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Firms to wring business outcomes in outsourcing

Companies in Asia will focus more on business outcomes when picking service providers this year, but be open to greater contract flexibility, says analyst.
Written by Vivian Yeo, Contributor

SINGAPORE--In an environment of cost-cutting and flat budgets, businesses in Asia are increasingly looking for service providers that can guarantee business outcomes, according to an analyst.

With the downturn, there will be a greater demand for outsourcing as companies strive to cut costs, Nitin Bhat, senior vice president for ICT practice in the Asia-Pacific region at Frost & Sullivan, told ZDNet Asia in an interview Tuesday. However, there is also a more substantial mandate to ensure business outcomes are clearly stated in outsourcing contracts.

"They will be asking, 'What can you do for me to save what amount of money'," he noted, adding that the degree of business transformation may be another consideration.

Penalty clauses will also be more closely examined, but in reality, there may not be any enforcement of compensation, said the analyst.

At the same time, there is a recognition that greater flexibility needs to be worked into contracts, Bhat pointed out. To that end, there will be more discussions around, for example, exit options.

Should cost be a key concern, there will also perhaps be a willingness to lower service level requirements, Bhat said, but this may not make sense for important business functions, particularly if they are external-facing. Any rapid deterioration could make an "entire business unviable", he warned.

According to Bhat, other ICT trends in 2009 include greater traction in the data center space as a variety of players including pure-play facilities, carriers and systems integrators compete around the building of data centers and maximizing their operations. Also prominent in the corporate environment are unified communications and cloud or utility computing.

The economic downturn has not quite reached the bottom, Bhat cautioned, citing U.S. retail sales figures. Therefore, economic recovery will "at best" occur at the start of 2010, he predicted. Even then, there will be a slow start to the revival.

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