Despite the slow economy, some opportunities can be found in the information and communication technologies (ICT) sectors, according to a recent report by Frost & Sullivan.  The report states that some IT projects will be put on hold during the unstable market, but there will be many new opportunities within the industry. 

Four areas of expected ICT growth were identified, which include the following:

• Sustainable IT
• Outsourcing services, managed and hosted services
• Information management tools
• Services that support mergers and acquisitions

“In particular, ICT solutions that shift costs from a capital to variable component, focus on productivity increases and cost reduction, and support organizational restructuring and acquisitions are likely to see growing demand,” says Andrew Milroy, ICT director at Frost & Sullivan. 

The report predicts that investments will be made in sustainable technology within existing infrastructure, such as virtualization, videoconferencing, thin clients and power consumption modeling, as these capabilities are able to reduce costs while increasing green initiatives.   A greater focus on variable costs is estimated to lead to an increase in popularity of software-as-a-service (SaaS) and hosted service models.

Business travel will most likely decline, which will create a greater need for conferencing tools.  These conferencing tools will also allow more employees to work remotely, which will reduce travel costs and emissions.  As a result, there will be new opportunities for providers of secure remote access solutions.

One of the major areas of expected growth among the ICT sectors involves IT outsourcing.   Many organizations are looking for ways to cut back on costs and IT outsourcing provides a way to accomplish this goal.  Plus, outsourcing to a global sourcing provider allows companies to better focus on core competencies and increase productivity.  Global sourcing providers are expected to reap the greatest benefits to this anticipated growth.  Frost & Sullivan cautions in the report that contract terms can be expected to fall significantly.  Companies can use the advice of experienced IT outsourcing consultants to ensure that the contract terms are in their favor.

The authors of the Frost & Sullivan report believe that there will be new opportunities in both traditional and non-traditional areas of managed services, including managed handsets, network services and leasing services.  According to the report, there should be an increase in mergers and acquisitions as the economy continues to weaken.

Based on this Frost & Sullivan report, it is safe to assume that a slow economy will benefit some areas within the IT industry, while negatively impacting others.  Global IT sourcing is a great way to lower costs during this economic slowdown.  A&E Consulting helps organizations weigh the benefits of outsourcing and also assists in choosing the right outsourcing partner.  The consulting firm will even oversee the first outsourced project to ensure a smooth transition.

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China has made many recent changes that have impacted U.S. businesses outsourcing to the country.  Within the outsourcing industry, China has been well known for its low cost of labor, which attracted many companies wishing to outsource various functions.  However, with China’s new regulations and economic changes, outsourcing to this location has become increasingly expensive. 

Many environmentalists, economists and labor advocates are pleased with the changes that have been implemented by the Chinese government.  Some experts feel though, that China’s moves may put a financial strain on smaller U.S. businesses that have been outsourcing to this country.

An article posted on CNNMoney.com titled, In China, Outsourcing is No Longer Cheap, examined these recent movements.  Some of the key points of the article are summarized below.

New Labor Laws
A strict labor regulation went into effect on January 1, 2008 in China, which mandated employers to offer employment contracts, overtime pay and a social security program.  It is believed that this law was the direct result of internal political dynamics.  There had been a growing public outcry regarding low wages, insufficient labor rights and economic inequality.  Recent studies have shown that the wages in China are increasing by 10 to 15 percent each year.  That statistic, along with the tough labor law, has made many businesses nervous.

Auret van Heerden, President of the Fair Labor Association, was quoted in the article as saying, “There’s a feeling that this law might be too much, too soon.  HR is a recent discipline and the courts are starting to get overwhelmed.”

Environmental Reform
China has been making great efforts at environmental reforms.  In 2006, the Chinese government started a 5-year plan to increase the country’s energy efficiency by 20 percent between 2006 and 2010.  China anticipates that by 2020, renewable energy will account for 15 percent of its national consumption.  There has also been a greater enforcement of safety and cleanliness rules that had been in China’s plans for a while.

Last summer, China took emergency measures to address air pollution due to the Olympic Games.  As a result, many factories were forced to stop or slow production.  Some of the factories were later re-opened, but many were not. 

Eliminating Tax Rebates
China had been allowing tax rebates for exporters since 1985, but recently these rebates were cut.  Over the last few years, Beijing has drastically cut rebates on thousands of goods across a range of industries as a way to reduce China’s trade surplus.  China charges a 17 percent value-added tax (VAT), which is placed on added value of goods and services that is incurred in any exchange.  Exporters were usually given a full rebate on this tax, but that has changed.  China will now only offer VAT refunds ranging from 5 to 17 percent.  For goods that are considered to cause high pollution during the manufacturing process, the tax rebate has been cut all together.

Rising Chinese Yuan
The weakening U.S. dollar has also been compounding problems for many U.S. companies outsourcing to China.  In 2007, the Chinese Yuan rose more than 10 percent against the dollar.  Chinese vendors are typically paid in Yuan, which has placed a large financial strain on profits for many businesses in the United States.

Despite all of these changes, China still has a lot to offer a company looking to outsource.  A&E Consulting offers valuable insight into the outsourcing industry and helps businesses in choosing the right location and vendor.  The consulting firm will also oversee the first outsourced project to ensure a smooth transition.

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One of the most common questions asked by businesses is – when is the right time to outsource to an IT service provider?  There is no simple answer to this question, as it will depend on specific details related to each individual organization.  Too often, companies decide to outsource solely based on the cost savings, which should not be the main motivation. By analyzing internal resources and other variables, executives can make an informed decision regarding outsourcing.

Global sourcing is a powerful strategic tool that when used at the appropriate time, can help businesses increase productivity, reduce costs and focus on core competencies.  It can make an organization more productive and profitable.  When deciding whether to outsource IT development, there are some important considerations to keep in mind.  For example:

• Would outsourcing a particular IT project cause the company to lose business knowledge? 
• Is the IT project something that is routine? 
• Are there enough internal IT employees to complete the project?
• Would it be cost effective to send the work to a global sourcing provider versus keeping the project in house? 
• By outsourcing, would resources be better allocated to strategic business matters? 

These are essential questions that should be addressed before making the decision to outsource to a vendor.  Once the decision is made to pursue outsourcing there are some ways to ensure that the right global sourcing provider is chosen. 

Before signing any contracts, research should be conducted.  Some of the key criteria in choosing a vendor include the vendor’s size, industry expertise, employee qualifications, communication capabilities and security measures.  The location of the vendor is also a significant issue and each country boasts its own advantages and disadvantages.  Language, government support and education are among the many factors that should be analyzed when deciding on a destination for the IT project.  Finding the right vendor is crucial in the success of an IT project and a vendor that fits well with one organization, may not align with another.

Companies looking to outsource should also have an established plan to handle the relationship with the global sourcing provider.  A manager should be assigned the task of overseeing the outsourced project to ensure its successful competition. 

A&E Consulting offers valuable insight regarding outsourcing decisions.  The consulting firm assists companies with assessing whether global sourcing makes sense and what processes should be outsourced.  A&E Consulting will also oversee the first outsourced project.

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Companies have many reasons for outsourcing, such as increased productivity and reduced costs.  Outsourcing allows an organization to focus on its core business.  Many outsourcing relationships will last for several years, which is why it is important to ensure that the terms and conditions of the contract are being upheld.  A service level agreement, also referred to as an SLA, is an essential tool for measuring whether the arrangement is operating as agreed.  It is a document that should be negotiated up front as part of the outsourcing contract.  If created properly, a service level agreement can help a buyer control the outsourcing process.

Service level agreements define the boundaries of the project, including the functions and services that are to be provided by the vendor.  This legal document details the volume of work and costs involved.  It also specifies the needs of the outsourcing company and sets expectations for both parties.  An effective service level agreement should minimize disputes that may arise between the buyer and supplier.

Creating a good service level agreement requires a set of steps.  First, the buyer and vendor must agree on the terms that will be included in the contract.  Next, performance measurements should be established.  These metrics will be used to measure the global sourcing provider’s overall performance and determine whether the objectives are being met.  For example, measurements may be used to evaluate the volume of work, quality of deliverables and efficiency.  It is important that the measurements are set to reasonable performance levels. 

The service level agreement should also detail how the performance metrics will be tracked and communicated, whether through regular performance reports or through real-time monitoring.  Reports often include summaries of results rather than a long list of metrics.  A simple reporting system is usually more advantageous to the buyer and supplier.  The frequency of communication and the information included will depend on the project, buyer and supplier. 

A good service level agreement will include a process for resolving situations where the service provided is unacceptable.  If this process is discussed and agreed upon in advance, it will make it easier if such a circumstance arises.  When the resolution process is clearly communicated, the outsourcing company would then know how to handle the situation until it is resolved with the vendor.  If a dispute cannot be resolved, the service level agreement should detail what constitutes a termination of the contract.

Service level agreements are crucial when it comes to establishing a good working relationship with a vendor.  A&E Consulting assists companies looking to take advantage of global IT sourcing and will oversee the first outsourced project.

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