from HfS Research:

So how do the characteristics of Asian economies affect the IT and BPO services business? Firstly, it is important to understand that the propensity to purchase IT services is generally lower in Asia than in the United States and the United Kingdom. Secondly, it is necessary to understand that there is a huge amount of variation in IT services and BPO buying behavior across the region. Indeed, these variations are not always what might be expected when applying the business logic that we typically use in Western economies.

For example, organizations in the Philippines, a relatively immature economy with lower labor costs, are more likely to purchase services than organizations in Korea, a mature economy with relatively high labor costs. Why is this? Nobody knows for sure but it appears that the propensity of organizations in a country to purchase services is heavily influenced by three cultural and economic variables as follows:

#1 The cost of labor. In mature economies, the cost of employing people with technical skills is often significantly higher than the cost of buying access to skills from a third party. Hence, the countries in the world with the highest propensity to purchase IT services are those with high labor costs. In Asia, the best example of such a country is Japan.

#2 The Anglo Saxon business culture. Buying IT services from third parties is most widespread in countries that are often described as Anglo Saxon, led by the United States and the United Kingdom. The business culture in these countries has, over the last 25 years, focused on outsourcing ‘non core’ activities. A common belief in the Anglo Saxon business culture is that sourcing services externally can drive down costs, give organizations access to ‘best of breed’ services, and offer greater flexibility.

#3 The Confucian business culture. In the Confucian business culture, which exists in most of Eastern Asia, service is widely perceived to be something that is free. Services are considered to be critical to the differentiation of products. The loss of control associated with sourcing services from third parties is thought to remove a key differentiator from corporate control. Furthermore, paying for such services is an anathema to many organizations in East Asia.

Organizations that wish to understand how to sell services into countries in Asia must consider these variables carefully as they develop their marketing strategies. This is particularly important for organizations that generate the bulk of their business from parts of the world that are heavily influenced by the Anglo Saxon business culture.

In a country where the cost of labor is low, the influence of the Anglo Saxon business culture is low and the influence of the Confucian business culture is high, such as Vietnam, the challenges of effectively marketing IT services are profound.

Conversely, in a country where the cost of skilled labor is high, the influence of Anglo Saxon business culture is high and the influence of Confucian business culture is comparatively low, such as Singapore, the propensity to purchase IT services is relatively high.

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