It’s All About the Local Touch When It Comes to Services

One of the issues that many solution providers find troubling about the concept of managed services is that, at least in theory, it devalues the importance of having a local presence. For years now many solution providers have been lucky enough to have to only really compete head to head with fellow solution providers with a physical presence in their local markets.

But that advent of managed services means that solution providers can more easily leverage the Internet to compete nationally across any number of vertical markets. And potentially worse still, it also means that solution providers around the globe can theoretically offer lower-cost services capable of competing with solution providers in any given local market.

The best-known example of this phenomenon in the channel is Zenith InfoTech, which leverages IT talent in India to provide managed services in partnership with local U.S. solution providers. The longer-term concern about this model is that it might not be long before Zenith InfoTech or some other company like it decides to start buying up U.S. solution providers as part of an effort to sell managed services directly.

Given the growing interest of IBM, Dell and Microsoft in the whole managed services category, this may not be a too far-fetched scenario, but the real question is just how practical would such an approach really be?

In an attempt to sort this out three economists from the Saunders School of Business at the University of British Columbia and the University of Paris have posted a paper that examines the threat that outsourcing poses to providers of services. Their conclusion is that the world is not as relatively flat when it comes to services as popular conception would have it. In particular, they note that a lack of proximity to the services provider tends to create cultural differences that ultimately increase costs while at the same time ready access to the same social networks tends to provide the local solution provider with an advantage when it comes to getting the contract in the first place.

The long and the short of this equation would then seem to suggest that the current collaborative approach to services where the local solution provider is augmented by a series of lower-cost offshore services is not some means to another end, but rather the right balance between two extremes. For solution providers, this will necessitate creating a business model based on an open IT architecture that will allow them to meld services from different third-party services with their own higher-margin services in a way that is virtually seamless to the end customer. Naturally, that’s going to be a lot easier said than done given all the potential cultural issues, so don’t be surprised if you see distributors stepping up more in 2008 to fulfill this role.

For example, Tech Data is already foreshadowing a flexible, more open approach to managed services that will make it easier for solution providers to mix and match services provided by vendors, Tech Data and ultimately other solution providers. In essence, this would turn a distributor such as Tech Data into a global hub for delivering services rather than being thought of as a mere way station for products that are on their way and that customers think were actually shipped to them by somebody else.

What all this creates for the average solution provider executive in 2008 is the need to develop a better understanding about where their company fits in a global IT services economy. The local solution provider will retain and ultimately enhance their control over the local customers, but the tools they will use to accomplish that goal are going to look and feel a great deal different at the end of 2008 than they do right now.