Protectionism in the IT services sector is hindering economic growth in Asia-Pacific, says IDC Government Insights

By eGovInnovation Editors | Jul 13, 2011

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SINGAPORE -- As governments in the Asia-Pacific region begin to create high-value jobs by developing a services-based economy, they also begin lowering entry barriers to attract IT multinational corporations (MNCs) with the intention of incubating local businesses. IDC Government Insights, however, said that in pursuing this goal, governments are creating a monopoly and distorting the market's natural forces of supply and demand.

"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, “said Bash Badawi, Director of IDC Government Insights Asia-Pacific.

A new study released entitled "How Asia-Pacific Governments Can Utilize IT Services Spending to Attract Multinational Technology Providers and Build a Mature ICT Sector" 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.

IDC recommends, for one, that governments promote fair and open competition among IT players in the market and refrain from mandating service delivered by designated entities.

A government's typical IT services evolution follows a regular pattern, according to IDC.

"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," it said. "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 offshore a more cost-effective solution for enterprises in the country."