Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
Information technology (IT) services now reach far beyond traditional internal data and communications
networks, to include:
� Mobile office solutions such as secure mail/internet access, and salesforce or field force
access to networked company files, forms, data or collateral materials.
� Location-based services, from online restaurant and travel guides to retail marketing,
that sends special sale alerts to a user’s phone when the user passes a particular store.
� Smart identification and debit cards, and secure mobile payment.
� Smart monitoring of utility power grids and phone networks.
� Web-based customer relations management (CRM), project management, database, data
storage, conferencing and other business services, geared to small and mid-sized firms.
� Electronic data interchange (EDI) or web-based supply chain services such as shipment
tracking and tracing, documentation, scheduling, exception alerts and management reporting.
� Setup and/or operation of internal or outsourced back office functions (i.e. customer
call centers, processing insurance claims or mortgage applications, medical records
maintenance, etc.).
From enterprise and customer relations management software, to back office automation, to
wireless voice and data networks, Gartner Dataquest valued the 2005 China IT services market at
$8.9 billion. Software sales totaled $3.96 billion. Businesses spent $390 million on IT
outsourcing, according to Analysys International, with 84% of spending on IT operations and
maintenance; 12% on IT applications and management; and 4% on help desk functions.
International Data Corp. (IDC) forecasts 21.5% compound annual growth from $3.6 billion in
2003 to $9.6 billion in 2008; IBM forecasts 15.3% average annual growth through 2008 and predicts
significant growth in enterprise data traffic over wireless computer and phone networks. At
a projected $11.6 billion in 2010, the China IT market will be the largest in Asia (excluding Japan).
IT services demand in China has risen steadily as 1) foreign firms seek custom solutions for
selling, distributing and providing after-sales service in the China market; 2) Chinese firms seek
productivity improvements to help manage rapid growth, ramp up for acquisition or listing or
become global brands; and 3) China emerges as an outsourcing center for software development.
India is best-known as a center for software development and outsourced IT services, but China
is gaining, thanks to low office rents and wages in places like Xian and Hangzhou (half that of
Beijing and Shanghai and 10% of the cost in developed countries), government tax incentives
and lower worker turnover. Increasing migration of business services to the internet also protects
intellectual property relative to traditional physical software sales and installation.
WTO membership, the upcoming 2008 Olympic Games and the 2010 World’s Fair in Shanghai
are helping to drive IT services development, according to the Outsourcing Institute. Five factors
have been central to growth:
� Zero duty on 251 items related to IT product development.
� China’s market size and influence on global technical standards.
� Tougher intellectual property enforcement, beginning in late 2004.