry, a slowdown or reversal of the trend to outsource technological applications, or consolidation in the industry. In addition, serving a major client within a particular industry may effectively preclude us from seeking or obtaining engagements with direct competitors of that client if there is a perceived conflict of interest. Any significant decrease in demand for our services by clients in these industries, or other industries from which we derive significant revenues in the future, may reduce the demand for our services.

The inability of our clients to pay the receivable balance on their accounts with us may expose us to the credit risks of such clients and may adversely affect our results of operations and liquidity .

        We maintain allowance for doubtful accounts based upon information available to us to make estimates, considering historical experience and other factors surrounding the credit risk of specific clients. However, if we additionally identify that collection from certain other significant accounts is in doubt, we may be exposed to the credit risk of such clients and may have to provide for the provision of those doubtful accounts. For example, in the financial years ended December 31, 2010 and 2012, we recorded bad debt provisions of $3.6 million and $5.2 million, respectively, mainly resulting from our identification of the credit risk with certain clients. The inability of our clients to pay the receivable balance on their accounts may require us to make bad debt provisions and may adversely affect our results of operations and liquidity.

We enter into fixed-price contracts with some of our clients, and our failure to accurately estimate the resources and time required for these contracts could negatively affect our results of operations.

        Some of our outsourced technology services are provided on a fixed-price basis that requires us to undertake significant projections and planning related to resource utilization and costs. Net revenues from fixed-price contracts accounted for 21.3% and 18.9% of our total net revenues in 2012 and 2013, respectively. Although our past project experience helps to reduce the risks associated with estimating, planning and performing fixed-price contracts, we bear the risk of cost overruns and completion delays in connection with these projects. Conversely, an overestimation of our costs may result in our submitting uncompetitive bids and loss of business. Any failure to accurately estimate the resources and time required for a project, wage inflation or any other factors that may impact our costs to complete the project, could adversely affect our profitability and results of operations.

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Many of our client contracts typically can be terminated by our clients without cause and with little or no notice or penalty. Any termination of our significant contracts could negatively impact our revenues and profitability.

        Our clients typically retain us on a non-exclusive, project-by-project basis. Many of our client contracts can be terminated by our clients with or without cause, with less than three months' notice and without penalty. Failure to meet contractual requirements could result in cancellation or non-renewal of a contract. There are a number of factors relating to our clients that are outside of our control which might lead them to terminate a contract or project with us, including:

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client financial difficulties;



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a change in strategic priorities resulting in elimination of the impetus for the project or a reduced level of technology spending;



•

a change in outsourcing strategy resulting in moving more work to the client's in-house technology departments or to our competitors;



•

the replacement by our clients of existing software with other software packages supported by licensors; and



•

mergers and acquisitions or significant corporate restructurings.

        In addition, many of the master service agreements, or MSAs, we have entered into with our clients require us to purchase and maintain specified insurance coverage during the terms of the MSAs, including professional liability insurance, commercial general liability insurance, umbrella insurance and workers compensation insurance. As the insurance industry in China is still in an early stage of development, a number of these types of insurance are not available on reasonable terms in China. We have purchased, among other things, professional liability insurance for our key professionals and commercial general liability insurance for our facilities and business operation in certain areas, but we still do not satisfy all the contractual requirements of certain of our key clients. Although to date no client has brought any material claims against us for such failure, our clients have the right to terminate these MSAs. Any termination of significant contracts, especially if unanticipated, could have a negative impact on our future revenues and profitability.

        Furthermore, in some of our MSAs, our clients are also entitled to request us to transfer, to them or their designees, the assets of our offshore development centers in China, or CDCs, that serve them and all of the operating relationships, including leases for the premises of the CDCs, employment relationships with the employees dedicated to the CDCs and contracts with subcontractors, at a pre-agreed transfer price which is generally a multiple of our monthly service fees from the relevant client for CDC services prior to the transfer. This transfer fee will either be reduced ratably based on the elapsed operation term of the CDC or subject to a maximum amount. In addition to the above amounts, the relevant client is also required to pay the lower of fair market value or net book value for the assets to be transferred that have not already been charged to the client. If our clients exercise these rights, we may lose some of our business and key employees, or may be required to transfer our assets and employees to a third party, and our losses may not be fully covered by the contractual payment.

Most of our engagements with clients are for a specific project only and do not necessarily provide for subsequent engagements. If we are unable to generate a substantial number of new engagements for projects on a continual basis, our business and results of operations will be adversely affected.

        Our clients generally retain us on an engagement-by-engagement basis in connection with specific projects rather than on a recurring basis under long-term contracts. Although a substantial majority of our revenues are generated from repeat business, which we define as revenues from a client who also contributed to our revenues during the prior fiscal year, our engagements with our clients are typically

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for projects that are singular and often short-term in nature. Therefore, we must seek out new engagements when our current engagements are successfully completed or are terminated, and we are constantly seeking to expand our business with existing clients and secure new clients for our services. If we are unable to generate a substantial number of new engagements on a continual basis, our business and results of operations will be adversely affected.

Some of our client contracts contain provisions which, if triggered, could adversely affect our future profitability.

        Our contracts with certain of our clients contain provisions that provide for downward revision of our prices under certain circumstances. For example, certain client contracts provide that if during the term of the contract we were to offer similar services to any other client on terms and conditions more favorable than those provided in the contract, we would be obliged to offer equally favorable terms and conditions to the client prospectively for future work performed. This may result in lower revenue and profits in future periods. Certain other contracts allow a client to request a benchmark study comparing our pricing and performance with that of other service providers for comparable services. Based on the results of the study and depending on the reasons for any unfavorable variance, we may be required to make improvements in the service we provide for the remaining term of the contract. While this has not happened in the past, the triggering of any of the provisions described above could adversely affect our future profitability.

        Furthermore, the contracts of HiSoft and VanceInfo with certain of their respective clients executed prior to our merger with VanceInfo contain change-of-control clauses, which provide that the contracts may be terminated with immediate effect by such clients' written notice without incurring any liability in the event that there is a direct or indirect change of ownership of HiSoft or VanceInfo, or there is a material change in the key personnel of HiSoft or VanceInfo. Such change-of-control clauses may be triggered as a result of our merger with VanceInfo. In addition, such change-of-control clauses and other change-of-control clauses contained in our contracts with our clients executed after our merger with VanceInfo may be triggered as a result of the proposed merger in connection with the proposed going private transaction. If we are unable to obtain the consent of such clients as to the consummation of the merger with VanceInfo as well as the consummation of the proposed merger in connection with the proposed going private transaction, the contracts with these clients may be terminated, which could adversely affect our business, future profitability and our relationships with such clients.

Our success depends to a substantial degree upon our senior management and key personnel, and our business operations may be negatively affected if we fail to attract and retain highly competent senior management.

        We depend to a significant degree on our senior management and key personnel such as project managers and other middle management. However, competition for senior management and key personnel in our industry is intense, and we may be unable to retain our senior management or key personnel or attract and retain new senior management or other key personnel in the future. If one or more members of our senior management team or key personnel resign, it could disrupt our business operations and create uncertainty as we search for and integrate a replacement. If any member of our senior management leaves us to join a competitor or to form a competing company, any resulting loss of existing or potential clients to any such competitor could have a material adverse effect on our business, financial condition and results of operations. Additionally, there could be unauthorized disclosure or use of our technical knowledge, practices or procedures by such personnel. We have entered into employment agreements with our senior management and key personnel which contain non-competition, non-solicitation and non-disclosure covenants that survive for up to one year following termination of employment. We may not, however, be able to enforce the non-competition, non-solicitation and non-disclosure provisions of these agreements, and such agreements do not ensure

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the continued service of these senior management and key personnel. In addition, we do not maintain key man life insurance for any of the senior members of our management team or our key personnel.

Our subcontracting practices may expose us to technical uncertainties, potential liabilities and reputational harm.

        In order to meet our personnel needs, increase workforce flexibility, and improve pricing competitiveness, we subcontract portions of certain projects to third parties. Despite certain advantages of subcontracting, such arrangements also give rise to a number of risks.

        Although we try to source competent and credible third parties as our subcontractors, they may not be able to deliver the level of service that our clients expect us to deliver. In addition, we rely on some of our subcontractors to provide certain services in order to complete our clients' projects, which require us to ensure that they continue to work with us and provide effective service. Should these subcontractors fail to deliver their services in a timely or effectively manner, our customers' perception of our services could be negatively impacted and our business could be adversely affected. Furthermore, we usually enter into non-disclosure arrangements with our subcontractors to limit access to and distribution of our clients' intellectual property and other confidential information as well as our own, but we cannot guarantee that they will not breach the confidentiality of our clients and misappropriate our or our clients' proprietary information and technology in the course of providing service. We, as the party to the contract with the client, are usually directly responsible for the losses our subcontractors cause to our clients. Under the subcontracting agreements we enter, our subcontractors usually promise to indemnify us for damages caused by their breach, but we may be unable to collect under these agreements. Moreover, their breaches may damage our reputation and adversely affect our ability to acquire new business in the future.

        Despite internal restrictions designed to prevent these actions, we may have subcontracted certain contractual obligations to third parties without first obtaining our clients' prior written consent under the related client contracts. Although we have not been subject to adverse claims by our clients for these actions, we cannot assure you that these actions would not result in improper disclosure of client information, or result in client dissatisfaction or client loss.

Our interests may conflict with our joint venture partners and disputes with joint venture partners may adversely affect our business.

        As of the date of this annual report, we indirectly hold a 50% equity interest in a PRC joint venture company, namely Beijing Yunxiang Weiye Information Technology Co., Ltd., or Beijing Yunxiang as a result of the merger between us and VanceInfo. As we continue to grow, we expect to acquire interests in more joint venture enterprises in China or abroad to execute our expansion plans by utilizing our partners' skills, experiences and resources. In accordance with PRC law, certain material matters relating to a joint venture, including increase or reduction of the registered capital of the joint venture, amendments to its articles of association, merger or division of the joint venture, and termination and dissolution of the joint venture, may require our joint venture partners' consents. Our future joint venture enterprises to be established abroad may involve more legal implications in other jurisdictions.

        In addition, joint ventures involve risks that our joint venture partners may:

•

have economic or business interests or goals that are inconsistent with or adverse to ours;



•

take actions contrary to our instructions or requests or contrary to our policies or objectives;



•

be unable or unwilling to fulfill their obligations under the relevant joint venture agreements;



•

have financial difficulties; or



•

have disputes with us as to the scope of their responsibilities and obligations.

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        Our present or future joint venture projects may not be successful. We cannot assure you that we will not have disputes or encounter other problems with respect to our present or future joint venture partners or that we will be able to resolve such disputes and solve such problems in a timely manner, or at all. Any failure of us to address these potential disputes or conflict of interests effectively could have a material adverse effect on our business, financial condition, and results of operations.

We may be liable to our clients for damages caused by system failures or breaches of security obligations.

        Many of our contracts involve projects that are critical to the operations of our clients' businesses. Certain of our client contracts require us to comply with security obligations including maintaining network security and back-up data, ensuring our network is virus-free, maintaining business continuity planning procedures, and verifying the integrity of employees that work with the clients by conducting background checks. Any failure in a client's system or breach of security relating to the services we provide to the client could damage our reputation or result in a claim for substantial damages against us. In some of our client contracts we limit our liability for damages arising from negligent acts in rendering our technology services. However, these contractual limitations of liability may be unenforceable or may fail to protect us from liability for damages in the event of a claim for breach of our obligations. In addition, our liability insurance is limited and may be insufficient to cover liabilities that we incur.

        Assertions of system failures or breaches of security obligations against us, if successful, could have a material adverse effect on our business, reputation, financial condition and results of operations. Even if such assertions against us are unsuccessful, we may incur reputational harm and substantial legal fees.

If our clients' proprietary intellectual property or confidential information is misappropriated by us, our employees or otherwise in violation of applicable laws and contractual agreements, we could be exposed to protracted and costly legal proceedings and lose clients.

        We and our employees are frequently provided with access to our clients' proprietary intellectual property and confidential information, including source codes, software products, business policies and plans, trade secrets and personal data. We use network security technologies and other methods to prevent employees from making unauthorized copies, or engaging in unauthorized use, of such intellectual property and confidential information. We also require our employees and subcontractors to enter into non-disclosure arrangements to limit access to and distribution of our clients' intellectual property and other confidential information as well as our own. However, implementation of intellectual property-related laws in China has historically been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, protection of intellectual property rights and confidentiality in China may not be as effective as that in the United States or other developed countries. As such, the steps taken by us in this regard may not be adequate to safeguard our clients' intellectual property and confidential information.

        Reverse engineering, unauthorized copying or other misappropriation of proprietary technologies of our clients could enable third parties to benefit from our or our clients' technologies, and our clients may hold us liable for that act and seek damages and compensation from us. Moreover, most of our client contracts do not include any limitation on our liability to them with respect to breaches of our obligation to keep the information we receive from them confidential, which may subject us to indirect or consequential damages incurred by our clients. In addition, we may not always be aware of intellectual property registrations or applications relating to source codes, software products or other intellectual property belonging to our clients. As a result, if our clients' proprietary rights are misappropriated by us, our employees or otherwise, our clients may consider us liable for that act and seek damages and compensation from us. Assertions of infringement of intellectual property or misappropriation of confidential information against us, if successful, could have a material adverse

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effect on our business, financial condition and results of operations. Any such acts could also cause us to lose existing and future business and damage our reputation in the market. Even if such assertions against us are unsuccessful, they may cause us to incur reputational harm and substantial legal fees.

If we cause disruptions to our clients' businesses or provide inadequate service, our clients may have claims for substantial damages against us, and as a result our profits may be substantially reduced.

        Most of our contracts with clients contain performance requirements. Failure to consistently meet service requirements of a client or errors made by our professionals in the course of delivering services to our clients could disrupt the client's business and result in a reduction in revenues or a claim for substantial damages against us. In addition, a failure or inability to meet a contractual requirement could seriously damage our reputation and affect our ability to attract new business.

        The services we provide are often critical to our clients' businesses, and any failure to provide those services could result in a reduction in revenues or a claim for substantial damages against us, regardless of whether we are responsible for that failure. Our CDC methodology requires us to maintain active data and voice communications between our main development centers in China and our international clients' offices. Any significant failure of our equipment or systems, or any major disruption to basic infrastructure like power and telecommunications in the locations in which we operate, could impede our ability to provide services to our clients, have a negative impact on our reputation, cause us to lose clients, reduce our revenues and harm our business.

        To the extent that our contracts contain limitations on liability for breach of our obligations, such limitations may be unenforceable or otherwise may not protect us from liability for damages. In addition, certain liabilities, such as claims of third parties for which we may be required to indemnify our clients, are generally not limited under our contracts. Although we have purchased, among other things, commercial general liability insurance and information and network technology errors or omissions liability insurance for our facilities in certain areas, the successful assertion of one or more large claims against us could still have a material adverse effect on our business, reputation, results of operations, financial condition and cash flows.

We may face certain risk with respect to obtaining the real estate certificate for our new delivery center and research and development center and leasing out part of these buildings. These buildings and certain other properties of us may also be subject to transfer restrictions.

        One of our subsidiaries has entered into a series of contracts in connection with development and construction of our new delivery center and research and development center on two parcels of land with an area of approximately 21,700 square meters in Beijing since November 2009. As of the date of this annual report, we have obtained the land use right certificate and certain other government permits for construction and have completed the construction on these two parcels of land, and we are in the process of obtaining the real estate title certificates for the buildings, subject to inspection. If we fail to timely obtain the real estate title certificates because such inspection has not been completed, our expansion plan may be affected. In addition, according to the relevant land use right certificate and the relevant land use right grant agreement and its supplements, (i) the usage for the land is for science and education as well as other business and services, (ii) the land can be only used by our subsidiary, Pactera Technology Limited (formerly known as VanceInfo Creative Software Technology Ltd.), or Pactera Beijing, and (iii) any transfer of the title to the land is prohibited unless prior consent from the competent governmental authority is obtained. We entered into a house lease contract in October 2013 to lease out part of the buildings, with a total area of approximately 14,400 square meters at a monthly rent of approximately RMB1.9 million, to a third company, which may be deemed as violation of the above use restrictions and we may thus be subject to liquidated damages and other liabilities for breach of contract. If such lease cannot be performed due to the above reason, the tenant may also claim damages against us. We plan to move our delivery center and research and

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development center in Beijing to the new office premises built on these parcels of land in the future. Due to the concentration of our operations, any future problem in our facilities such as loss of power or earthquake may limit our ability to conduct our business.

        In addition, one of our subsidiaries purchased three buildings from a third company by tender process with an aggregated gross floor area of approximately 21,225 square meters in Wuxi. As of the date of this annual report, we have paid up the purchase prices for these buildings and obtained the real estate title certificate to these buildings. According to such real estate title certificate, the usage of these buildings is for education, hospital and science, and based on the relevant strategic cooperation agreement that our subsidiary entered into with the local government, we committed not to change the usage of the relevant land, and if we breach such commitment, we may be subject to certain penalties such as refund of the relevant governmental subsidies. Therefore, the transfer or other disposition of these buildings and the above buildings in Beijing will be subject to restrictions as described above, unless we have obtained consent from relevant authorities.

We face risks associated with having a long selling and implementation cycle for our services that requires us to make significant resource commitments prior to realizing revenues for those services.

        We have a long selling cycle for our outsourced technology services, which requires significant investment of capital, human resources and time by both our clients and us. Before committing to use our services, potential clients often require us to expend substantial time and resources educating them as to the value of our services and our ability to meet their requirements. Therefore, our selling cycle, which frequently exceeds six months for new clients and three months for existing clients, is subject to many risks and delays over which we have little or no control, including our clients' decision to choose alternatives to our services (such as other providers or in-house resources) and the timing of our clients' budget cycles and approval processes. For certain engagements we may begin work and incur substantial costs prior to concluding the contract.

        Implementing our services also involves a significant commitment of resources over an extended period of time from both our clients and us. Our clients may experience delays in obtaining internal approvals or delays associated with technology or system implementations, thereby further delaying the implementation process. Our current and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to obtain contracts with potential clients to which we have devoted significant time and resources, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our competitiveness, profitability and prospects will suffer if we are not able to maintain our resource utilization levels and continue to improve our productivity levels.

        Our gross margin and profitability are significantly impacted by our utilization levels of fixed-cost resources, including human resources as well as other resources such as computers and office space, and our ability to increase our productivity levels. We have expanded our operations significantly in recent years through organic growth and external acquisitions, including the merger with VanceInfo, which has resulted in a significant increase in our headcount and fixed overhead costs. We may face difficulties in maintaining high levels of utilization for our newly established or newly acquired businesses and resources. In addition, some of our professionals are specially trained to work for specific clients or on specific projects and some of our delivery center facilities are dedicated to specific clients or specific projects. Our ability to manage our utilization levels depends significantly on our ability to hire and train high-performing professionals and to staff projects appropriately, and on the mix of our onshore versus offshore services provided on a given project.

        If we experience a slowdown or stoppage of work for any client or on any project for which we have dedicated professionals or facilities, we may not be able to efficiently reallocate these professionals and facilities to other clients and projects to keep their utilization and productivity levels

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high. If we are not able to maintain high resource utilization levels without corresponding cost reductions or price increases, our competitiveness, profitability and prospects will be materially and adversely affected.

Wage increases in China may prevent us from sustaining our competitive advantage and may reduce our profitability.

        Compensation expenses for our professionals and other employees form a significant part of our costs. Wage costs in China have historically been significantly lower than wage costs in Japan, the United States and other developed countries for comparably skilled professionals. However, because of rapid economic growth and increased competition for skilled employees in China, wages for highly skilled employees in China, in particular middle- and senior-level managers are increasing at a higher rate than in Japan, the United States, Singapore and Europe. We may need to increase our levels of employee compensation more rapidly than in the past to remain competitive in attracting and retaining the quality and number of employees that our business requires. Increases in the wages and other compensation we pay our employees in China could reduce the competitive advantage we have enjoyed against onshore service providers in Japan, the United States and other countries.

If we fail to comply with the regulations of the various industries and the different jurisdictions in which our clients conduct their business or fail to adhere to the regulations that govern our business, our ability to perform services may be affected and may result in breach of obligation with our clients.

        We serve clients across the United States, Greater China, Japan, Europe and other countries and our clients are subject to various regulations that apply to specific industries. Therefore, we need to perform our services to satisfy the requirements for our clients to comply with applicable regulations. We are also required under PRC laws and regulations to obtain and maintain licenses and permits to conduct our business. If we fail to perform our services in such a manner that enables any client to comply with applicable regulations, we may be in breach of our obligations with such client and as a result, we may be required to pay the client penalties under the terms of the relevant contract with such client. In addition, if we cannot maintain the licenses or approvals necessary for our business, there may be a material adverse effect on our business and results of operations.

Fluctuations in exchange rates could impact our competitiveness and results of operations.

        The majority of our revenues are generated in Renminbi, Japanese yen and U.S. dollars, while the majority of our costs are denominated in Renminbi. Accordingly, changes in exchange rates, especially relative changes in exchange rates among the Renminbi, Japanese yen and U.S. dollar, may have a material adverse effect on our revenues, costs and expenses, gross and operating margins and net income. For example, because substantially all of our employees are based in China and paid in Renminbi, our employee costs as a percentage of revenues may increase or decrease significantly along with fluctuations in the exchange rates between the Renminbi, Japanese yen and U.S. dollar.

        The Japanese yen and U.S. dollar are freely floating currencies. However, the conversion of the Renminbi into foreign currencies, including the Japanese yen and the U.S. dollar, has been based on exchange rates set by the People's Bank of China or PBOC. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi solely to the U.S. dollar. Under this revised policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. On June 19, 2010, the PBOC announced that it will allow a more flexible exchange rate for Renminbi without mentioning specific policy changes, although it ruled out any large-scale appreciation. Since June 2010, the Renminbi has started to slowly appreciate against the U.S. dollar, though there have been periods recently when the U.S. dollar has appreciated against the Renminbi. On April 16, 2012, the PBOC enlarged the floating band of RMB's trading prices against the U.S. dollar in the inter-bank spot foreign exchange market

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from 0.5% to 1% around the middle rate released by the China Foreign Exchange Trade System each day. There remains significant international pressure on the PRC government to adopt a more lenient Renminbi policy, which could result in further appreciation of Renminbi against other major currencies. It is difficult to predict how long the current situation may last and when and how Renminbi exchange rates may change going forward.

        If the Renminbi appreciates significantly against the U.S. dollar or the Japanese yen and we are unable to correspondingly increase the proportion of our Renminbi-denominated revenues, our margins and profitability could decrease substantially. Conversely, a significant depreciation of the Renminbi against the U.S. dollar or the Japanese yen may significantly reduce the U.S. dollar or the Japanese yen equivalent of our earnings, which in turn could adversely affect the price of our ADSs. We have entered into a limited number of Renminbi-Japanese yen and Renminbi-U.S. dollar forward contracts to partially hedge our exposure to risks relating to fluctuations in the Renminbi-Japanese yen exchange rate, and we periodically review the need to enter into hedging transactions to protect against fluctuations in the Renminbi-Japanese yen and Renminbi-U.S. dollar exchange rates. However, only limited hedging transactions were available as of the date of this annual report for Renminbi exchange rates, and the effectiveness of these hedging transactions in reducing the adverse effects on us of exchange rate fluctuations may be limited.

We have limited ability to protect our intellectual property rights, and unauthorized parties may infringe upon or misappropriate our intellectual property.

        Our success depends in part upon our proprietary intellectual property rights, including certain methodologies, practices, tools and technical expertise we utilize in designing, developing, implementing and maintaining applications and processes used in providing our services. We rely on a combination of copyright, trademark and patent laws, trade secret protections and confidentiality agreements with our employees, clients and others to protect our intellectual property, including our brand identity. Nevertheless, it may be possible for third parties to obtain and use our intellectual property without authorization. The unauthorized use of intellectual property is common and widespread in China and enforcement of intellectual property rights by PRC regulatory agencies is inconsistent. As a result, litigation may be necessary to enforce our intellectual property rights. Litigation could result in substantial costs and diversion of our management's attention and resources, and could disrupt our business, as well as have a material adverse effect on our financial condition and results of operations. Given the relative unpredictability of China's legal system and potential difficulties enforcing a court judgment in China, there is no guarantee that we would be able to halt any unauthorized use of our intellectual property in China through litigation.

We may be subject to third-party claims of intellectual property infringement, which could be time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights and may be unable to continue providing our existing services.

        Although there were no material pending or threatened intellectual property claims against us as of the date of this annual report, and we believe that our intellectual property rights do not infringe on the intellectual property rights of others, infringement claims may be asserted against us in the future. For example, we may be unaware of intellectual property registrations or applications that purport to relate to our services, which could give rise to potential infringement claims against us. Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology containing the allegedly infringing intellectual property. In addition, some of our contracts contain indemnity clauses in favor of our clients, and under certain of our contracts, we are required to provide specific indemnities relating to third-party intellectual property rights infringement. In some instances, the amount of these indemnities may be greater than the revenues we receive from the client. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award. Although we carry limited professional liability

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insurance, such insurance may not cover some claims and may not be sufficient to cover all damages that we may be required to pay. Furthermore, we may be forced to develop non-infringing technologies or obtain a license to provide the services that are deemed infringing. We may be unable to develop non-infringing processes, methods or technologies or to obtain a license on commercially reasonable terms or at all. We may also be required to alter our processes or methodologies so as not to infringe others' intellectual property, which may not be technically or commercially feasible and may cause us to expend significant resources. Any claims or litigation in this area, whether we ultimately win or lose, could be time-consuming and costly and could damage our reputation, negatively affect our results of operations or financial condition.

We may be exposed to legal proceedings, which, if determined adversely to us, could cause us to pay significant damages or otherwise adversely affect our business and operation.

        From time to time, we may be subject to legal proceedings, investigations and claims incidental to the conduct of our business. For example, on October 5, 2012, two individuals, or the plaintiffs, filed an action in the Superior Court of California, County of San Francisco against us and certain of our executive officers. The plaintiffs allege that they are the founders of Echo Lane, Inc., or Echo Lane, and became our employees after Echo Lane was acquired by us in 2010. The plaintiffs allege that we are liable to them for breach of contract and for fraud relating to the acquisition of Echo Lane. On November 9, 2012, this case was removed to the United States District Court for the Northern District of California. On February 15, 2013, the court issued an order requiring the plaintiffs to submit their claims to arbitration. On March 26, 2013, the plaintiffs filed an arbitration claim seeking an award of general and special damages, plus punitive damages, prejudgment interest, attorneys' fees and costs. See Item 8, "Financial Information—Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings." Any threatened, existing or future legal proceedings against us may divert our management's attention regardless of the final results of the legal proceedings. Furthermore, these proceedings, if determined adversely to us, could cause us to pay significant damages or otherwise adversely affect our business and operation.

Our business operations and financial condition could be adversely affected by negative publicity about offshore outsourcing or anti-outsourcing legislation in the United States, Europe, Japan or other countries in which our clients are based.

        Concerns that offshore outsourcing has resulted in a loss of jobs and sensitive technologies and information to foreign countries have led to negative publicity concerning outsourcing in some countries, including the United States. Current or prospective clients may elect to perform services that we offer them or may be discouraged from transferring these services to offshore providers to avoid any negative perception that may be associated with using an offshore provider.

        These trends could harm our ability to compete effectively with competitors that operate primarily out of facilities located in these countries.

        Offshore outsourcing has also become a politically sensitive topic in many countries, including the United States. A number of states of the United States have passed legislation that restricts state government entities from outsourcing certain work to offshore service providers. Other federal and state legislation has been proposed that, if enacted, would provide tax disincentives for offshore outsourcing or require disclosure of jobs outsourced abroad. Similar legislation could be enacted in Europe, Japan and other countries in which we have clients. Any expansion of existing laws or the enactment of new legislation restricting or discouraging offshore outsourcing by companies in the United States, Europe, Japan or other countries in which we have clients could adversely impact our business operations and financial results.

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We may need additional capital and any failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.

        Capital requirements are difficult to plan in our rapidly changing industry. As of the date of this annual report, we expect that we will need capital to fund:

•

acquisitions of assets, technologies or businesses;



•

the development and expansion of our technology service offerings;



•

the expansion of our operations and geographic presence; and



•

our marketing and business development costs.

        We may require additional capital resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including, among other things:

•

investors' perception of, and demand for, securities of outsourced technology services companies;



•

conditions in the United States and other capital markets in which we may seek to raise funds;



•

our future results of operations and financial condition;



•

PRC government regulation of foreign investment in China;



•

economic, political and other conditions in China; and



•

PRC government policies relating to the borrowing and remittance outside China of foreign currency.

        Financing may not be available in amounts or on terms acceptable to us or at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our product and service offerings to respond to market demand or competitive challenges.

The financial soundness of financial institutions with which we place our cash and cash equivalents could affect our financial conditions, business and result of operations.

        We place our cash and cash equivalents with authorized financial institutions, which include (i) banks incorporated in China, which are all authorized to operate banking business by China Banking Regulatory Commission and other relevant agencies, and (ii) overseas financial institutions regulated by competent regulatory authorities in their relevant jurisdictions such as Hong Kong. However, unlike certain other jurisdictions, there are no applicable government laws and regulations that require banks provide deposit insurance or similar protections to depositors in China. Any deterioration of financial soundness of these banks or financial institutions would cause credit risks to our cash and cash equivalents placed with them and thus could have a material adverse effect on our financial conditions, business and results of operations.

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Because there is limited business and litigation insurance coverage available in China, any business disruption or litigation we experience might result in our incurring substantial costs and diverting significant resources to handle such disruption or litigation.

        While business disruption insurance may be available to a limited extent in China, we have determined that the risks of disruption and the difficulties and costs associated with acquiring such insurance render it commercially impractical for us to have such insurance. As a result, we do not have any business liability or business disruption coverage for our operations in China. Although we carry limited professional liability insurance, such insurance may not cover some claims and may not be sufficient to cover all damages that we may be required to pay due to such claims. As a result, any business disruption or litigation might result in our incurring substantial costs and the diversion of resources.

Our operations and those of our customers are vulnerable to natural disasters and other events beyond our control, the occurrence of which may have an adverse effect on our facilities, personnel and results of operations.

        Our operations and those of our customers are vulnerable to fires, earthquakes, typhoons, droughts, floods, power losses, and similar events. Any damages and disruptions caused thereby could affect our ability to perform services for our clients in accordance with the contractual provisions and may cause us to incur additional expenses to repair or to reinvest in equipment or facilities. We cannot guarantee that such future events will not cause material damage to our and our customers' facilities or property or cause significant business interruptions. In addition, the damages and additional expenses caused by natural disasters may not be fully covered by our insurance and our failure to perform services for our clients due to such natural disasters may affect our reputation and may damage our relationships with our clients.

        In March 2011, Japan was struck by a 9.0-magnitude earthquake. The earthquake resulted in a tsunami and radiation leaks at the Fukushima nuclear facility. In response to unfolding safety concerns at the damaged nuclear facility at Fukushima, we incurred relocation expenses associated with relocating our nearly 200 Japan-based employees and their families. Those employees and their families were given the option of being relocated to Osaka, Japan or to China to work out of these alternative locations, after consultation with our clients. As a result, in the first quarter of 2011, we experienced additional operating expenses of approximately $0.7 million. We cannot assure you that these events will not have any further subsequent adverse effect on our facilities and operations or those of our customers. In particular, the extent of existing and potential future radiation release from the Fukushima nuclear facility is still in flux and coupled with potential aftershocks from the earthquake, may result in future additional adverse effects on our facilities and operations and those of our customers and suppliers.

        We cannot assure you that there will be no further adverse impact on our future revenue as a result of potential interruption or slowdown of operations of our customers.

Our net revenues, expenses and profits are subject to fluctuation, which make them difficult to predict and may negatively affect the market price of our ADSs.

        Our operating results and growth rate may vary significantly from quarter to quarter. Therefore, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as an indication of our future performance. It is possible that in the future some of our quarterly results of operations may be below the expectations of market analysts and our investors, which could lead to a significant decline in the market value of our ADSs. In addition, the volume of work performed for specific clients is likely to vary from year to year, particularly since we typically are not the exclusive outside service provider to our clients. Thus, a

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major client in one year may not provide the same amount or percentage of our revenues in any subsequent year.

        Additional factors which affect the fluctuation of our net revenues, expenses and profits include:

•

variations in the duration, size, timing and scope of our engagements, particularly with our major clients;



•

impact of new or terminated client engagements;



•

timing and impact of acquisitions, including how quickly and effectively we are able to integrate the acquired business, its service offerings and employees, and retain acquired clients;



•

changes in our pricing policies or those of our clients or competitors;



•

start-up expenses for new engagements;



•

progress on fixed-price engagements, and the accuracy of estimates of resources and time frames required to complete pending assignments;



•

the proportion of services that we perform onshore versus offshore;



•

the proportion of fixed-price contracts versus time-and-materials contracts;



•

unanticipated employee turnover and attrition;



•

the size and timing of expansion of our facilities;



•

unanticipated cancellations, non-renewal of our contracts by our clients, contract terminations or deferrals of projects;



•

changes in our employee utilization rates;



•

changes in relevant exchange rates; and



•

our ability to implement productivity and process improvements, and maintain appropriate staffing to ensure cost-effectiveness on individual engagements.

        Moreover, our results may vary depending on our clients' business needs and IT spending patterns. Due to the annual budget cycles of most of our clients, we may not be able to estimate accurately the demand for our services beyond the immediate calendar year, which could adversely affect our business planning and may have a material adverse effect on our business, results of operations and financial condition. Furthermore, the long sales cycle for our services, and the internal budget and approval processes of our prospective clients make it difficult to predict the timing of new client engagements. Accordingly, the financial benefit of gaining a new client may be delayed due to delays in the implementation of our services.

        In addition, a significant portion of our expenses, particularly those related to personnel and facilities, are fixed in advance of any particular quarter. As a result, unanticipated variations in the number and timing of our projects or employee utilization rates may cause significant variations in our operating results in any particular quarter. Fluctuations in our operating results may result in sharp unpredictable fluctuations in the market price of our ADSs. Such sharp fluctuations may be viewed negatively by the market and result in a lower market price than our ADSs would have in the absence of such fluctuations.

Our net revenues and results of operations are affected by seasonal trends.

        Our net revenues and results of operations are affected by seasonal trends. In particular, as most of our net revenues are derived from contracts priced on a time-and-materials basis, we typically experience lower total net revenues during holiday periods, particularly during the Chinese New Year holiday in the first quarter of every year and various holidays throughout the year, when our delivery centers in the PRC operate with reduced staffing. However, during periods of high growth in our net

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revenues as well as during periods of quarterly fluctuations in net revenues due to other factors, such as the recent global economic crisis, any seasonal impact on our quarterly results may not be apparent. We believe that our net revenues and results of operations will continue to be affected in the future by seasonal trends. As a result, you may not be able to rely on period to period comparisons of our net revenues and results of operations as an indication of our future performance.

The international nature of our business exposes us to risks that could adversely affect our financial condition and results of operations.

        We have operations in Greater China, the United States, Japan, Europe, Singapore, Australia, Malaysia, Indonesia, and Mauritius, and we serve clients across North America, Europe and Asia. Our corporate structure also spans multiple jurisdictions, with our parent holding company incorporated in the Cayman Islands and intermediate and operating subsidiaries incorporated in Greater China, the United States, Japan, Europe, Singapore, Australia, Malaysia, Indonesia, and Mauritius. As a result, we are exposed to risks typically associated with conducting business internationally, many of which are beyond our control. These risks include:

•

significant currency fluctuations among the Renminbi, Japanese yen, U.S. dollar, Singapore dollar and other currencies in which we transact business;



•

legal uncertainty owing to the overlap of different legal regimes, problems in asserting contractual or other rights across international borders, and the burden and expense of complying with the laws and regulations of various jurisdictions;



•

potentially adverse tax consequences, such as scrutiny of transfer pricing arrangements by authorities in the countries in which we operate;



•

current and future tariffs and other trade barriers, including restrictions on technology and data transfers;



•

obtaining visas and other travel documents, especially for our employees who are PRC citizens;



•

unexpected changes in regulatory requirements;



•

terrorist attacks and other acts of violence, regional conflicts or war, including any escalation of hostilities between South Korea and North Korea; and



•

natural and man-made disasters, including the 9.0-magnitude earthquake in Japan and resulting tsunami and radiation leaks at the Fukushima nuclear power plant in early 2011.

        The occurrence of any of these events could have a material adverse effect on our financial condition and results of operations.

We may cease to enjoy financial incentives and subsidies from certain PRC government agencies.

        Certain of our PRC subsidiaries have in the past been granted financial incentives and subsidies from certain local government agencies in support of the continued expansion of our business locally and globally. These government agencies may decide to reduce or eliminate such financial incentives and subsidies at any time. Additionally, some of these financial incentives and subsidies are performance-based, and we may fail to achieve the required performance targets. Therefore, we cannot assure you of the continued availability of such financial incentives and subsidies. The discontinuation of these financial incentives and subsidies could potentially increase our operating and other expenses and adversely affect our financial condition and results of operation.

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We rely on technological infrastructure and telecommunications systems in providing our services to our clients, and any failures by, or disruptions to, the infrastructure and systems we use could adversely affect our business and results of operations.

        To provide effective offshore outsourced technology services for our clients, we must maintain active voice and data communications among our main operation centers in China, our onshore centers in Japan, the United States, and our clients' offices. Disruptions to our communications systems could result from, among other things, technical breakdowns, computer glitches and viruses, and natural or man-made disasters. For example, while the March 11, 2011 Japan earthquake, resulting tsunami and radiation leaks at the Fukushima nuclear power plant did not damage our facilities in Japan, we did sustain some disruption in our business in and around the Tokyo region owing to temporary loss of electrical power, temporary staff evacuation and lost staff productivity. Also, the May 2008 earthquake centered in China's Sichuan province caused disruptions in the operations of our Chengdu delivery center, including interruptions in communications, temporary closure and lost staff productivity. We also depend on certain significant vendors for facility storage and related maintenance of our main technology equipment and data at our technology hubs. Any failure by these vendors to perform those services, any temporary or permanent loss of our equipment or systems, or any disruptions to basic infrastructure like power and telecommunications could impede our ability to provide services to our clients, have a negative impact on our reputation, cause us to lose clients and otherwise adversely affect our business and results of operations.

We may be vulnerable to cyber attacks, which could disrupt our operations and have a material adverse effect on our business, financial performance and operating results.

        As a provider of outsourced IT and research and development services, cyber attacks and hacking activities may cause material adverse effect on our business, financial performance and operating results. "Hacking" involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions, loss or corruption of data, software, hardware or other computer equipment. In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability. Hacking and computer viruses could result in significant damage to our hardware and software systems and databases, disruptions to our business activities, including to our e-mail and other communications systems, breaches of security and the inadvertent disclosure of confidential or sensitive information, interruptions in access to our website through the use of "denial of service" or similar attacks, and other material adverse effects on our operations. As techniques used to breach security change frequently and are often not recognized until launched against a target, we may not be able to implement new security measures in a timely manner or, if and when implemented, we may not be certain whether these measures could be circumvented. We may incur significant costs to protect our systems and equipment against the threat of, and to repair any damage caused by, computer viruses and hacking. Moreover, if a computer virus or hacking affects our systems and is highly publicized, our reputation and brand names could be materially damaged and use of our services may decrease.

Restrictions on visa issuances by Japan, the United States or other countries may affect our ability to compete for and provide services to clients in those countries, which could adversely affect our business and results of operations.

        Our business depends to a limited extent on the ability of our PRC employees to obtain the necessary visas and entry permits to do business in the countries where our clients and our onshore delivery centers are located. Historically, the process for obtaining visas for PRC nationals to visit certain countries, including Japan and the United States, has been lengthy and cumbersome. We have in the past experienced delays and rejections when applying for business visas to the United States for some of our personnel. Moreover, in response to terrorist attacks and global unrest, immigration

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authorities generally, and those in the United States in particular, have increased the level of scrutiny in granting visas. If further terrorist attacks occur, obtaining visas for our personnel may become even more difficult. Local immigration laws may also require us to meet certain other legal requirements as a condition to obtaining or maintaining entry visas. In addition, immigration laws are subject to legislative change and varying standards of application and enforcement due to political forces, economic conditions or other events, including terrorist attacks. If we are unable to obtain the necessary visas for our personnel who need to travel internationally, if the issuance of such visas is significantly delayed, or if the length of stay permitted under such visas is shortened, we may not be able to provide services to our clients on a timely and cost-effective basis or manage our onshore delivery centers as efficiently as we otherwise could, any of which could adversely affect our business and results of operations.

If we fail to maintain an effective system of internal control over financial reporting, we may lose investor confidence in the reliability of our financial statements, which could adversely affect the market price of our ADSs.

        As a public company in the United States, we are subject to reporting obligations under the United States Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we include a report from management on our internal control over financial reporting in our annual report on Form 20-F beginning with the annual report for the fiscal year ended December 31, 2011. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2013, and our independent registered public accounting firm has issued an attestation report, which has concluded that our internal control over financial reporting is effective in all material aspects for the year ended December 31, 2013. For the full text of those reports, see "Item 15. Controls and Procedures."

        Our reporting obligations as a public company may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may identify control deficiencies as a result of the assessment process we will undertake in compliance with Section 404. We plan to remediate control deficiencies identified in time to meet the deadline imposed by the requirements of Section 404 but we may be unable to do so. Nonetheless, if we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial reporting processes, which in turn could harm our business and negatively impact the trading price of our ADSs.

The audit report included in this annual report are prepared by auditors who are not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

        Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the United States Public Company Accounting Oversight Board, or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.

        Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed as

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part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor's audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

        The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Proceedings instituted by the SEC against five PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act.

        In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act against the Chinese affiliates of the "big four" accounting firms, (including our auditors) and also against Dahua (the former BDO affiliate in China). The Rule 102(e) proceedings initiated by the SEC relate to these firms' inability to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act, as the auditors located in the PRC are not in a position lawfully to produce documents directly to the SEC because of restrictions under PRC law and specific directives issued by the China Securities Regulatory Commission. The issues raised by the proceedings are not specific to our auditors or to us, but affect equally all audit firms based in China and all China-based businesses with securities listed in the United States.

        In January 2014, the administrative judge reached an Initial Decision that the "big four" accounting firms should be barred from practicing before the SEC for six months. However, it is currently impossible to determine the ultimate outcome of this matter as the accounting firms have filed a Petition for Review of the Initial Decision and pending that review the effect of the Initial Decision is suspended. The SEC commissioners will review the Initial Decision, determine whether there has been any violation and, if so, determine the appropriate remedy to be placed on these audit firms. Once such an order was made, the accounting firms would have a further right to appeal to the United States federal courts, and the effect of the order might be further stayed pending the outcome of that appeal.

        Depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected.

Risks Related to China

Our operations may be adversely affected by changes in China's political, economic and social conditions or a deterioration in China's relations with Japan or the United States.

        As a substantial portion of our business operations are conducted in China, changes to the economic, political and social conditions in China could have an adverse effect on our business, results of operations and prospects. In addition, any significant increase in China's inflation rate could increase our costs and have a negative impact on our operating margins. Although inflation in China has not materially impacted our results of operations in recent years, China has experienced significant increases in inflation levels. According to the National Bureau of Statistics of China, the consumer price index in China increased by 5.4%, 2.6% and 2.6% in 2011, 2012 and 2013, respectively.

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        Although the PRC economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the PRC government continues to exercise significant control over China's economic growth through the allocation of resources, controlling the incurrence and payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. From late 2003 to mid-2008, the PRC government implemented a number of measures, such as increasing the PBOC's statutory deposit reserve ratio and imposing commercial bank lending guidelines that had the effect of slowing the growth of credit availability. In response to the recent global and Chinese economic downturn, the PRC government has promulgated several measures aimed at expanding credit and stimulating economic growth. Since August 2008, the PBOC has decreased the statutory deposit reserve ratio and lowered benchmark interest rates several times in response to the global downturn. Since January 2010, the PBOC has begun to increase the statutory reserve ratio in response to rapid domestic growth, which may have a negative impact on the Chinese economy. However, since December 2011, the PBOC has begun to decrease the statutory deposit reserve ratio in an effort to maintain the pace of economic growth. It is unclear whether PRC economic policies will be effective in sustaining stable economic growth in the future. Changes in any of these policies could adversely affect the overall economy in China or the prospects of the outsourced technology services industry.

        Any sudden changes to China's political system or the occurrence of widespread social unrest could have negative effects on our business and results of operations. In addition, China has a number of disputes with Japan or the United States and any significant deterioration in China's relations with each of them could discourage some of our clients in those countries from engaging in business with us or could lead to legislation in China, Japan or the United States that could have an adverse impact on our business interests. For example, a recent outbreak of hostilities concerning a dispute between China and Japan over the uninhabited Diaoyu/Senkaku Islands has resulted in sharp declines in sales of Japanese goods in China and a decline in travel to Japan by Chinese tourists. We can't assure you that this political dispute would not develop into a more severe political upheaval or economic downturns in China and Japan, which may greatly harm our business operations and financial results.

The discontinuation of any of the preferential tax treatments available to us in China could materially and adversely affect our results of operations and financial condition.

        Under PRC tax laws and regulations, certain of our operating subsidiaries in China enjoyed, or are qualified to enjoy, certain preferential income tax benefits.

        On March 16, 2007, the National People's Congress of China enacted a new Enterprise Income Tax Law, or New EIT Law, which became effective on January 1, 2008. In addition, the Implementation Rules of the New Enterprise Income Tax Law, or the Implementation Rules, was promulgated by the PRC State Council on December 6, 2007. The New EIT Law, among others, (i) reduces the statutory rate of enterprise income tax from 33% to 25%, and (ii) introduces new tax incentives, subject to various qualification criteria. For example, the New EIT Law permits certain "high and new technology enterprises strongly supported by the state" to enjoy a reduced enterprise tax rate of 15%. According to the relevant administrative measures, to qualify as "high and new technology enterprises strongly supported by the state," our PRC subsidiaries must meet certain financial and non-financial criteria and complete verification procedures with the administrative authorities. Continued qualification as a "high and new technology enterprise" is subject to a three-year review by the relevant government authorities in China, and in practice certain local tax authorities also require annual evaluation of the qualification. In addition, subject to approval from the applicable tax bureau, an enterprise which is recognized as a "newly setup software enterprise" is entitled to certain preferential tax treatment, including income tax exemption for its first two profit-making years, and a 50.0% reduction in its income tax rate until October 31, 2017. The qualification as a "software enterprise" is subject to annual inspection by the competent authorities in China.

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        According to the Notice on Certain Policies on Encourage of Development of Software Industry and Integrated Circuits Industry issued by the National People's Congress of China on June 24, 2000, enterprises recognized as "key software enterprises within state plan" are entitled to enjoy the tax rate of 10%. On January 28, 2011, the National People's Congress of China issued the Notice on Certain Policies on Further Encourage of Development of Software Industry and Integrated Circuits Industry. Enterprises recognized as "key software enterprises within state plan" will continue to enjoy the tax rate of 10%.

        On November 5, 2010, the Ministry of Finance, the Ministry of Commerce and the State Administration of Taxation jointly issued the Notice on the Relevant Enterprise Income Tax Polices on Advanced Technology Service Enterprises, or Notice 65, with retroactive effect from July 1, 2010. Under Notice 65, enterprises which qualify as "advanced technology service enterprises" are entitled to enjoy the tax rate of 15% from July 1, 2010 to December 31, 2013.

        In the event the preferential tax treatment for any of our PRC subsidiaries is discontinued or is not verified by the local tax authorities, and the affected entity fails to obtain preferential income tax treatment, it will become subject to the standard PRC enterprise income tax rate of 25%.

        We cannot assure you that the tax authorities will not, in the future, discontinue any of our preferential tax treatments, potentially with retroactive effect. The discontinuation of our preferential tax treatments or the change of the applicable preferential tax rate could materially increase our tax obligations.

        In addition, our PRC subsidiaries are exempt from business tax, if applicable, with respect to (i) the software development business and related technology consulting services in which they engage, both of which fall within the definition of technology development business, and (ii) the offshore outsourcing service. Our PRC subsidiaries are required to sign and submit business contracts under specific requirements under current PRC tax laws to obtain the exemption and we cannot assure you that each of our clients will cooperate with us to comply with the specific requirements for the purpose of the exemption. Furthermore, we cannot assure you that the PRC regulators will not change the tax laws to cancel the tax exemption. Expiration of or changes to the tax exemption may have a material adverse effect on our tax obligations and operating results. Starting from January 2012, some of our PRC subsidiaries are required to pay value added tax as a result of recent tax reform in the PRC. Starting from August 2013, the value added tax have applied to all of our PRC subsidiaries according to the agenda of the tax reform. See "—All of our subsidiaries incorporated in China are required to pay value added tax as a result of recent tax reform in the PRC and the impact on our operating result is unclear." The above-mentioned business tax exemption terms survived and the qualified revenues of our PRC subsidiaries derived from the technology development business and offshore outsourcing services are exempt from value added taxes from January 1, 2012 to December 31, 2018.

All of our subsidiaries incorporated in China are required to pay value added tax as a result of recent tax reform in the PRC and the impact on our operating result is unclear.

        On November 16, 2011, the Ministry of Finance and the State Administration of Taxation jointly issued the Implementation Rules of the Pilot Program of Value Added Tax Reform, or Circular 110, and the Notice on the Pilot Program of Value Added Tax Reform in Transportation and Certain Modern Service Industries in Shanghai, or Circular 111, or the New VAT Rules. The New VAT Rules became effective on January 1, 2012. Under the tax reform pilot program launched in Shanghai under the New VAT Rules, transportation and certain modern service companies in Shanghai are subject to value added tax, or VAT, in lieu of the otherwise applicable business tax of 5%.

        In addition, on July 31, 2012, the Ministry of Finance and the State Administration of Taxation jointly issued the Circular on Launching the Pilot Collection of Value Added Tax in lieu of Business Tax in Transportation and Certain Areas of Modern Services Industries in Eight Provinces and

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Municipalities Including Beijing, certain transportation and modern services companies incorporated in eight other provinces or municipalities in the PRC are subject to the tax reform contemplated under the New VAT Rules. As a result, our PRC subsidiaries incorporated in Beijing, Jiangsu, Fujian, Guangdong (including Shenzhen), Tianjin, Zhejiang and Hubei are required to pay VAT starting from September 1, 2012, October 1, 2012, November 1, 2012, November 1, 2012, December 1, 2012, December 1, 2012 and December 1, 2012, respectively. Since August 2013, this tax pilot program had been expanded to the remaining areas within China. As a result, from August 1, 2013, all our PRC subsidiaries are subject to VAT at the rates, 6% or 3%, on service revenues from product sales and services, which were previously subject to business tax.

        Specifically, these subsidiaries will be subject to VAT at a rate of 3% if they qualify as small-scale VAT payers or 6% if they qualify as general VAT payers for the technology and IT services they provide. The tax burden associated with different VAT payer status are unclear because while general VAT payers are subject to a higher VAT rate, they enjoy the benefit of being able to reduce the total VAT payable by the VAT it has paid in connection with daily purchasing activities, which is not available to small-scale VAT payers. In addition, different formulas for calculating taxable VAT will be applied to the VAT payers depending on their status. As these are newly introduced rules, there is significant uncertainty relating to the interpretation and enforcement of these rules by the national and local tax authorities and other relevant authorities and our business, financial condition and results of operations could be materially and adversely affected if the interpretation and enforcement of these rules and other tax reforms become unfavorable to us.

Under the New EIT Law, we may be classified as a "resident enterprise" of China. Such classification would likely result in unfavorable tax consequences to us.

        Under the New EIT Law and the Implementation Rules, both of which became effective on January 1, 2008, an enterprise established outside of the PRC with "de facto management bodies" within the PRC is considered a resident enterprise and is subject to enterprise income tax at the rate of 25% on its global income. The Implementation Rules define the term "de facto management bodies" as "establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise." The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the "de facto management body" of a Chinese-controlled offshore incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those invested in by PRC individuals, like our company, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation's general position on how the "de facto management body" test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or controlled by or invested in by PRC individuals. While we do not believe our holding company and our subsidiaries should be considered a resident enterprise, if the PRC authorities were to subsequently determine that we should be so treated, a 25% enterprise income tax on our global income could significantly increase our tax burden and materially and adversely affect our financial condition and results of operations.

        Pursuant to the New EIT Law, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors will be subject to a 10% withholding tax, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. We are a Cayman Islands holding company and substantially all of our income may come from dividends from our PRC subsidiaries. To the extent these dividends are subject to withholding tax, the amount of funds available to us to meet our cash requirements, including the payment of dividends to our shareholders and ADS holders, will be reduced.

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        In addition, because there remains uncertainty regarding the interpretation and implementation of the New EIT Law and the Implementation Rules, it is uncertain whether, if we are regarded as a PRC resident enterprise, any dividends to be distributed by us to our non-PRC shareholders and ADS holders would be subject to any PRC withholding tax.

        If we are required under the New EIT Law to withhold PRC income tax on our dividends payable to our non-PRC corporate shareholders and ADS holders, your investment in our ADSs or common shares may be materially and adversely affected.

        Furthermore, the State Administration of Taxation promulgated the Notice on How to Understand and Determine the Beneficial Owners in Tax Agreement in October 2009, or Circular 601, which provides guidance for determining whether a resident of a contracting state is the "beneficial owner" of an item of income under China's tax treaties and tax arrangements. According to Circular 601, a beneficial owner generally must be engaged in substantive business activities. An agent or conduit company will not be regarded as a beneficial owner and, therefore, will not qualify for treaty benefits. The conduit company normally refers to a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits. We cannot assure you that any dividends to be distributed by our PRC subsidiaries to their non-PRC holding companies or parents, whose jurisdiction of incorporation has a tax treaty with China providing for a different withholding arrangement, will be entitled to the benefits under the relevant withholding arrangement.

The strengthened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on our acquisition strategy or your disposition of our common shares or ADSs.

        In connection with the New EIT Law, the Ministry of Finance and State Administration of Taxation jointly issued, on April 30, 2009, the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59. On July 26, 2010, the State Administration of Taxation issued the Administration Measures on the Enterprise Income Tax Treatment of Enterprise Reorganizations, or Bulletin No. 4 to provide clarification in a number of areas for Circular 59 and also provide guidance on filing and documentation requirements. On December 10, 2009, the State Administration of Taxation issued the Notice on Strengthening the Management on Enterprise Income Tax for Non-resident Enterprises Equity Transfer, or Circular 698. On March 28, 2011, the State Administration of Taxation issued the Notice on Issues about the Administration of Enterprise Income Tax for Non-PRC Enterprises, or Bulletin No. 24, which provides clarification for Circular 698 in a number of areas, including, for example, installment payment treatment, effective tax burden, and filing requirement for foreign investors who have indirectly transferred a Chinese resident enterprise. The State of Administration of Taxation issued the Notice on Issues Concerning Special Tax Treatment on Equity Transfers by Non-resident Enterprises on December 12, 2013, or Bulletin No. 72, which provides guidance on the filing and documentation requirements on the special tax treatment for equity transfers by non-resident enterprises as defined under the Circular 59. Both Circular 59 and Circular 698 became effective retroactively on January 1, 2008. Bulletin No. 4, Bulletin No. 24 and Bulletin No. 72 took effect from January 1, 2010, April 1, 2011 and December 22, 2013, respectively. However, they also apply to transactions that have occurred prior to its issuance for which the relevant PRC tax matters have not been dealt with. Under the two circulars, HiSoft Holdings Limited, or HiSoft Holdings BVI, HiSoft, and HiSoft Systems Holdings Limited, or HiSoft Systems BVI, may be subject to income tax on capital gains generated from their respective transfers to us and other subsidiaries of our company of equity interests in HiSoft Services (Beijing) Ltd., or HiSoft Beijing, and HiSoft Technology (Chengdu) Co., Ltd., which was renamed as Chengdu Pactera Technology Limited, or Pactera Chengdu, in 2008 and equity interests in HiSoft Systems (Shenzhen) Ltd., which was renamed as Shenzhen Pactera Systems Limited, or Pactera Shenzhen, in 2009, although our management believes the risk is remote. The PRC tax authorities have the discretion under Circular 59 and Circular 698 to make adjustments to the taxable capital gains

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based on the difference between the fair value of the equity interests transferred and the cost of investment. If the PRC tax authorities make such adjustment, our income tax costs will be increased.

        By promulgating and implementing the circulars, the PRC tax authorities have strengthened their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. For example, Circular 698 specifies that the PRC State Administration of Taxation is entitled to redefine the nature of an equity transfer where offshore vehicles are interposed for tax-avoidance purposes and without reasonable commercial purpose and thus impose PRC income tax on a transfer of equity in an offshore company. It is not clear to what extent the holders of our common shares or ADSs will be subject to these requirements. Furthermore, since we consistently pursue acquisitions as one of our growth strategies, and have conducted and may conduct acquisitions involving complex corporate structures, the PRC tax authorities may, at their discretion, adjust the capital gains or request us or the holders of our common shares or ADSs to submit additional documentation for their review in connection with any of our acquisitions or any disposition of our common shares or ADSs by the holders of our common shares or ADSs, thus causing us or the holders of our common shares or ADSs to incur additional acquisition costs.

We may be subject to tax liability with respect to the merger with VanceInfo, which would materially and negatively affect our business and our results of operations.

        Under Circular 698, which became effective retroactively as of January 1, 2008, and Bulletin 24, if any non-PRC tax residents transfer equity interest in a non-resident enterprise that has underlying PRC investments (other than purchasing and transferring the stock of a PRC tax resident enterprise listed on a stock market with the volume and price determined pursuant to the standard trading rules of the public security market rather than being determined by the purchaser and seller by mutual agreement prior to the transaction), the non-PRC tax resident may be subject to reporting requirements and may be subject to a 10% income tax on the gain from such equity transfer. If the transaction is assessed by the State Administration of Taxation or its local counterparts as tax evasion without fair commercial reasons, according to Circular 698 and Bulletin 24, where the non-PRC tax resident indirectly holds and transfers equity interest in a PRC tax resident held through an offshore holding company, which was established in a jurisdiction with either (1) an effective tax rate less than 12.5% or (2) a tax exemption for the foreign-sourced income arising out of such equity transfer, the non-PRC tax resident shall be required to file with the relevant PRC taxation authorities certain information and materials about the equity transfer and the business, personnel, accounting, assets, operation and capital relationship between the non-PRC tax resident and the offshore holding company. Where any such PRC taxation authorities, upon review and examination of the documents submitted by the non-PRC tax resident, deem such offshore holding company to be a vehicle incorporated for the purpose of tax evasion and without fair commercial purposes, they have the power to redefine the nature of the offshore share transfer transaction, deny the existence of the offshore holding company that is used for tax-avoidance purposes and impose a 10% income tax on the gain generated from such offshore share transfer after review and approval by the relevant PRC taxation authorities.

        With respect to the merger of VanceInfo with and into our company in November 2012, we do not believe that a gain recognized on the receipt of the merger consideration for VanceInfo American Depositary Shares or VanceInfo shares pursuant to the merger, or the Merger Consideration, by VanceInfo American Depositary Shares holders or VanceInfo shareholders who are non-PRC tax resident enterprises should be subject to PRC income tax according to Circular 698. If, however, the relevant PRC taxation authorities, were to determine that VanceInfo should be treated as a resident enterprise under the New EIT Law and Circular 82 or that the receipt of the Merger Consideration should otherwise be subject to PRC income tax under Circular 698, then a gain recognized on the receipt of the Merger Consideration by VanceInfo shareholders or VanceInfo American Depositary Shares holders, respectively, who are non-PRC tax resident under the EIT Law could be treated as

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PRC-source income that would be subject to PRC withholding tax at a rate of 10%, unless otherwise reduced or exempted pursuant to an applicable tax treaty.

        Our current understanding is that neither of our company or VanceInfo will be required to deduct or withhold any amount from the Merger Consideration under any applicable PRC laws. First, there is uncertainty as to the application and interpretation of Circular 698 (for example, the term "indirect transfer" is not clearly defined and the relevant authority has not yet promulgated any formal interpretations or declarations as to the process and format for reporting an indirect transfer to the competent tax authority of the relevant PRC resident enterprise). Second, the merger is an offshore transaction between overseas public companies, and the PRC tax laws are ambiguous as to the withholding obligation for this kind of offshore transaction. Third, we don't believe the merger is a taxable "indirect transfer" in the context of Circular 698 because our company and VanceInfo have fair commercial reason to consolidate their respective IT outsourcing business in China, VanceInfo's shareholders did not receive cash in the merger (instead such shareholders will continue their investments in our company), and VanceInfo's business structure within China and outside of China was not changed prior to, and has not changed since, the merger. Fourth, we are not aware of any past transactions of the same or a similar nature and structure as our merger ever having been made subject to Circular 698. After the completion of the merger, VanceInfo made the filing under Circular 698 with the competent tax authority where one of its PRC subsidiaries is located in accordance with the filing requirements under Bulletin 24. VanceInfo has not yet received any notice or order from the tax bureau on any additional interviews, enquiries, or instructions in relation to the filing, nor is VanceInfo aware of any further action taken by the tax bureau or its superior competent authorities. However, we cannot assure you that the relevant tax bureaus will not require VanceInfo or our company to retroactively deduct or withhold any amount from the Merger Consideration since tax bureaus generally have discretion to conduct further investigation according to the PRC tax laws. In the event a deduction or withholding is required, VanceInfo or our company may be required to deduct and withhold from the consideration otherwise payable pursuant to the merger agreement such amounts as the competent tax authority reasonably determines to be deducted and withheld with respect to the making of such payment under any applicable tax laws of the PRC. To the extent that amounts are so withheld and paid over to the appropriate governmental entity, such withheld amounts shall be treated for all purposes of the merger agreement as having been paid by the VanceInfo American Depositary Shares holders or VanceInfo shareholders in respect to which such deduction and withholding was made. We can't assure you that we will get reimbursed for such withheld amounts from any of the VanceInfo American Depositary Shares holders or VanceInfo shareholders.

The enforcement of the Labor Contract Law, Social Insurance Law and other labor-related regulations in China may adversely affect our reputation, business, results of operations and prospects.

        On June 29, 2007, the National People's Congress of China enacted the Labor Contract Law, which became effective on January 1, 2008.

        The Labor Contract Law establishes more restrictions and increases costs for employers to dismiss employees under certain circumstances, including specific provisions related to fixed-term employment contracts, non-fixed-term employment contracts, task-based employment, part-time employment, probation, consultation with the labor union and employee representative's council, employment without a contract, dismissal of employees, compensation upon termination and for overtime work, and collective bargaining. An employer is typically required to provide severance payment to an employee after the employment relationship is terminated. In addition, under the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008, employees who have served more than one year for an employer are entitled to a paid vacation ranging from five to 15 days, depending on the number of the employee's working years at the employer. Employees who waive such vacation time at the request of employers are entitled to compensation equal to three times their regular daily

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salary for each waived vacation day. As a result of these new measures designed to enhance labor protection, our labor costs are expected to increase, which may adversely affect our business and our results of operations. In addition, the PRC government in the future may enact further labor-related legislation that increases our labor costs and restricts our operations.

        Furthermore, according to the Labor Contract Law and its implementing rules, if we intend to enforce the non-competition provisions with our employees in the employment agreements or confidentiality agreements, we have to compensate our employees on a monthly basis during the term of the restriction period after the termination or ending of the employment contract, which may cause extra expenses to us.

        In addition, under the applicable PRC laws and regulations, including the Social Insurance Law promulgated by the Standing Committee of the National People's Congress and effective as of July 1, 2011, or the PRC Social Insurance Law, our operating subsidiaries in the PRC are required to make mandatory contributions to a number of social insurance schemes for their employees who are eligible for such benefits, which include pension, unemployment insurance, childbirth insurance, work-related injury insurance and medical insurance. Under the Regulations on Management of Housing Provident Fund promulgated by the PRC State Council as of March 24, 2005 and the applicable local implementing rules, our operating subsidiaries in the PRC are required to make mandatory contributions to housing fund plans. We may have not fully complied with the social insurances and housing fund plan contribution requirements for our employees.

        According to the Labor Contract Law, unless otherwise provided by law, an employer is obliged to sign an open-ended labor contract with an employee if the employer continues to hire the employee after the expiration of two consecutive fixed-term labor contracts or if the employee has worked for the employer for ten consecutive years. Such open-ended contract is only terminable in the event that a statutory termination cause is satisfied (such as material violation of disciplinary policy, or remaining incapacity after training or change of position). Such open-ended employment contracts may substantially increase our employment-related risks and limit our ability to downsize our workforce in event of an economic downturn.

        As a result of these measures designed to enhance labor protection, our labor costs may increase and we cannot assure you that our employment practices do not or will not violate the Social Insurance Law and other labor-related regulations. If we are deemed to have been noncompliant with any such laws and regulations or to have failed to make adequate contributions to any social insurance schemes, we may be subject to penalties and negative publicity, and our business, results of operations and prospects may be materially adversely affected.

The PRC legal system embodies uncertainties which could limit the legal protections available to you and us.

        As our main operating entities and a substantial majority of our assets are located in China, PRC laws and the PRC legal system in general may have a significant impact on our business operations. Although China's legal system has developed over the last several decades, PRC laws, regulations and legal requirements remain underdeveloped relative to the United States. Moreover, PRC laws and regulations change frequently and their interpretation and enforcement involve uncertainties. For example, the interpretation or enforcement of PRC laws and regulations may be subject to government rules or policies, some of which are not published on a timely basis or at all. In addition, the relative inexperience of China's judiciary in some cases may create uncertainty as to the outcome of litigation. These uncertainties could limit our ability to enforce our legal or contractual rights or otherwise adversely affect our business and operations, especially in relation to contracts with government entities, including state-owned enterprises. One of our major customers is a state-owned enterprise in China. Furthermore, due to the existence of unpublished rules and policies, and since newly issued

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PRC laws and regulations may have a retroactive effect, we may not be aware of our violation of certain PRC laws, regulations, policies or rules until after the fact.

If the CSRC, or another PRC regulatory agency, determines that CSRC approval was required in connection with our or VanceInfo's initial public offering or follow-on public offering, we may become subject to penalties.

        On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006 and were amended on June 22, 2009. Under these regulations, the prior approval of the CSRC is required for the overseas listing of offshore special purpose vehicles that are directly or indirectly controlled by PRC companies or individuals and used for the purpose of listing PRC onshore interests on an overseas stock exchange.

        We completed the initial listing and trading of our ADSs on the Nasdaq Global Market (which was subsequently elevated to the Nasdaq Global Select Market on January 3, 2011) in December 2010, and VanceInfo completed the initial listing and trading of its American Depositary Shares on the New York Stock Exchange in December 2007. Neither of us and VanceInfo sought CSRC approval in connection with the initial public offerings and follow-on public offerings. Our PRC counsel, Fangda Partners, has advised us that, based on their understanding of the current PRC laws and regulations as well as the procedures announced on September 21, 2006:

•

The CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like our or VanceInfo's public offerings are subject to this new procedure;



•

In spite of the above, given that each of us and VanceInfo has completed our restructuring before September 8, 2006, the effective date of these regulations, such regulations do not require an application to be submitted to the CSRC for the approval of the issuance and sale of our ADSs and common shares and VanceInfo's ordinary shares and American depositary shares, or the listing and trading of our ADSs on the Nasdaq Global Market (which was subsequently elevated to the Nasdaq Global Select Market on January 3, 2011) and VanceInfo's American depositary shares on the New York Stock Exchange; and



•

The issuance and sale of our ADSs and common shares and the listing and trading of the ADSs on the Nasdaq Global Market (which was subsequently elevated to the Nasdaq Global Select Market on January 3, 2011), and the issuance and sale of VanceInfo's American depositary shares and ordinary shares and the listing and trading of VanceInfo's American depositary shares on the New York Stock Exchange do not conflict with or violate this new PRC regulation.

        However, there remains some uncertainty as to how these regulations will be interpreted or implemented. If the CSRC or another PRC regulatory agency subsequently determines that the CSRC's approval was required for our or VanceInfo's initial public offerings or follow-on public offerings, we may face sanctions by the CSRC or another PRC regulatory agency. If this happens, these regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our initial public offering and follow-on public offering into China, restrict or prohibit payment or remittance of dividends by our PRC subsidiaries to us, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors could make it more difficult for us to make future acquisitions or dispose of our business operations or assets in China.

        The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors also established additional procedures and requirements that could make merger and acquisition activities

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by foreign investors more time-consuming and complex, including a requirement that the Ministry of Commerce, or MOFCOM, be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if either threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings issued by the State Council on August 3, 2008 is triggered. Furthermore, MOFCOM promulgated the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisition of Domestic Enterprises by Foreign Investors in August 2011, or the MOFCOM Security Review Rules, which became effective on September 1, 2011, for the implementation of the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular No. 6. According to the MOFCOM Security Review Rules, a security review is required for mergers and acquisitions by foreign investors (i) involving PRC domestic enterprises with "national defense and security" concerns and (ii) where the foreign investors may acquire "de facto control" of the PRC domestic enterprises with national security concerns such as key farm products, key energy and resources, and key infrastructure, transportation, technology and major equipment manufacturing industries. Circular No. 6, however, does not define the term of "key" or "major", nor has it exhausted all the industries that may be deemed as sensitive industries subject to the security review. When deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review by MOFCOM, the principle of "substance over form" should be applied and foreign investors are prohibited from bypassing the security review requirement by structuring transactions through nominee holding structure, trusts, indirect investments, leases, loans, control through contractual arrangements, offshore transactions, or other means. We believe that our current business is not in an industry with national security concerns. However, we cannot exclude the possibility that MOFCOM or other government agencies may release interpretations or new rules contrary to our understanding or broaden the scope of such security review in the future. Since 2005, we have expanded our operations through a series of acquisitions and investments. Complying with the requirements of these new regulations in order to complete any future transactions could be time-consuming, and any required approval processes, including approval from the Ministry of Commerce, may delay or inhibit our ability to complete any future transactions, which could affect our ability to expand our business or maintain our market share. In addition, such additional procedures and requirements could make it more difficult or time-consuming for us to dispose of any of our business operations or assets in China.

A failure by our shareholders or beneficial owners who are PRC citizens or residents in China to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under PRC laws, which could adversely affect our business and financial condition.

        In October 2005, China's State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE Circular 75 states that PRC citizens or residents must register with the relevant local SAFE branch or central SAFE in connection with their establishment or control of an offshore entity established for the purpose of overseas equity financing involving a roundtrip investment whereby the offshore entity acquires or controls onshore assets or equity interests held by the PRC citizens or residents. In addition, such PRC citizens or residents must amend their SAFE registrations when the offshore special purpose company undergoes material events relating to increases or decreases in investment amount, transfers or exchanges of shares, mergers or divisions, long-term equity or debt investments, external guarantees, or other material events that do not involve roundtrip investments. Furthermore, PRC citizens or residents are also required to remit profits, dividends and other capital variation incomes in foreign exchange paid by the special purpose company to China within 180 days

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following their receipt of the same. Since May 2007, various rules and guidance issued by SAFE have set forth operational procedures for such registration.

        We have urged our shareholders and beneficial owners who are PRC residents to make the necessary applications and filings as required under SAFE Circular 75 and other related rules. Prior to the merger with VanceInfo, we understand that our PRC citizen or resident beneficial owners have completed initial registrations with the local counterpart of SAFE in Dalian. With respect to VanceInfo, Mr. Chris Shuning Chen, our chairman, Mr. Stanley Ying Zhou, our former executive vice president, and Mr. Kevin Zhong Liu, one of our former employees, have made the requisite SAFE registration with respect to their investment and beneficial ownership prior to the merger with us. Furthermore, we understand that our PRC citizen or resident beneficial owners who have completed initial registration with the local counterpart of SAFE, including Mr. Chris Shuning Chen, Mr. Stanley Ying Zhou and Mr. Kevin Zhong Liu, are in the process of completing amendment registrations under SAFE Circular 75 as a result of the merger with VanceInfo, other changes to their beneficial interests in us and various acquisitions made by us. However, we may not be fully informed of the identities of all our beneficial owners who are PRC citizens or residents, and we cannot compel our beneficial owners to comply with SAFE Circular 75 requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC citizens or residents have complied with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE Circular 75 or other related regulations. In addition, it remains unclear how SAFE Circular 75 and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. Failure by such shareholders or beneficial owners to comply with SAFE Circular 75 could subject us to fines or legal sanctions, lead to potential liability for our onshore subsidiaries, and in some instances, for their legal representatives and other liable individuals, restrict our overseas or cross-border investment activities, limit our subsidiaries' ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects. See "—Restrictions under PRC law on our PRC subsidiaries' ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses."

A failure to comply with PRC regulations regarding the registration of shares and share options held by our employees who are PRC citizens may subject such employees or us to fines and legal or administrative sanctions.

        Pursuant to the Implementation Rules of the Administrative Measures on Individual Foreign Exchange, or the Individual Foreign Exchange Rules, promulgated on January 5, 2007 by SAFE and the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas Listed Companies, or the Stock Option Rules, promulgated on February 20, 2012, which supersedes the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas-listed Company issued by SAFE on March 28, 2007, PRC citizens or residents habitually residing in the PRC continuously for over one year, who have been granted shares or share options by an overseas-listed company according to its employee share holding plan, share option plan or other similar share incentive plans are required to, through the PRC subsidiary of such overseas-listed company to appoint qualified PRC agents, register with SAFE or its local counterparts and complete certain other procedures related to the share option or share incentive plan. Concurrent with the registration with SAFE or its local counterparts, the qualified PRC agent shall obtain an approval from SAFE for an annual allowance in connection with the foreign exchange in connection with share holding or share option exercises as well as an approval for opening a special foreign exchange account at a PRC domestic bank to hold the funds in connection with the share purchase or share option exercise, returned principal or profits upon sales of shares, dividends issued on the stock and any other

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income or expenditures approved by SAFE. Currently, foreign exchange income of the participating PRC residents received from the sale of share and dividends distributed by the overseas listed company are required to be fully remitted into such special domestic foreign currency account before the distribution to such participants. In addition, the PRC agents are required to amend or deregister the registrations with SAFE or its local counterparts in case of any material change in, or termination of, the share incentive plans, within the time periods provided by the Stock Option Rules.

        We and our PRC resident employees who are the participants of our share incentive plans (including VanceInfo's PRC resident employees whose VanceInfo share options and restricted share units have been assumed by us and replaced by our share options and restricted share units at the effective time of the merger between us and VanceInfo), are subject to these rules. We and our PRC resident employees who are subject to these rules are in the process of completing amendment registrations as required under the Stock Option Rules in relation to the change of our share incentive plans resulting from the merger with VanceInfo in November 2012 and our acquisition or establishment of certain subsidiaries. If we or our PRC option holders fail to comply with these rules, we or our PRC option holders may be subject to fines and legal or administrative sanctions. See "Item 4. Information of the Company—B. Business Overview—Regulations—Regulations on Foreign Exchange."

        In addition, VanceInfo Financial Solutions Limited, which was renamed later as Pactera Financial Solutions Limited, or Pactera Financial Solutions, our wholly owned subsidiary incorporated in British Virgin Islands, has adopted a Share Incentive Plan in 2011, or the PFS 2011 Share Incentive Plan. However, we did not register such plan with SAFE pursuant to the then effective Individual Foreign Exchange Rule. So far, there is no PRC law expressly regulating issuing options or restricted shares by an offshore private company to PRC resident employees, and it is unclear whether failure to register such PFS 2011 Share Incentive Plan with the local counterpart of SAFE is deemed noncompliance with Individual Foreign Exchange Rule or Stock Option Rules. In addition, in practice, SAFE does not accept any application for registration of an incentive plan by an offshore private company, neither does it accept any application by relevant PRC resident employees for converting Renminbi into U.S. dollars for the purposes of paying share option exercise prices or share prices under relevant share incentive plans. If the failure of registration of PFS 2011 Share Incentive Plan is deemed as non-compliance by SAFE, we and the option participants who are PRC residents may be subject to legal and administrative sanctions, and adoption of the PFS 2011 Share Incentive Plan may be challenged by SAFE.

PRC government restrictions on the convertibility of Renminbi may limit our ability to effectively utilize our revenues and funds.

        A majority of our net revenues are generated in Renminbi, Japanese yen or U.S. dollars, while most of our costs are denominated in Renminbi. In order for us to effectively utilize our revenues and the funds raised in our initial public offering and the follow-on public offering, we need to conduct currency exchanges between Renminbi and other currencies. Under PRC regulations as of the date of this annual report, Renminbi is convertible for "current account transactions," which include, among other things, dividend payments and payments for the import of goods and services. Our PRC subsidiaries may also retain foreign exchange in their respective current account bank accounts for use in payment of international current account transactions. Although the Renminbi has been fully convertible for current account transactions since 1996, we cannot assure you that the relevant PRC government authorities will not limit or eliminate our ability to purchase and retain foreign currencies for current account transactions in the future. Conversion of Renminbi into foreign currencies, and of foreign currencies into Renminbi, for payments relating to "capital account transactions," which principally include investments and loans, generally requires the approval of SAFE and other relevant PRC governmental authorities.

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        On August 29, 2008, SAFE promulgated the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign Invested Enterprises, or SAFE Circular 142, a notice regulating the conversion by a foreign-invested company of foreign currency into Renminbi by restricting how the converted Renminbi may be used. SAFE Circular 142 requires that Renminbi converted from the foreign currency-denominated registered capital of a foreign-invested company may only be used for purposes within the company's business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless specifically provided for otherwise in its business scope. In addition, SAFE strengthened its oversight of the flow and use of Renminbi funds converted from the foreign currency-denominated registered capital of a foreign-invested company. The use of such Renminbi may not be changed without approval from SAFE, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not yet been used. Violations of SAFE Circular 142 may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. As a result, SAFE Circular 142 may significantly limit our ability to transfer funds to our PRC subsidiaries in the PRC, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC, and we may not be able to convert funds into Renminbi to invest in or acquire any other PRC companies. Furthermore, SAFE promulgated the Notice of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, or SAFE Circular 59, on November 19, 2010, which tightens the examination of the authenticity of settlement of net proceeds from an offering and requires that the settlement of net proceeds be in accordance with the description in the relevant prospectus.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using our funds available to us outside China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

        In utilizing the funds we received or will receive outside China, as an offshore holding company of our PRC subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to PRC regulations and approvals. For example, loans by us in foreign currencies to our wholly-owned subsidiaries, which are foreign-invested enterprises in China, to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local counterparts.

        We may also decide to finance our PRC subsidiaries by means of capital contributions. These capital contributions must be approved by China's Ministry of Commerce or its local counterparts. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, or at all. If we fail to receive such registrations or approvals, our ability to use funds we received or will receive outside China and to capitalize our PRC operations may be negatively affected, which could materially adversely affect our liquidity and our ability to fund and expand our business.

Restrictions under PRC law on our PRC subsidiaries' ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses.

        A majority of our revenues are earned by our PRC subsidiaries. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent company. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Each of our PRC subsidiaries is also required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC accounting standards to a statutory general reserve fund until the cumulative amount in such fund reaches 50% of the company's registered capital. Each of our PRC subsidiaries is also required to set aside a certain

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amount of its after-tax profits each year, if any, to fund a staff welfare fund. Also, each of our PRC subsidiaries that is a Chinese-foreign equity joint venture is required to set aside a certain amount of its after-tax profits each year, if any, to fund a reserve fund and an enterprise expansion fund. However, the specific amounts of the staff welfare fund or enterprise expansion fund are subject to the discretion of the board of directors of the relevant subsidiary. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or dividends. As of December 31, 2013, our PRC subsidiaries had allocated $19.8 million to these statutory reserve funds. The total amount of our restricted net assets was $185.9 million as of December 31, 2013. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

Any future outbreak of a severe form of H1N1 or H7N9 influenza, severe acute respiratory syndrome or avian flu in China, or any similar adverse public health developments, may disrupt our business and operations.

        Adverse public health epidemics or pandemics could disrupt businesses operations and economic activities in China. For example, from December 2002 to June 2003, China and certain other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. During May and June of 2003, many businesses in China were temporarily closed by the PRC government to prevent transmission of SARS. The World Health Organization has announced that there is a high likelihood of an outbreak of avian flu in Asia, with the potential to be as disruptive as if not more disruptive than SARS. In 2009, occurrences of H1N1 influenza were reported throughout the world, including in China. Recently, it has been reported outbreaks of an avian flu caused by the H7N9 virus, including confirmed human cases, in several regions in China. Any recurrence of the SARS outbreak, an avian flu outbreak, a severe H1N1 influenza outbreak, or the development of H7N9 influenza or a similar health hazard in China, may disrupt our business and operations and prevent us from providing our services in a timely manner.

Risks Related to Our Common Shares and ADSs

An active trading market for our common shares or our ADSs may not be sustained and the trading price for our ADSs may fluctuate significantly.

        If an active public market for our ADSs is not sustained, the market price and liquidity of our ADSs may be adversely affected. Furthermore, following periods of volatility in the market price of a company's securities, shareholders have often instituted securities class action litigation against that company. If we were involved in a class action suit, it could divert the attention of senior management, and, if adversely determined, could have a material adverse effect on our results of operations.

Future sales or perceived sales of our ADSs or common shares by existing shareholders could cause our ADSs price to decline.

        If our existing shareholders sell, indicate an intention to sell, or are perceived to intend to sell, substantial amounts of our common shares in the public market after the termination of any contractual lock-up period and other legal restrictions on resale discussed in this annual report, the trading price of our common shares could decline. As of February 28, 2014, we had approximately 85.9 million outstanding common shares (excluding unvested portion of non-vested common shares awarded under our share incentive plans). All of our outstanding shares are eligible for sale in the public market, although a portion is subject to volume limitations under Rule 144 under the U.S. Securities Act of 1933, as amended, or the Securities Act. In addition, common shares subject to outstanding options or restricted share units under our share incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and

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Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our ADSs could decline.

We may become a passive foreign investment company, or PFIC, which could result in adverse United States tax consequences to the United States holders .

        Based on the composition of our income and the composition and valuation of our assets, including goodwill, we do not believe we were a passive foreign investment company, or PFIC, for 2013, and we do not expect to become one in the future, although there can be no assurance in this regard. If we become a PFIC, United States Holders, as defined under "Item 10. Additional Information—E. Taxation—Material United States Federal Income Tax Considerations", of our common shares or ADSs may become subject to increased tax liabilities under the United States federal income tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for United States federal income tax purposes if either (i) 75% or more of our gross income in that taxable year is passive income or (ii) the average percentage of our assets (which includes cash) by value in that taxable year which produce or are held for the production of passive income is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of our ADSs, which is subject to change. There is no assurance that we will not be a PFIC in 2014 or later years. See "Item 10. Additional Information—E. Taxation—Material United States Federal Income Tax Considerations—Passive Foreign Investment Company."

You may not be able to participate in rights offerings and may experience dilution of your holdings in relation to any such offerings.

        We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

The trading price of our ADSs may be volatile, which could result in substantial losses to investors.

        The trading price of our ADSs may be volatile and could fluctuate widely in response to factors relating to our business as well as external factors beyond our control. Factors such as variations in our financial results, announcements of new business initiatives by us or by our competitors, recruitment or departure of key personnel, changes in the estimates of our financial results or changes in the recommendations of any securities analysts electing to follow our securities or the securities of our competitors could cause the market price for our ADSs to change substantially. At the same time, securities markets may from time to time experience significant price and volume fluctuations that are not related to the operating performance of particular companies. For example, in late 2008 and early 2009, the securities markets in the United States, China and other jurisdictions experienced the largest decline in share prices since September 2001. These market fluctuations may also have a material adverse effect on the market price of our ADSs.

        In addition, the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States may affect the

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volatility in the price of and trading volumes for our ADSs. In recent years, many PRC companies have listed their securities, or are in the process of preparing for listing their securities, on the United States stock markets. Some of these companies have experienced significant volatility, including significant price declines in connection with their initial public offerings. The trading performances of these PRC companies' securities at the time of or after their offerings may affect the overall investor sentiment towards PRC companies listed in the United States and consequently may impact the trading performance of our ADSs.

        These broad market and industry factors may significantly affect the market price and volatility of our ADSs, regardless of our actual operating performance. Any of these factors may result in large and sudden changes in the trading volume and price for our ADSs.

Anti-takeover provisions in our charter documents may discourage a third party from acquiring us, which could limit our shareholders' opportunities to sell their shares at a premium.

        Our sixth amended and restated memorandum and articles of association, as amended, include provisions that could limit the ability of others to acquire control of us, modify our structure or cause us to engage in change-of-control transactions. For example, our board of directors will have the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our common shares. Preferred shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if our board of directors issues preferred shares, the market price of our common shares may fall and the voting and other rights of the holders of our common shares may be adversely affected. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction.

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under the United States law, you may have less protection of your shareholder rights than you would under the United States law.

        Our corporate affairs are governed by our sixth amended and restated memorandum and articles of association, as amended, the Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some states of the United States, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

        The Cayman Islands courts are unlikely:

•

to recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or



•

to entertain original actions brought against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

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        There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the Cayman Islands will generally recognize as a valid judgment, a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) or in certain circumstances, an in personam judgment for non-monetary relief and would give a judgment based thereon provided that (i) such courts had proper jurisdiction over the parties subject to such judgment; (ii) such courts did not contravene the rules of natural justice of the Cayman Islands; (iii) such judgment was not obtained by fraud; (iv) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (v) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (vi) there is due compliance with the correct procedures under the laws of the Cayman Islands.

You will have limited ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, because we are incorporated in the Cayman Islands, because we conduct a majority of our operations in China and because the majority of our directors and officers reside outside the United States .

        We are incorporated in the Cayman Islands and conduct our operations primarily in China. A substantial majority of our assets are located outside the United States and most of our directors and officers reside outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the applicable securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

        Shareholders of Cayman Islands exempted companies such as ourselves have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders of these companies. Our directors are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

        As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company.

Your ability to protect your rights as shareholders through the United States federal courts may be limited because we are incorporated under Cayman Islands law.

        Cayman Islands companies may not have standing to initiate a derivative action in a federal court of the United States. As a result, your ability to protect your interests if you are harmed in a manner that would otherwise enable you to sue in a United States federal court may be limited to direct shareholder lawsuits.

The voting rights of holders of ADSs are limited in several significant ways by the terms of the deposit agreement.

        Holders of our ADSs may only exercise their voting rights with respect to the underlying common shares in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions from a holder of ADSs in the manner set forth in the deposit agreement, the depositary will endeavor to vote the underlying common shares in accordance with these instructions. Under our sixth amended

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and restated memorandum and articles of association, as amended, the minimum notice period required for convening a general meeting is 10 clear days. When a general meeting is convened, you may not receive sufficient notice of a shareholders' meeting to permit you to withdraw your common shares to allow you to cast your vote with respect to any specific matter at the meeting. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your common shares are not voted as you requested.

The depositary of our ADSs will, except in limited circumstances, grant to us a discretionary proxy to vote the common shares underlying your ADSs if you do not vote at shareholders' meetings, which could adversely affect your interests and the ability of our shareholders as a group to influence the management of our company.

        Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote our common shares underlying your ADSs at shareholders' meetings if you do not vote, unless:

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we have failed to timely provide the depositary with our notice of meeting and related voting materials;



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we have instructed the depositary that we do not wish a discretionary proxy to be given;



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we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;



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a matter to be voted on at the meeting would have a material adverse impact on shareholders; or



•

voting at the meeting is made on a show of hands.

        The effect of this discretionary proxy is that you cannot prevent our common shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for holders of ADSs to influence the management of our company. Holders of our common shares are not subject to this discretionary proxy.

You may not receive distributions on our common shares or any value for them if it is unlawful or impractical for us to make them available to you.

        The depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for our ADSs receives on our common shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our common shares your ADSs represent. However, the depositary is not responsible if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration is required for such distribution. We have no obligation to take any other action to permit the distribution of our ADSs, common shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our common shares or any value for them if it is unlawful or impractical for us to make them available to you. These restrictions may have a material and adverse effect on the value of your ADSs.

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You may be subject to limitations on the transfer of your ADSs.

        Your ADSs, represented by American depositary receipts, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we think or the depositary thinks it is necessary or advisable to do so in connection with the performance of its duty under the deposit agreement, including due to any requirement of law or any government or governmental body, or under any provision of the deposit agreement.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq corporate governance standards applicable to the United States issuers, including the requirement regarding the implementation of a nominating committee. This may afford less protection to holders of our common shares and ADSs.

        The Nasdaq Marketplace Rules in general require listed companies to have, among other things, a nominating committee consisting solely of independent directors and establishment of a formal director nomination process. As a foreign private issuer, we are permitted to, and we will, follow home country corporate governance practices instead of certain requirements of the Nasdaq Marketplace Rules. The corporate governance practice in our home country, the Cayman Islands, does not require the implementation of a nominating committee or establishment of a formal director nominations process. We currently rely upon the relevant home country exemption in lieu of the nominating committee or nominations process. As a result, the level of independent oversight over management of our company may afford less protection to holders of our common shares and ADSs.