Information Technology Outsourcing Risk: Trends in China

Technology is developing at a rapid pace, outstripping the rate of growth in population (which we hope is slowing down), the economy (which we hope is increasing at a controlled rate), and culture (which we want to speed up). Every year we see at least one significant advance in computer speed and computer system storage capacity. Every year we purchase a new iPod, expecting it to be outdated in a year. Every year we expect last year’s cell phone to be an antique, and that Intel will build a faster chip, leading to a new generation of personal computers. This makes long term investment in technology problematic. It is hard to have a rational long-term business plan if the conditions concerning product availability are going to be completely revised. That is one of the factors of life that make the future interesting. We need to learn to keep up with new developments, which lead to new opportunities. It has always been the case that we need to adapt – but now we need to adapt much faster. The Committee of Sponsoring Organizations of the Treadway Committee (COSO) is an organization formed to improve financial reporting in the U.S. COSO decided enterprise risk management (ERM) was important for accurate financial reporting in 1999 (Levensohn, 2004).1 COSO emphasized in its ERM framework the importance of IT risk, involving treating IT risk as one of eight key steps. Outsourcing has evolved into a way for IT to gain cost savings to organizations.Outsourcing is attractive to many types of organizations. Outsourced IT work from corporate America over the past 5 years has grown from $5.5 billion to over $17.6 billion. Currently India has 80% of this lucrative market.2 However, according to the 2005 CIO Insight Outsourcing Survey, China is beginning to offer compelling advantages over India since India’s original cost benefits are reaching wage and capacity limits.