Large IT Labor Pool Increasingly more IT graduates Growth in IT industry in China Lack of high-end...

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OOA&D - 2 © Minder Chen, 1995-2003

http://i.i.com.com/cnwk.1d/i/z/1203/meta_1209_figure1.gifhttp://techupdate.zdnet.com/techupdate/stories/main/Top_10_Risks_Offshore_Outsourcing_print.html


Reference

• http://www.cxoeurope.com/documents.asp


http://www.cxoeurope.com/images/figs/zoom/top03e18f1.gif

Source: Feeny, D. and Willcocks, L. (1998). Core IS Capabilities For Exploiting Information Technology. Sloan Management Review, 39, 3, 9-21.


Source: http://www.cio.com/archive/090103/money.html

OOA&D - 6 © Minder Chen, 1995-2003http://www.cio.com/archive/071506/2006_global_outsourcing_guide.pdf


Gartner, 2002.


IBM Research http://www.almaden.ibm.com/asr/SSME/esi/slides/Jim-Spohrer-NAS-Education-for-Service-Innovation-20060418.pdf


Japan59%

Europe and USA20%

Asia Countries (excluding Japan)

15%

Others6%


IT Services Market??

Source: http://www.cio.com/archive/091505/nypro_sidebar_one.html


Best Practices: Management Of Offshore Outsourcing

Geopolitical concernDoes vendor offer:

Does contract address:Type of management needed

Labor pool: Availability, suitability, language, visas, education

Best-of-breed vs. general-contractor comparisons

Force majeure (French for

"greater force") conditions

Constant surveillance and management

Political stability and risk Security Impact of failure on other services; potential for multiple failures

Monitoring

Proximity to domestic operations; time zones

Multiple onshore and offshore resources

Flexibility to allocate onshore and offshore resources; impact on costs; pricing transparency

Load balancing

Cost-benefit factors, including local tax credits, employment incentives, employee-or contract-termination costs

Customer evaluation of vendor's choice of location for offshore centers

Identifying and managing the risk of force majeure; state and governmental intervention in contract rights and operations

Government relations in host country; process improvement; global innovation

DATA: Bierce & Kenerson PC


Global Outsourcing Index (GOI)

• Cost: Few companies would outsource at all if doing so didn’t save them money. The cost factor, which includes compensation and wages, infrastructure cost, and tax and regulatory cost, makes up 30 percent of the GOI.

• Risk: Every country possesses its own strengths and weaknesses, risks and rewards. The Overall Risk Rating, which makes up 54 percent of the GOI, aggregates a variety of risks every potential outsourcer must take into account:

– Geopolitical risk (10% of GOI) Includes stability of government, corruption, geopolitics, security.

– Human capital risk (10%) Includes quality of educational system, labor pool, number of new IT graduates.

– IT competency risk (10%) Includes project management skills, high-end skills and competence (custom code writing, system writing, R&D, business process experience).

– Economic risk (6%) Includes currency volatility, GDP growth.– Legal risk (6%) Includes overall legislation, tax, intellectual property.– Cultural risk (6%) Includes language compatibility, cultural affinities, innovation,

adaptability.– IT infrastructure risk (6%) Includes IT expenditure, quality of key access infrastructure.

• Market Opportunity Rating: This number, which makes up 16 percent of the GOI, includes expert third-party analysis of each country, its global competitiveness and IT market share. The rating serves as a check on any imbalances elsewhere in the report.


Tasks/Job Types

• New products development

• Testing

• Maintenance

• Research


Ownership/Partnership

• Captive


China's strength

• Large IT labor pool

• Relative stable workforce

• Some returning people with international experiences


China and India

• Similarity and difference


Software Park

1. Beijing2. Shanghai3. Tianjin4. Dalian (Liao-ning Province)5. Nanjing (Jiang-zu Province)6. Hangzhou (Zhe-jiang Province)7. Guanzhou / Shenzhen (Guang-dong province)8. Chengdu (Si-chuan province)9. Xian (Shan-xi province)10. Jinan or Changsha


Cities

• The 1st-tier: Beijing, Shanghai, and Shenzhen.

• The 2nd-tier : Dalian, Nanjing, Hangzhou, Guangzhou, Tianjin.

• The 3rd-tier: Chengdu, Xi'an, Wuhan, Changsha.

• The 4th-tier: Qingdao, Zhuhai, Xiamen, Ningbo.

• The5th-tier: Jinan, Harbin, Shenyang.

Source: http://www.alwayson-network.com/comments.php?id=10436_0_1_0_C


Challenges to Service Providers

• IP Protection

• Process Maturity

• Recruitment & training

• Hidden cost

• English language skills


Intellection Property Protection

• Challenge: – Ensure that IP is safeguarded

• Solution: – US corporate entity, US Laws and regulation

– All projects are insured by comprehensive Professional Liability insurance, also known as Errors and Omissions E&O insurance.

– Extensive security procedures: Physical, individual, and electronic.


English Language capabilities

• All project team members are bilingual– Written and verbal

– Language skills jet criteria in career development methodology

– Project leaders and managers have high proficiency with English, with many educated in the US

• Utilization of state-of-the-art communication tools

• Standardized communication protocols


Formalize Communication Protocol


Strategic Sourcing Lifecycle

• Sourcing Strategy: Take a good look at your enterprise and analyze the risks and benefits of sourcing.

• Evaluation & Selection: Define your requirements and identify partners that can meet your business needs.

• Contract Development: Structure a flexible partnership with defined service levels and payment models.

• Sourcing Management: Monitor your relationship and react to change effectively.


http://www.darwinmag.com/read/060103/risk.html


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