Protectionism in the IT Services Sector is Hindering Economic Growth in Asia/Pacific, says IDC Government Insights 

Singapore and Hong Kong – July 11, 2011 – The race is underway for Asia/Pacific governments to create high-value jobs by developing a services-based economy. As a result, they are lowering their entry barriers to attract and retain IT multinational corporations (MNCs) with the intention of incubating local businesses. However, IDC Government Insights’ latest report, “How Asia/ Pacific Governments Can Utilize IT Services Spending to Attract Multinational Technology Providers and Build a Mature ICT Sector” (Doc # AP9694210T), reveals that in pursuing this goal, governments in the region are creating a monopoly and distorting the market’s natural forces of supply and demand.

Bash Badawi, Director of IDC Government Insights Asia/Pacific says, “In a bid to protect their domestic industries, some governments have turned to protectionism. Opposite to their policy objectives, standards of living decrease as a direct consequence since the move will inevitably lead the way to subpar quality of products and services at higher prices. Protectionism also stifles the growth of the IT sector. Governments should instead focus their energies on technology and knowledge transfer.”

Findings from this IDC study include an overview of the typical evolution of IT services as economies mature and how governments can leverage expenditure in the public sector to accelerate the evolutionary process in reaching market maturity levels conducive to the creation of a sustainable local software market.

A government's typical IT services evolution follows a regular pattern. Initially, emerging markets are more inclined to purchase project-based services. These services include traditional IT consulting and integration services, planning and assessment services, and custom application development (CAD) services. As the market continues to mature, the pool of available talent grows and the deployment of IT increases. Finally, in later stages of market development, the purchase of managed services through outsourcing begins to develop. This usually coincides with a significant increase in average IT wages in the market, making the outsourcing of services either locally or off-shore a more cost-effective solution for enterprises in the country.

IDC Government Insights recommends:

Governments should promote fair and open competition among IT players in the market and refrain from mandating that services are delivered by designated entities.

Governments should focus on knowledge transfer between MNCs and local firms. Such move is not feasible without government intervention.

When international vendors are tendering for government projects through local partners, government oversight of the project is needed to ensure that the local firm is more than just a mere broker. This is important since it promotes an earnest transfer of knowledge and the building of human capacity, and thus, cultivates the IT sector and value-added economic activity.

Often, local firms engage the help of foreign talent to fill gaps in skills and management expertise. As a result, governments have no visibility of the shortages that they are facing. To allow policy makers to assess the country's resource pool, mandatory disclosures of local versus international resources needed to deliver a project is essential.

This report also offers recommendations for government policy makers to address the need for transparency and open competition in the market for IT services.

About IDC Government Insights 

IDC Government Insights is headquartered in the metropolitan Washington, D.C. area in Falls Church, Virginia, with additional offices worldwide. IDC Government Insights is uniquely qualified to track, analyze, and forecast government technology spending based on in-depth government budget and spending analysis globally. Expert analysts examine IT value based on government-defined key result areas; decipher policy and regulatory goals to identify game-changing government strategies and inform critical decision making; survey government decision-makers to determine effectiveness of IT vendors’ go-to-market strategies; along with government-centric metrics and rankings of suppliers’ effectiveness in addressing specific government business problems, all with absolute independence and transparency. IDC is the premier global provider of market intelligence, advisory services, and events for the information technology market. IDC is a subsidiary of IDG, the world’s leading technology, media, research, and events company. For more information, please visitwww.idc-gi.com.

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