More Application-Related Services Options in China — And More Potential Risks

China’s GDP growth slowed to 7.7% in Q1 2013. While below market expectations, this growth rate still ensures strong continued IT spending, as local organizations seek to meet ongoing demand for products and services. At the same time, we expect Chinese government stimulus packages to drive increased consumer demand, particularly in the retail, supply chain, and banking industries. Chinese organizations wishing to capitalize on these opportunities are currently seeking ways to transform their business and decision-making processes and broaden their product portfolios. This, in turn, has driven increased interest in third-party service providers as organizations seek to augment limited (or, in some cases, nonexistent) internal IT capabilities.

Recently I spoke with IT managers at two local Chinese companies; they shared their recent experience with third-party service providers.

  • A top 5 Chinese insurance company worked with multiple service providers to strengthen its CRM data mining and analysis capabilities. While this company started its CRM implementation project in early 2006, it still had limited capabilities to manage fast-growing customer data, which was essential given the increased presence of foreign insurance companies in the local market. In response, the company sourced application development and modernization services from Accenture, primarily to define a data architecture and deliver analysis capabilities. With these new functions added to their existing CRM systems, the company enhanced customer data analysis capabilities, grew related sales, and improved customer experience/loyalty.
  • A leading equipment manufacturer based in Qingdao had to move up the value chain to compete more effectively with global players. Chinese manufacturing companies are currently struggling to adapt their operating models in order to compete more effectively on a global scale. To achieve better performance, this manufacturer (which previously focused on fulfilling overseas orders with third-party technology) had to significantly ramp up its own R&D innovation capabilities. Working with Pactera, a leading application service provider in China, the company optimized its R&D-related processes, improved collaboration among teams in different locations, optimized core production systems, and developed more effective CRM strategies.

I expect the usage of third-party service providers to continue to grow in China. As it does, organizations must consider strategies for addressing related risks:

  • Ensure adequate communication between internal stakeholders and third-party providers. Cultural fit and understanding are critical for effective communication. This is particularly important when selecting project managers from the service provider.
  • Closely monitor the quality of the resources allocated to the project. Organizations assume risk when they adopt new technologies, particularly in emerging areas like big data, real-time analytics, and enterprise mobility. As service providers currently struggle to find the right expertise around these technologies in China, SVM professionals must closely screen the experience of the team allocated to their projects to ensure quality. All too often, the team that sells and impresses is not the team that manages and delivers.
  • Clearly define the division of project responsibilities between the provider and potential subcontractors. SVM professionals must understand both the service vendor’s and subcontractor’s capabilities and be clear on how the different parties will distribute the responsibilities between them.

So what should you do to take advantage of the increasingly broad range of viable IT service providers in China? I provide additional suggestions in my most recent report, Market Overview: IT Services In China, 2013. But I’m also interested in hearing from you. Please share any feedback or insights from your own experiences.