Large IT Labor Pool Increasingly more IT graduates Growth in IT industry in China Lack of high-end experience IT worker Lack of high-end experience IT worker Low Labor Cost High Labor Cost Individual provider-Level Driving Force Country –Level Internal TrainingHigh turn over rate Internal training program Strategic alliances with universities Set up development centers outside the 1-tier cities Internal training program Internal Training

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OOA&D - 3© Minder Chen, Reference

OOA&D - 4© Minder Chen, Source: Feeny, D. and Willcocks, L. (1998). Core IS Capabilities For Exploiting Information Technology. Sloan Management Review, 39, 3, 9-21.

OOA&D - 5© Minder Chen, Source:

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OOA&D - 7© Minder Chen, Gartner, 2002.

OOA&D - 8© Minder Chen, IBM Research

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OOA&D - 13© Minder Chen, IT Services Market?? Source:

OOA&D - 14© Minder Chen, Best Practices: Management Of Offshore Outsourcing Geopolitical concern Does 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 riskSecurityImpact 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

OOA&D - 15© Minder Chen, 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.

OOA&D - 16© Minder Chen, Tasks/Job Types New products development Testing Maintenance Research

OOA&D - 17© Minder Chen, Ownership/Partnership Captive

OOA&D - 18© Minder Chen, China's strength Large IT labor pool Relative stable workforce Some returning people with international experiences

OOA&D - 19© Minder Chen, China and India Similarity and difference

OOA&D - 20© Minder Chen, Software Park 1. Beijing 2. Shanghai 3. Tianjin 4. 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

OOA&D - 21© Minder Chen, Cities The 1 st -tier: Beijing, Shanghai, and Shenzhen. The 2 nd -tier : Dalian, Nanjing, Hangzhou, Guangzhou, Tianjin. The 3 rd -tier: Chengdu, Xi'an, Wuhan, Changsha. The 4 th -tier: Qingdao, Zhuhai, Xiamen, Ningbo. The5th-tier: Jinan, Harbin, Shenyang. Source:

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OOA&D - 26© Minder Chen, Challenges to Service Providers IP Protection Process Maturity Recruitment & training Hidden cost English language skills

OOA&D - 27© Minder Chen, 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.

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OOA&D - 35© Minder Chen, 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

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OOA&D - 37© Minder Chen, Formalize Communication Protocol

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OOA&D - 43© Minder Chen, Strategic Sourcing Lifecycle Sourcing Strategy: Take a good look at your enterprise and analyze the risks and benefits of sourcing.Sourcing Strategy Evaluation & Selection: Define your requirements and identify partners that can meet your business needs.Evaluation & Selection Contract Development: Structure a flexible partnership with defined service levels and payment models.Contract Development Sourcing Management: Monitor your relationship and react to change effectively.Sourcing Management

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OOA&D - 46© Minder Chen, The World Is Flat