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  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 develop.

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 Extensions

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 hardware.

Standalone Services

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 services demand.

IT Services Business Focus

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 and practices.

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.

Outsourcing Services

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 processes.

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.

CASP

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.

For more information

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Unless otherwise specified, all information provided is sourced from CCID Consulting.

 
         
         
     

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