China’s IT Services Evolution: The
Emergence of CASPs
July 31, 2008
What began as a very
hardware-centric view of information technologies, China’s IT services
market has rapidly evolved into standalone services, and now, a new paradigm
of the Computing and Applications Service Provider (CASP). CCID Consulting
believes that this type of service will be the mode to watch out for in
China, as cloud computing and third party service providers continue to
China’s IT services value
chain has continued to develop and evolve into a rich and more sophisticated
set of offerings, and service providers become proficient. In twenty years’
time, IT services revenues have increased from several billion Yuan to
hundreds of billions Yuan.
Source: CCID Consulting, July 2008
Services as Hardware
China began its information
technology adoption with a focus on hardware twenty years ago. The focus was
on computer hardware, and services were mainly in the form of technical
support and maintenance. Early adopters were China’s banking and telecom
sectors. Some IT services did extend to relatively straightforward computer,
network, and systems integration. IT functions were performed by in-house IT
departments, as outsourcing was scarce at the time.
The value chain was equally
straightforward, and consisted of hardware vendors, their channels and few
systems integrators that worked together to sell hardware. Services were
really “invisible” to the customer, as it was hidden as part of the
During the mid to late
1990’s, China’s commercial and government sectors were clearly adopting
information technologies, along with the popularization of the personal
computer. As a result, IT services evolved as well.
As Chinese customers who
purchased hardware grew, so did services. Third party support and
maintenance providers entered the market, offering lower costs while
improving services scope. Deeper and more standardized industry applications
and processes encouraged the development of independent IT and systems
integration consultancies. IT training became a growth area to fill the IT
knowledge gap. Finally, multinational vendors introduced the concept of IT
systems management (ITSM) outsourcing in the early 2000’s.
China’s IT services value
chain grew to include third party support and maintenance providers, IT
training organizations, IT consultancies, systems integrators, and IT
systems management outsourcers. The value proposition of IT services was now
being separated from the hardware. However, hardware was still a driver for
IT Services Business
After 2002, a new burst of
economic and IT development took place in China. China’s enterprises were
encountering more global competition, while at the same time, themselves
becoming more globally focused. Global competition meant global standards
That meant Chinese
enterprises had to restructure their organizations to adopt best practices,
and to more intensely focus on core competencies. The impact on IT within
the organization meant IT departments had to shift their focus from
technology for technology’s sake, and towards the user and business value.
As a result, IT services
organizations, and the value chain, now focused more in the user, and on
business value. IT services entered a rapid growth phase as well.
What began as ITSM
outsourcing evolved into business process outsourcing. This evolution
paralleled the focus on business and the focus on core competencies of the
client. Outsourcing providers enabled their clients to focus on their core
business, while outsourcers took care of “non-core” business and IT
processes, and also took care of technology upgrades and the like.
A critical inflection has
been reached: IT hardware and systems now support services, and not
vice-versa. The IT customer focuses less on hardware assets, and more on the
business value such assets provide, and outsourcers are a key enabler of
unlocking that value. The customer may not have to own the hardware assets;
rather, they have a contract with the outsourcer to realize business value;
the outsourcer takes care of the hardware, services, and associated
The evolution of
outsourcing continues to have an impact on the IT services value chain, but
not only adding outsourcing as a dimension, but also impacting the
relationships between hardware vendors, software vendors, channels and
existing IT services providers. The focus is now, in addition to adding
business value, but to take over business and IT processes and functions.
The development of the
Internet in China, its ubiquity through various methods as broadband, 3G,
4G, wireless cities, and the like, has enabled the emergence of CASP. Such a
model has further pushed hardware and systems in the background, with the
back office being practically invisible and inaccessible to the users. In
the foreground, the user sees pure services and applications.
The IT services value chain
will also be impacted and segmented into a background and foreground model.
Networking operators and cloud computing operators will like enter the
computing services provider market, and will have a foreground/background
model, depending on who their clients are, but they will likely be unseen by
the end-user. More application-focused providers will be in the foreground.
Various other players along the value chain will be reconfigured to support,
or evolve into, the CASP model.
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Unless otherwise specified,
all information provided is sourced from CCID Consulting.