Offshoring Datacenters? You Might Want to Think About That - Page 1

Oct 5, 2006

John Merryman

The concept of allowing data to move offshore radically breaks with tradition of keeping the corporate jewels relatively close to home. Nonetheless, two trends are evident: Small companies are beginning to offshore IT infrastructure (one application at a time), and large multi-national companies are off shoring entire datacenters.

With the never-ending pressures to lower IT run-rates, corporations are expanding cost cutting measures to IT infrastructure. Labor arbitrage is the defacto standard for lowering the cost of IT for many corporations, however, some companies are now considering the movement of not only labor pools, but IT infrastructure and production data also.

Offshore IT service providers span the globe from India, China, Eastern Europe, Africa, to South America. Offshore labor resources execute a growing number of call centers, application, and business processes for organizations worldwide.

In all cases, some level of data access goes part and parcel with the offshore service provider contract.

But how could relocating IT infrastructure to a remote third-party datacenter be a viable strategy, especially considering how recently the infrastructure hosting and managed service provider market fizzled in the U.S.?

The following industry trends explain why:

  • Offshore IT firms (Wipro, Infosys, HCL Comnet, Tata Consulting, Satyam, etc.) have made a serious move into infrastructure management services such as database administration, system, network, storage management, etc.
  • Traditional outsourcing firms are advancing quickly towards global infrastructure management strategies.
  • Any organization that has successfully outsourced technical or business processes to remote service providers is now likely to consider infrastructure management.
  • For the CIO and/or CFO IT infrastructure capital and operational costs are the next logical line item on the budget and typically comprise a huge percentage of the average IT budget.

    Market Perspectives

    Today, offshoring IT infrastructure applies to the extreme edges of the market: extremely large multinational corporations and small businesses

    In a recent publication of Foreign Affairs magazine Sam Palmisano, CEO of IBM, writes: ”State borders define less and less the boundaries of corporate thinking or practice … banks, insurance companies, professional-service firms, and IT companies are building R&D and service centers in India to support employees, customers, and production worldwide.”

    With over 40,000 out of IBM’s 330,000 employees based in India alone, global datacenter infrastructure is a significant part of IBM’s overall global service strategy. IBM’s recent announcement to expand investments in India by $6 billion includes a significant investment in service delivery centers. This investment will include datacenters, both internally hosting R&D infrastructure and externally hosting client IT infrastructure.

    For the colossal multinational corporation, the bottom-line solution is simple: Build your own datacenter using your own designs for infrastructure reliability/resiliency and standard controls for data access and security.

    The trend also applies to small companies where the cost of both housing and maintaining the hardware and supporting systems outweighs any concerns over data security.

    Palmisano continues: “Small and medium-sized businesses everywhere, particularly, are benefiting: as new services—from back-office administration to sales support—create infrastructures once only affordable to large organizations, these businesses can now participate in the global economy.”

    The bottom line here is if the cost of supporting the physical infrastructure is significant enough, and the number of physical systems a company needs to support is limited, then the relocation of actual hardware starts to make sense.

    All trends aside, if your organization formally values data as a corporate asset (just like intellectual property, buildings, land, capital, etc.), relocating your IT infrastructure raises a myriad of risk questions: Who mitigates the risk of foreign policy melt-downs, political instability, land disputes, terrorism, natural disasters, black market influences, and industrial espionage? Do these factors present tangible risks for data security, integrity, and availability?

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