Academic journal article Iranian Journal of Management Studies

A Comparative Analysis of IT Outsourcing Readiness in the East African Community

Academic journal article Iranian Journal of Management Studies

A Comparative Analysis of IT Outsourcing Readiness in the East African Community

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

When organizations choose to move their IT services to low-cost countries, they are daunted by the task of determining which country or group of countries would be the best place to host their operations (Gartner, 2008). Currently, there are very few studies that address the IT outsourcing (ITO) problem at country level, most previous works deal with it at firm level. One of the most important contributions of our paper is to address the ITO question from a different angle, by comparing a group of countries and analyzing their readiness for ITO.

Emerging and developing countries are competing to host offshore IT operations from developed countries. East Africa was, until recently, one of the least digitally connected regions in the world; however, it is now experiencing a digital revolution brought about by the construction from the year 2010, of three sub-sea fiber-optic cables, which is radically changing the EAC population's way of life.

A number of developing countries have opted to increase global GDP through their IT outsourcing sectors. Countries in the EAC bloc, especially Kenya and Rwanda, have taken measures to advance their ICT sector's global competitiveness. One example of such measures is the establishment of IT hubs, following the model of Silicon Valley (Kenya's iHub and East Africa Data Center, Rwanda's kLab, etc). These two countries have now become technology success stories.

The potential impact of ICTs for economic development in the EAC is evident. As an example, Rwanda has already completed more than 3,200 km of fiber-optic network, connecting more than 230 government institutions in the whole country. The role of ICT in overall development has been proved by different studies (World Bank, 2009).

Globalization and ICT have brought opportunities that did not exist before to low income countries (Abbott, 2013). One of those opportunities is IT outsourcing, which is defined as the transfer of part or all of the IT functions of a firm to an external provider. IT outsourcing has reached a mature stage in developed countries, but it is still not well implemented in developing countries. Most developing countries have set their economic growth targets expecting ICT to play a major contributing role in their annual GDP growth. Countries like Kenya made plans to raise the IT share of total GDP from 5% up to 35% (Waema, 2008). Some developing countries are already experiencing a big contribution from their IT sector to the total GDP growth. One example is Ethiopia which reports that its IT sector contributes about 11% of the total country GDP (Nduwimfura & JianGuo, 2015b).

There have been reports of many benefits from IT outsourcing, but the most common ones include cost reduction through economies of scale and risk minimization, gaining competitive advantage, accessing skilled workers not available in-house, access to state-of-the-art technology, gaining more flexibility, etc. EAC countries are trying to take advantage of the possibilities offered by offshore outsourcing as an export industry.

There are nevertheless risks associated with IT outsourcing, they include the loss of control and ownership of IT strategy, the security of data, the risk of outsourcing partner getting out of business, hidden costs, the provider failing to meet agreed upon service level agreements (SLAs), the unavailability of critical systems, etc.

In Rwanda, the convergence of four factors unique to Rwanda drove ICT development quicker than the other sub-Saharan African countries: (1) educated emigrants and refugee returnees, (2) networking with communities, (3) political leadership, and (4) an under-contested political environment (Lacity & Rottman, 2008). Rwanda may indeed provide a model of leadership in ICT capabilities for other sub-Saharan African countries to follow.

One of the most famous IT innovations made in the East African Community is the mobile money transfer application M-PESA, which has revolutionized financial transactions for millions of users around the world. …

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