China s Pragmatic Path to Cloud Computing

May 2010

Cloud computing is coming to China.

It may not be coming quite as fast as it is to other parts of the

world, owing especially to China’s cautious, pragmatic approach

to this new technology. But the Chinese are likely to make up

for any lag time quickly. This report reveals how Chinese executives

are viewing cloud computing, and suggests how business decision

makers, IT leaders and cloud service providers should move forward

in China with this promising but largely untapped approach

to computing.

While the challenges and risks are real, cloud computing also

has the potential not only to cut IT costs dramatically but even

to transform how business is conducted.

Facilities that allow people to obtain computing capabilities from remote servers over the Internet—“the cloud”— are or will soon be open in Beijing, Guangdong, Hong Kong, Chengdu, Hangzhou and Wuxi.1_{China Mobile,}

Alibaba and Lenovo, along with major foreign companies like Microsoft and IBM, are offering consumer and business cloud services in China.2

Chinese organizations are beginning to explore and experiment with cloud computing technology and cloud services. In our survey of senior IT executives, primarily at large Chinese businesses and government organiza-tions, we have found that 43 percent are testing or using cloud computing in at least a limited way, and 88 percent will be in two years. (For a more complete definition of cloud computing, see “What is cloud computing?”) In China as in other parts of the world, executives have mixed feelings of confusion and eagerness, hype and skepticism about the advent of cloud computing. While many are excited about the potential of this new tech-nology, others are still trying to figure out what exactly cloud computing is, how to exploit the technology, and how much it really costs. (For a look at some of the possible benefits, see “Cloud computing’s potential.”)

Given the unknowns and risks of this technology, caution is warranted. But Chinese IT executives are especially cautious so far: we found Chinese organizations are adopting cloud computing at a slower pace than organizations in other nations. China is certainly capable of quickly learning and adopting new technologies when conditions are right. China has become the world’s largest user of the Internet (384 million people) and mobile phones (703 million). Eighty-eight million Chinese shopped online in 2009, spending an estimated 250 billion RMB (US$ 37 billion).3_{But several}

unique aspects of China’s situation are preventing interest in cloud computing from becoming action.

In-depth knowledge of cloud computing remains relatively rare among Chinese executives compared to other nations in our survey. Chinese executives also show less interest so far in exploiting cloud computing’s potential for inno-vation and process improvement than their counterparts in other nations. Chinese respondents look to their government to set the rules for cloud users and providers, especially pertaining to cloud security and reliability. Two-thirds believe cloud computing has national security ramifications. As one respondent wrote, “The safety of data is not guaranteed. Data related to the country’s safety should be treated carefully.” Until the government clarifies

regulations on cloud computing and data privacy, most Chinese organizations will remain cautious.

The fundamental technical requirements for effective cloud computing are not fully in place in China. Cloud applica-tions run sluggishly unless they operate over high-speed networks. While broadband technology is widespread in China, speeds remain low compared to other nations.4_{And compared to}

foreign companies, Chinese organizations are slower to adopt server virtualization, a computing technique that enables software to run on any available server in a network, and one of the founda-tional technologies of cloud computing. What must large Chinese companies do to take optimal advantage of cloud computing technology and services in as timely a way as possible? As one of our respondents said, “the adoption of cloud computing needs the joint efforts of companies, [service] providers, IT vendors and consultants.”

IT decision makers should become well informed about cloud computing, its requirements, and potential benefits.

It is up to them to shape Chinese perceptions about cloud computing, and to guide their organizations in prudently using the technology.

Business and technology leaders must encourage state authorities to put cloud computing at the top of the technology agenda.Without state support and regulation, Chinese orga-nizations will not get far with cloud computing.

The IT and consulting industries must develop a market within China of trusted cloud computing services.This will require the support and engagement of its customers and the government.

CIOs, business executives, consultants and state overseers should continually explore the potential of cloud com-puting.Over time, innovative new cloud services can be used to transform how business is conducted.

In this research report, the Accenture Institute for High Performance and the Chinese Institute for Electronics’ Cloud Computing Expert Committee will set out in greater detail the findings from our survey of over 100 executives at major Chinese organizations and provide insight into these questions: • What is the current state of cloud

computing in China?

• How does that compare with the United States and other nations? • To what extent has cloud computing

been adopted in China?

• How will that change over the next two years?

• What are Chinese executives’ hopes and concerns?

• How are some Chinese companies getting started with this technology? At the end of the report, we will provide specific recommendations for how cloud users, the cloud industry, and the Chinese government can advance the use and benefits of this technology. Under the right conditions, cloud computing can and should quickly grow to play an important role in China’s success.

What is cloud computing?

When provided as a service from other companies, cloud computing lets organizations bypass the expense and bother of buying, installing, operating, maintaining and upgrading the networks and computers found in data centers. Instead of licensing software, users tap into a service when it’s needed for as long as it’s needed. All that is required is a broadband Internet connection, and a phone or personal

computer with a browser. Organizations pay by the kind and amount of services used, plus any additional fees. At the other end of the Internet connection are computing clouds— supersized data centers containing tens of thousands of servers hosting web applications. Some cloud providers even house them in cargo ship con-tainers.5_{Clouds are designed so that} processing power can be added simply by attaching more servers; software can be run on any available server with excess capacity.

The basic technologies can be duplicated by any company. That makes it possible for organizations to build smaller “private clouds” for their own use; for a consortium to build industry or community clouds for its members;

or a central, provincial or city govern-ment to provide cloud services to other agencies or businesses. Clouds the size of those run by Microsoft, Amazon and Google require additional technologies so they can support many millions of users around the world without becoming sluggish.6

This description barely skims the surface of the underlying complexities. But for business leaders, it gets at two crucial points: cloud computing combines extraordinary power with flexibility, and in the case of public cloud services, the major burdens and expenses of IT power become someone else’s problem.

Figure 1: A guide to cloud terminology

The term “cloud computing” originated as a twist on “computing cloud,” an easy-to-draw way to portray a group of computers or the Internet itself in a diagram. Today, cloud computing has come to encompass several kinds of services, and is often confused with other technologies.

•Internet computing:seen by some as more fitting than “cloud” or “utility” computing •On-demand computing:popularized by IBM

•Utility computing:popularized by author Nicholas Carr •Software as a service:cloud-based applications •Infrastructure as a service:processing and storing data

•Process as a service:business processes built upon cloud applications

•Platform as a service:developing, testing, and running applications on clouds or for clouds •Public cloud:a cloud made available to the public by a company

•Private cloud:a cloud maintained for a single organization

•Community cloud:a cloud shared by groups of businesses or organizations •Government cloud:a cloud maintained by a government agency for public use •Virtualization:a way to run more applications or store more data on fewer computers •Grid computing:divides processing among computers; enables speed and scalability •Broadband Internet:enables vast amounts of data to quickly travel over the Internet •Web 2.0:applications and technologies that make the Web a vehicle for collaboration •Service-oriented architecture:designs systems to act like interconnected services •Time sharing:how companies shared mainframes in the early days of computing •Application service providers:the first software services accessed via the Web

Synonyms

Cloud services

Cloud providers

Foundation technologies

Private cloud platforms Process services Platform services Infrastructure services Software services Using for critical applications Testing or piloting

Investigating Not using or investigating Using for less important applications 15% 12% 21% 26% 26% 1%6% 15% 27% 51% 41% 36% 15% 9% 1%3% 22% 44% 31% 9% 21% 29% 41% Now 1% 7% 43% 40% 9% 19% 22% 31% 24% 5% 15% 31% 39% 12% 3% 2% 11% 30% 44% 13% 3% 16% 24% 25% 32% In two years

Private cloud platforms Process services Platform services Infrastructure services Software services Not using clouds

Now In two years

57%

12%

88% 43%

Using clouds

Figure 2: Adoption of cloud computing in China

In two years, many more large Chinese organizations will start to use cloud computing…

Cloud computing is and will remain an emerging technology in China for the foreseeable future. Less than half of the companies we surveyed are now exploring the technology; a small fraction of these are using it. Cloud spending is poised to grow significantly over the next two years, but the adoption rate will still remain lower than in other countries because of security fears and other concerns.

Cloud computing adoption:

a slow start

Chinese companies are starting to investigate cloud computing, but are moving cautiously on putting the technology to work. For now, they are focusing more on creating private clouds than using public cloud services. Only 43 percent of our respondents are now using, testing or investigating cloud computing, less than half as many as in the United States. Less than twenty percent now use public cloud services such as cloud-based applications (commonly known as software as a service, or SaaS), infrastructure services (which process

…but very few will move beyond testing and investigation, except for private clouds and infrastructure services…

or store data on the cloud), process services (which operate business processes built upon cloud applications), and cloud platform services (which are used to create, test and host applica-tions). Platforms for building and running private clouds are used more

frequently. Few users are willing to entrust critical applications to the cloud. Instead, they are relegating the technology to limited, low-risk uses and trial projects.

The State of

Cloud Computing

in China

Cloud activity in China will significantly increase in the next two years, according to survey respondents. The percentage using clouds to at least some extent will more than double. The percentage that will use or test both private and public clouds will reach 36 percent, while another 40 percent of respondents will only use or test private clouds, and 13 percent just public clouds. Most of that use will be in the form of investi-gating, piloting or testing cloud systems, whereas in other nations most companies will have moved on to implementation. On average, 15 percent of Chinese employees will use cloud-based appli-cations in the next two years, while 69 percent of US employees will. Still, given the large percentage of companies that are investigating cloud computing today, we expect far more organizations to start testing and piloting clouds beyond 2012.

Cloud computing spending:

rapid growth ahead

Given the low level of cloud activity at this time, it is not surprising that Chinese organizations that use cloud computing services or build private clouds spend only 6.3 percent of their total IT budget on the technology, about half as much as the American organi-zations in our survey. And when communications and high-tech firms that are entering the cloud computing market are removed from our sample, the percentage falls to 3.8 percent. (See Figure 4, “Cloud spending in China.”) But spending on cloud computing will climb rapidly in China. Of the companies that are now using, testing or investi-gating cloud computing, over 80 percent of respondents say they will increase spending on cloud computing in the next two years, and a third say spending will increase by 100 percent or more. This is a slightly larger percentage than

China

Software services Infrastructure services Platform services

Private cloud platforms Process services

USA Outside China

13% 19% 75% 49% 68% 56% 32% 88% 58% 34% 92% 88% 65% 29% 94% 62% 32% 94%

China USA Outside China

China USA Outside China

15% 71% 86% 58% 28% 86% 62% 30% 92%

China USA Outside China

41% 54% 95% 61% 33% 94% 63% 31% 94% 8% 83% 91% 54% 35% 89% 56% 37% 93%

China USA Outside China

Testing, piloting or investigating Using

…and adoption will continue to be slower than in the U.S. and other countries.

that reported for other nations. Even when companies that provide cloud services are not counted, over three-quarters of respondents plan to increase cloud spending. Cloud computing appears poised to play a significant part in China’s 11.5 percent overall increase in IT spending, as forecast by IDC, a global IT market research company.7

Estimates of cloud spending in China from market research firms vary widely. Springboard Research estimates China’s cloud market will grow by 56 percent to reach US$ 171 million (1.16 billion RMB) by the end of 2010. That is less than one percent of the $17.4 billion spent worldwide on cloud computing in 2009, as estimated by IDC. CCW Research places the total SaaS market in China much higher, at 19.84 billion RMB in 2008, and predicts it will grow at an aggregate annual rate of 24.5 percent to 61.3 billion RMB by 2013.8

Cloud computing’s potential

low, pay-for-use operating expense, and the financial appeal of cloud computing is obvious. Private clouds too can be less expensive to operate than conventional data centers. Bechtel, one of the world’s largest construction companies, found it could reduce its total IT costs by 25 to 30 percent by adopting a private cloud architecture.10 Clouds also offer extraordinarily flexible resources. They are scalable because of their technical design. Clouds can be summoned quickly when needed, grow by assigning more servers to a job, then shrink or disappear when no longer needed. That makes clouds well suited for sporadic, seasonal or temporary work, for finishing tasks at lightning speed and processing vast amounts of data, and for software development and testing projects.

The New York Times used cloud services to quickly and inexpensively digitize its archive of 14.5 million articles and make them available to the public on the Web. Researchers at the Harvard Medical School used cloud services to develop genetic testing models within 25 days. And media giants Time Warner and the Disney Company are turning to clouds to store and distribute their movies and television shows.

Clouds can also supplement conven-tional systems when demand for computing exceeds supply. One US health care claims processing company turned to cloud services when it suddenly needed 30 million claims checked for accuracy.11_{And since they} are an operational expense, cloud

Figure 3: Initial opportunities for using clouds

Accenture has identified many different possible uses for cloud computing.

E a se o f im p le m e n ta ti o n

Value to the enterprise High value

H a rd E a sy

Source: Accenture Technology Labs

Desktop productivity

• Web 2.0 applications • Workgroup applications • Office suites

• Email and calendaring

Legacy

• Specific existing infrastructure • Complex legacy systems

Business continuity (storage)

• Extensive storage • Backup and recovery

Software development and testing

• Software development and testing environment • Performance testing • Non production projects • R&D activities

• Reduced time to market

Geographic expansion

• Replicate standard processes in new locations and branches.

Sensitive applications

• Mission critical applications • Regulation-protected data

Peak load demands

• New business activities • Applications with peak-loads • Seasonal websites

• Applications with scalability needs

New business

• Provide IT support for new ventures

Batch and data intensive applications

• One-off applications that don’t rely on real-time response

• Data and high performance intensive applications (financial risk modeling, simulation, data compression, graphics rendering…) • New back-office applications

services can often bypass the capital-expense approval process, and thus be quicker to procure than conven-tional systems. In Eli Lilly’s case, using clouds shaved three months off the IT budget and approval process. That represents US$ 1 billion (6.8 billion RMB) in opportunity costs avoided, when translated to faster time to market. Clouds, paradoxically, can both decentralize technical innovation and impose centralized control on IT resources. The barrier to entry for providing an innovative IT service has never been lower. Any programmer could create a software service using free or low-cost development tools, host it on a public cloud, and quickly make it available to all. Clouds are also a fast and easy way for organizations to impose a standard set of applications or processes. Users only need pay for a cloud service and then require employees to go online and use it.

response time should be avoided, since guarantees are risky when data has to run over the Internet.13_{Executives are} likely to find the greatest benefit by envisioning new processes, applications, services and offerings that had been too difficult or expensive for the organization.

Cloud computing can benefit companies of all sizes, but it can be especially helpful to small and mid-sized enter-prises. Public clouds provide access to advanced applications and storage with minimal upfront costs. They also allow small companies to conduct business online without the risk of having to quickly invest in buying and installing servers should their site unexpectedly attract large numbers of visitors. For example, the Outback Steakhouse restaurant chain used cloud services to quickly develop and host an application to promote the restaurant on a social networking web site. 99Designs, a small company that connects graphic designers to companies needing design services, runs their service on a public cloud.12 When considering clouds, business leaders should begin by looking for specific benefits for their own organi-zation—ways to reduce costs, improve processes and more. They should also investigate when clouds do not make sense. For example, to operate a complex legacy system on a cloud would require a costly redesign. And projects requiring a guaranteed

Bechtel, one of the

world’s largest

construction companies,

found it could

reduce its total IT costs

by 25 to 30 percent

by adopting a private

cloud architecture.

However, not all cloud computing services require their users to spend money. Some Chinese web sites, such as Taobao.com, provide free email, CRM and other applications over the Web. While just over ten percent of

companies ban the use of such services altogether, a large majority percent permit employees to use them on a restricted basis.

Using cloud computing: seeking

efficiency and effectiveness

The organizations we surveyed are not only interested in using cloud computing to reduce IT costs, but also to operate their businesses more flexibly and effectively. In contrast to executives outside of China, however, the Chinese are significantly less likely to view cloud computing as a means of creating innovative products or processes.

Saving money is certainly a main driver of Chinese interest in clouds. (See Figure 6, “Drivers of cloud com-puting activity.”) “Reducing upfront IT costs” is the most important reason respondents say they start to explore or use the technology. “Reducing or avoiding the cost of maintaining IT

Figure 4: Cloud spending in China

Spending on cloud computing is relatively small, but will soon grow.

China

Average cloud spending as percentage of IT budget

Change in cloud spending in China during next 12 months

USA Outside China 6.3% 13.2% 17% Remain the same 19% Increase by 100% or more 34% Increase less than 100% 47%

Figure 5: China and US: greatest differences and similarities

Now using or testing any form of cloud computing

Now using or testing software as a service

Considers faster product development an important driver for cloud computing

Expects half or more of the 500 largest companies in their country to use cloud computing for critical business activities within three years

Will use cloud computing to support projects within next 18 months 43% 89% 23% 70% 32% 62% 16% 40% 9% 40% China USA 0 10 20 30 40 50 60 70 80 90

Planning to increase cloud spending in next 12 months

Concern about compliance with legal, regulatory and auditing requirements

Uncertain about the ROI of cloud computing

Will use cloud computing to provide an IT platform for processes involving multiple organizations within 18 months

Says cloud computing has no potential for their organization 81% 81% 65% 67% 50% 48% 44% 45% 1% 1% 0 10 20 30 40 50 60 70 80 90

infrastructure” also ranks high. Five years from now, two-thirds believe “permanently and significantly lower-ing operatlower-ing costs” will be one of the greatest benefits clouds can provide their organization.

Companies that are the most focused on cutting costs are using clouds to lower the expense of running their web sites. Chinese sites generate millions of hits from China’s web users. Cloud services and architectures allow organizations to scale up and

meet demand at lower cost. Chinese organizations show relatively little interest in using clouds to cut energy costs or to backup data.

However, using cloud technology to improve or facilitate day-to-day operations is just as important as reducing costs, if not more so, accord-ing to survey respondents. Five years from now, according to 70 percent, “enabling speed, flexibility and respon-siveness” will prove to be cloud puting’s greatest benefit to their com-pany, more than any other benefit.

How do companies plan to use clouds? Chinese organizations are especially interested in using them to interact with other organizations, and to promote uniform processes among the large and often far-flung base of users they must support. (See Figure 7, “Putting clouds to work,” and the profile of China Ocean Shipping Company.) Providing an IT platform for business processes involving multiple organizations is by far the most common use for clouds at this time. Running CRM, ERP and supply chain management applications is the second most often cited use.

Figure 6: Drivers of cloud computing activity Savings and operational improvement are the main

reasons Chinese organizations decide to use or explore cloud computing. (top ten responses by percentage responding “very important” or “important”)

0 10 20 30 40 50 49% 47% 46% 43% 42% 42% 39% 38% 36% 32%

Reduce upfront IT costs

Exchange data more efficiently with outside organizaitons

Establish uniform processes in different regions

Enable processes that are not otherwise cost effective

Improve analytical capabilities

Reduce or avoid cost of maintaining own IT infrastructure

Provide IT services where IT infrastructure, resources or labor is limited

Improve communications and collaboration between individuals

Provide platforms for standardized, efficient business processes

Develop new or improved services/products more quickly

Figure 7: Putting clouds to work

Over the next 18 months, Chinese organizations will use cloud computing and cloud services to build platforms, run web sites and enterprise applications, and provide productivity tools. (top ten responses)

Provide an IT platform for business processes involving multiple organizations

Run e-business or e-government web sites

Run CRM, ERP, or supply chain applications

Provide personal productivity and collaboration tools to employees

Back up data

Analyze data for research and development

Process and store applications or other forms

Meet spikes in demand on our web site or internal systems

Develop and test software

Analyze customer or operations data

0 10 20 30 40 50 44% 34% 34% 33% 24% 23% 21% 21% 21% 19%

Chinese companies also frequently cite communication and collaboration as an important motivation for using clouds. One-third are using or will soon use cloud-based productivity and collaboration tools.

At this early stage, clouds are more a means for providing spot solutions than broad platforms. We expect more Chinese respondents will seek to use clouds as platforms for standardized, efficient business processes in the future than they do now.

Supporting innovation is

a low priority

Outside of China, many organizations— especially those that are growth-focused, or that are early adopters of IT—consider cloud computing as a technology with great potential for supporting product and service innovation.

Chinese organizations show less interest in the potential for innovation than non-Chinese ones. Relatively few Chinese respondents say they were motivated to start adopting cloud computing by the desire to develop new services more quickly (32 percent in China say this is very important or important versus 62 percent in the United States), find new ways to engage customers (32 percent China, 64 percent US), or develop products

or services (30 percent China, 65 percent US). Likewise, less than a third of Chinese respondents say “supporting product/service innovation” is one of the main benefits their company can gain from cloud computing, and less than one in five think clouds could help them expand operations to new markets. These percentages are higher in other countries. (See Figure 8, “A pragmatic vision of cloud computing.”)

In the short term, Chinese organiza-tions are primarily focused on process improvement, efficiency and savings, rather than on finding innovative ways to make use of the enormous computing power, speed and flexibility of cloud computing. Farther in the future, more Chinese organizations will start to explore the potential of cloud computing for innovation: significantly, 21 percent of Chinese respondents say clouds can transform business—more than any other country. However, foreign companies are likely to find ways to transform business first, because they are more actively seeking innovations which, intended or not, wind up being transformative.

Figure 8: A pragmatic vision of cloud computing

China USA Outside China

0 10 20 30 40 50 60 70 70% 59% 57% Enable speed, flexibility and responsiveness 31% 48% 49% Enable new, innovative processes 18% 27% 35% Expand operations to new markets 28% 26% 35% Improve decision making 66% 58% 51% Permanently and significantly lower operating costs 31% 41% 42% Support product/service innovation

Over the next five years, say Chinese respondents, cloud computing’s greatest potential benefits will be enabling savings, speed and flexibility, and lowering costs.

Chinese organizations that are interested in cloud services have fewer choices than in other countries. Elsewhere, a few large global vendors have begun to roll out a wide range of cloud services, and are on the way to establishing themselves as first tier suppliers. But in China, the same global firms are less visible. Few domestic firms have ventured into cloud computing, and their offerings are primarily focusing on SaaS. As a result, Chinese organizations that wish to use cloud computing do not yet have a variety of established, trusted brands and services to choose among. This is one factor slowing down cloud computing in China. Globally, the cloud services market is developing in three phases: establish, partner, and broaden. The market was established first by American Internet pioneers like Google, Salesforce.com, Amazon.com and Facebook, which were soon joined by established IT companies like Microsoft, IBM, Fujitsu and SAP, telecom companies like Singapore’s SingTel and Japan’s KDDI, business process outsourcers like India’s HCL, and startups like Joyent.14

The companies that establish the market then forge partnerships with consulting firms such as Accenture, provide infrastructure services to other companies entering the SaaS market or enter marketing alliances. For example, cloud services providers in Europe have formed an organization called EuroCloud to promote locally based cloud companies15_{While they} partner, cloud providers broaden their offerings by entering other cloud services markets, as SaaS provider Salesforce.com did when it launched its Force.com cloud development platform. Gartner, a global IT research firm, has identified at least 30 cloud concepts and technologies which pro-vide opportunities for offering services.16 In China, for now, the market is still being established. Partnerships have been limited to ventures between local authorities and foreign companies. Cloud providers have not yet started to broaden their line of offerings. As in Singapore, one of the first major domestic players is likely to be a large telecom company. China Mobile’s BigCloud offering will provide mobile Internet services including storage to consumers and enterprises.17_{A few} other stars of China’s high-tech and Internet industry are entering the cloud market. The Alisoft subsidiary of the Alibaba Group, known for its online B2B marketplace that matches Chinese suppliers with foreign companies, is promoting its new “Shopkeeper”

accounting and financial management SaaS services to small and midsize enterprises.18_{Lenovo, China’s largest} PC maker, will start offering SaaS ser-vices and thin-client PCs designed for cloud computing. (Thin clients, unlike conventional PCs, lack the processing power and memory to run most software programs, and rely on servers connected via the Internet or a company network.) Sogou.com, the search engine subsidiary of Internet portal Sohu.com, offers a free cloud-based “input service” for entering thousands of Chinese characters. In addition, dozens of other Chinese companies and startups are entering the software, infrastructure and plat-form service markets. (See Figure 9, “A partial list of Chinese cloud service providers.”) Fifty Chinese IT companies and research firms have banded together to form a cloud computing committee comparable to the EuroCloud initiative.19

To date, the major foreign cloud com-puting providers have only a limited, supporting role in China’s cloud com-puting market. They are establishing themselves through partnerships with local development agencies, companies and universities. For now, they are not rolling out the same cloud product line they offer in other countries.

The cloud services market

Microsoft has not yet begun to offer its Azure platform in the People’s Republic, although it has started to in other parts of Greater China. It has teamed up with Suzhou Industrial Park and Fengyun Network services to provide SaaS services to small and mid-sized enterprises. Microsoft provides the SaaS platform and back-end technology, upon which Fengyun develops SaaS. Microsoft has also established a Cloud Computing Training center in Hangzhou, which provides cloud computing sources and services to small and mid-sized Chinese businesses.20

For the municipality of Wuxi, IBM has built a cloud computing center at the Wuxi Tai Hu New Town Science and Education Industrial Park. The center provides IT services to local high-tech companies and government agencies.21 IBM also plans to build cloud centers in Hong Kong, and in the capital with the Beijing University of Technology.22 Joyent, an American company, brought its cloud computing

infrastructure, web hosting, and appli-cation services to China by working with the Qinhuangdao Economic and Technology Development Zone.23

NTT Data of Japan recently launched a joint venture with Yuchang Technologies Ltd. to provide cloud services, as well as systems integration and consulting services, to China’s banking industry.24 Dell has signed a memorandum of understanding with Beijing Infobird Co., Ltd. to provide cloud-based call centers in China.25

These arrangements with development agencies and Chinese companies can help foreign cloud service providers gain trust and build the Chinese cloud market. Because of security concerns, Chinese enterprises are reluctant to use foreign cloud providers, especially if they do not have data centers with-in Chwith-ina. Chwith-inese customers are more likely to have confidence in foreign cloud companies if they build data centers in China, and partner with Chinese agencies and cloud providers. Still, until they can venture out on their own or form more alliances, Chinese users will have limited access to the major global cloud service providers.

Figure 9: A partial list of Chinese cloud service providers Vendor 21ViaNet 800Apps Alisoft (Alibaba Group) China Mobile CNSaaS.com eAbex Infobird Inspur (Langchao) Jingoal Lenovo Sogou.com Wecoo.com (Ufida Software) Xtools Youshang.com (Kingdee International Software Group) Yoyo Systems Yucheng Lian Rong Data Technologies Cloud service Infrastructure Software Software Platform Software Software Software Software Software Software Software Software Software Software Platform Software Availability Now Now Now This year Now Now Now

Next two years

Now This year Now Now Now Now Now 2010 Description

Data center service provider entering IaaS market

Start-up provides CRM services

CRM, sales force management, inventory management, financial and marketing information management service

Mobile internet cloud services

Joint venture between Fengyun Network, Suzhou Industrial Park and Microsoft China; uses Microsoft as platform for offering SaaS services to Chinese small and midsized businesses

Management software and e-business services

Call center systems and service provider partnering with Dell to provide cloud-based services

Server software and manufacturing company

Management software and service provider

SaaS services, cloud-based storage, thin-client PCs for cloud computing

Free cloud-based input service for entering Chinese pinyin

Online marketing and management services

CRM

Online management e-business services

Has cloud R&D centers in China (Beijing Zhongguancun) and US (Silicon Valley)

Joint venture between NTT Data Technologies of Japan with Yucheng Technologies, a Chinese company offering systems and call centers for the Chinese banking industry.

What Makes

China Cautious?

China’s approach to cloud computing can be summarized as not just conser-vative and pragmatic, but also as cautious. What is keeping China from adopting cloud computing more quickly? Why are Chinese organizations focusing much more on building private clouds than on public clouds? And why have they pursued thus far the more modest benefits of efficiency, but not the more substantial ones that come from innovation? Our data suggests that the use of cloud computing is influenced by several factors that are unique or especially prevalent in China.

Lack of knowledge deepens

caution.

Executives all over the world are still attempting to understand what cloud computing is, how it can be put to work, and what the costs and risks are. However, knowledge of cloud computing among IT executives remains lower in China than in other nations in our survey. Only 21 percent of Chinese IT executives describe their level of knowledge as either advanced or expert. This was the case even though Chinese respon-dents were more likely to be the top IT executive in their organization than respondents elsewhere. In the other countries in our study, 64 percent of IT executives claimed advanced or expert knowledge of this new technology. One reason China’s IT executives know less: since only 43 percent of the Chinese survey respondents work in organizations that operate both inside and outside of China—and few of these operate outside of Asia—many

Chinese IT executives have not been exposed to how foreign competitors are using clouds.

Until they know more, Chinese respon-dents tend to take a cautious stand towards this new technology. They have many concerns about the tech-nology, and the extent of their concern is higher than other nations. (See Figure 10, “Concerns about cloud computing.”)

They are also more divided over what cloud computing can do for their organizations. Chinese executives are more likely to view cloud computing as a temporary fad, and less likely to be convinced that their organizations

need to adopt the technology or that other large companies in their country will quickly adopt cloud computing. They also display less confidence that cloud computing can solve their most difficult problems, or bring lasting competitive advantage (See Figure 11, “Skepticism about cloud computing.”) “Compared with traditional IT applica-tions, cloud computing can optimize the IT infrastructure and save money,” says Zhu Dong, director of the information and technology department, China National Aero-Technology Import & Export Corporation. “But whether cloud computing can work reliably, fast and flexibly is still hard to know. Cloud 89% 79% 76% 75% 71% 71% 68% 67% 65% 63%

Data security/privacy/confidentiality issues

Integration with existing systems

Service level agreements/guarantees/contact issues

Reliability/uptime/business continuity issues

Legal or regulatory ambiguity

Maturity of cloud computing market

Loss of control/ownership of IT

Lack of industry standards

Compliance with legal, regulatory and auditing requirements

Features, functionality and performance

0 10 20 30 40 50 60 70 80 90

Figure 10: Concerns about cloud computing

Security, integration and reliability top Chinese concerns with using public cloud services (top ten concerns; percentage “very concerned” or “concerned”)

computing is still in its infancy. It is too optimistic to say that cloud computing is a game changer. There is a long way to go.” In their personal lives, Chinese consumers are notably wary about product claims, and frequently conduct product research and seek personal recommendations before a purchase decision.26_{Similarly, it}

will take experience, personal recommen-dations and the opportunity to research the technology before the Chinese trust cloud computing enough to embrace it. The more leading companies in China adopt the technology, the more likely others will too. But until they see real benefits, and become better educated about cloud computing, Chinese executives are more likely to give credence to the technology’s potential problems than its possible benefits.

Security concerns make Chinese

companies wary of using clouds.

Security is the main concern with cloud computing across the world. But in no nation are these worries stronger than in China and they force Chinese CIOs to take a cautious approach, espe-cially with public cloud services. Fifty-nine percent of Chinese respon-dents say they are “very concerned” about data security, privacy and confi-dentiality on the cloud, compared to 50 percent in the US and 42 percent for nations besides China. The Chinese are more likely to state their organization has data which is too sensitive to allow outside the walls of their enterprise than respondents in nearly all other nations. Chinese executives especially worry that their data could be stolen by hackers, or accidentally released to other customers of a cloud provider or to the wrong employee. (See Figure 12, “Data security worries.”)

Figure 11: Skepticism about cloud computing

Compared to other nations, fewer Chinese executives are convinced of the potential of cloud computing to provide competitive advantage, solve difficult business issues, or the need to adopt the technology. (Percentage “substantially agree” or “agree to a very large extent”)

China USA Excluding China 18%

33% 38%

My organization needs to adopt cloud computing

21% 42% 48%

Cloud computing can help solve our most difficult business issues

23% 37% 47%

Cloud computing could provide my company with a lasting competitive advance

0 10 20 30 40 50

Figure 12: Data security worries

China USA Outside China

0 10 20 30 40 50 60 70 80 90

Hackers could steal our data from the cloud provider 81%

76% 71%

Cloud providers may permit access to data to the wrong employees 79%

61% 61%

Other customers of our cloud provider might obtain our data by accident 75%

53% 47%

Physical security at cloud vendor locations 59%

45% 33%

Foreign governments may obtain my organization’s data from the cloud provider 56%

52% 51%

Chinese executives cite more data security and privacy issues as concerns to their organization than executives in other nations. (Percentage “substantially agree” or “agree to a very large extent”)

But executives at the Chinese enter-prises we surveyed—many of which are partially or entirely state-owned—are also concerned with possible national security risks from the cloud, since public cloud computing environments are externally provided and shared. Fifty percent of respondents say the single greatest factor impeding the adoption of cloud computing is that Chinese business leaders worry that cloud computing could damage China’s national security.

Along with Chinese officials, business leaders fear that highly confidential data about the Chinese economy, military, and government, as well as crucial tech-nology and science developments, can be stolen or accidentally disclosed to foreign competitors, or end up in the hands of groups or individuals who seek to overturn the national government. And like their peers in other countries, slightly more than half of Chinese exec-utives worry that foreign governments could obtain data from cloud providers. Data privacy laws and regulations are still in their infancy in China, so the guidelines and requirements for securing data remain unclear. The untested nature of the cloud market further undermines confidence that cloud providers are capable of securing data on the cloud. “I do not have confidence in public clouds,” says Xiao Peng, the CIO of ENN Group. “Data security is of the highest concern of our executives. We are reluctant to store sensitive data and commercial secrets on public clouds that can be shared by other customers. Accidental release of the data to our competitors could have a disastrous impact on our company. We won’t trust public clouds unless the relevant laws, regulations and service level agreements are implemented to periodically assess, monitor and audit providers.”

Chinese organizations are likely to limit their use to private clouds, despite its potential benefits, until they are more confident the cloud can be secured.

An immature cloud market

provides few services and

trusted vendors.

Nearly two-thirds of Chinese respondents, nearly all of whom are IT executives, say Chinese business leaders believe the cloud market is still immature, which makes this issue a top factor impeding the adoption of cloud computing. But the limited offerings that are available today are only part of the problem. (See “The cloud computing market”) Chinese organizations are especially reluctant to use foreign cloud providers or turn to start-up companies, given their concerns about the reliability of

cloud services and the sensitivity of their data. A scant two percent of Chinese respondents said they are definitely or probably willing to source cloud services from a startup, and only 28 percent say they are possibly willing to do so. That is far fewer than respondents in the US and other nations. Fifty-eight percent of American executives say they are or might be willing to use cloud services from new companies. Chinese organizations are also averse to entrusting foreign providers with their data. Less than half say they are willing, even if the provider keeps the data within China’s borders. The number falls to below 20 percent for foreign providers that do not have cloud data centers in China. (See Figure 13, “Willingness to use foreign cloud providers”)

Figure 13: Willingness to use foreign cloud providers

Chinese organizations are adverse to letting sensitive data leave the country. They strongly prefer to entrust customer, employee or patient data to domestic cloud service providers. (Percentage definitely, probably or possibly willing)

Foreign provider with foreign cloud

Foreign provider with local cloud

Domestic provider

China USA Outside China 18% 40% 62% 46% 68% 78% 66% 85% 87% 0 10 20 30 40 50 60 70 80 90

Most Chinese executives would prefer to use proven and well-established domestic cloud vendors. But at this time, few if any meet that description. The best known cloud computing brands are American. Domestic companies in the cloud market are still establishing themselves and their own credibility. As a result, only 14 percent of Chinese executives say they are definitely or probably willing to use their current IT and telecommunications vendors, far lower than the 77 percent of American respondents who would be willing to do so.

Chinese CIOs are in a difficult position. “Even though local venders cannot compete with global companies because of technical barriers, we are reluctant to use foreign cloud providers,” says Ding Tao, an IT executive with Shenhua Beijing Guohua Electric Power Co., Ltd. “I still believe that local Chinese cloud providers will provide better services to local customers. The domestic cloud computing market is immature. There is an urgent need for the government and organizations to push forward the establishment of technology standards. This will require a joint effort of consultants, integrators, vendors, institutes and government.”

Until domestic vendors start providing more cloud services and earn the trust of Chinese corporations by offering guarantees and service level agreements, and foreign firms prove they can keep Chinese data secure, Chinese organiza-tions will not eagerly use their services.

Limited use of virtualization,

slow broadband speeds and

questions about integration

hamper public and private

clouds.

Virtualization makes cloud computing possible. Chinese IT executives say that the extensive use of virtualization is the most important thing a company can do to speed up its adoption of cloud com-puting, along with providing evidence to top executives that cloud computing significantly lowers costs. However, far fewer Chinese companies have committed to the technology than those in the United States or other nations.27_(See

Figure 14, “Adoption of virtualization”) China also lacks a broadband network that can support cloud computing across the country. China is a world

leader in broadband penetration: 94.3 percent of Chinese Internet users have broadband access. But most download speeds available in China reach no more than 4 Mbps (megabits per second). That is considerably lower than the average speed of 17.4 Mbps found in developed countries. Other Asian countries—most notably Japan and South Korea—provide download speeds that are up to 20 times faster than those in China.28

After data security, Chinese IT executives are most concerned about integrating clouds with existing systems. For example, how many sources of data can a cloud-based application draw upon before it becomes sluggish? Will it be more challenging to integrate data when it must be shared between cloud services or with their complex

Figure 14: Adoption of virtualization

Chinese organizations are least likely to have extensively or moderately virtualized their servers. However, 63% of Chinese organizations are considering virtualization.

China USA Outside China

18% 64% 14% 14% 74% 63%

conventional systems? How do companies make sure they can easily reclaim the data held for them by one cloud provider, so they can easily switch to another?

Chinese organizations will find it difficult to utilize public clouds, and be unable to implement private clouds as broadly as they might, until answers are found to these questions about integration, more companies adopt virtualization, and faster broadband services become available.

Chinese IT executives want

the government to help make

cloud computing more secure

and reliable.

The Chinese central government has declared “informatization” (the appli-cation of information technology in business, government, and education) one of its most important economic priorities.29_{Cities and provinces such as}

Nanjing are supporting the software-as-a-service industry by teaming up with foreign and domestic cloud providers to build cloud computing centers that provide e-commerce and computing services to local businesses.30

However, government support for cloud computing is primarily focused on extending SaaS to China’s 42 million small and mid-sized businesses. Less than ten percent of these companies now conduct business online, and cloud services can provide access to the IT resources they need to do business on the Web.31_{The initial steps by}

govern-ment have not convinced large organi-zations to move forward on cloud computing. Fifty-one percent say official Chinese policies on cloud computing are unclear, and are one of the major impediments to cloud computing. As one Chinese CIO told us, “I am not optimistic about cloud computing and storage unless… laws, regulations and SLA agreements have been put into practice.”

Respondents are split on whether it is necessary for the government to show it supports the use of the technology. But there is a consensus that the govern-ment should be involved in setting standards and regulating the industry. Cloud computing must be made safer, technically and legally, if it is to be used more widely in China.

Compared with traditional IT applications, cloud

computing can optimize the IT infrastructure and

save money. But whether cloud computing can work

reliably, fast and flexibly is still hard to know.”

— Zhu Dong, director of information and technology department, China National Aero-Technology Import & Export Corporation

Figure 15: “Explorers” first to adopt cloud computing

Cluster analysis reveals four kinds of Chinese organizations. The “explorer” group will adopt clouds faster and more broadly than “pessimists,” “observers” and “budget cutters.” (average level of adoption in two years)

5 – Using for critical applications 4 – Using for less important applications 3 – Testing or piloting

2 – Investigating

1 – Not using or investigating

Explorers Pessimists Observers Budget cutters

Software services Infrastructure services Platform services Process services Private cloud platforms

3.23 1.91 1.93 2.33 3.09 1.48 2.00 2.33 2.97 1.87 2.59 1.80 3.40 1.96 2.38 3.66 2.96 1.73 3.62 1.80

Explorers,

Budget-Cutters,

Observers and

Pessimists

All Chinese organizations need to navigate between the possibilities of cloud computing and their concerns about security, data integration, reliability and other issues. However, only about one third of the Chinese organizations in our study are doing so in a way that leaves them well positioned to take full advantage of the technology.

Theseexplorersare found in nearly all industries, although the most common ones are high tech and communications, consumer goods, and energy. They are more likely to be currently investing or testing all the variants of cloud computing today and in two years will be ahead of other Chinese organizations in cloud implementations. And as is to be expected, they are spending more on cloud computing than other organiza-tions, and provide cloud services to a higher percentage of employees. (See the profiles of Xiwang Group, China Ocean Shipping Company and Jiangsu Electric Power Company for examples of early adopters.)

Several factors besides the pace of adoption distinguish these companies:

Explorers see cloud computing’s long-term potential for innovation and process improvement.Nine out of ten explorers say cloud computing has long-term potential to enable speed, flexibility and responsiveness, and half also say it will support prod-uct and service innovation. They also strongly believe cloud computing will lead to important new innovations in business technology and will transform the software industry. Explorers also say cloud computing will transform business.

Founded in 1986 and located in the grain-growing area of Zouping, Shandong Province, Xiwang Group is large for an enterprise that is not owned by the state. The company processes corn to make corn starch, corn oil, dextrose, gluconate, fructose and other products. Its annual corn-processing capacity is 1.8 million metric tons. With over 10,000 employees and eight subsidiaries, sales revenue reached 15.3 billion RMB (US$ 2.24 billion) in 2009. Its core subsidiary, Xiwang Sugar Co., Ltd. was listed on the Hong Kong Stock Exchange in 2005. A few years ago, Xiwang’s share of the Chinese market for dextrose reached 70 percent; for gluconate, 80 percent. However, the company mainly supplied clients with raw materials, and profit margins were low. It needed to reposition itself for future growth.

Top management made a couple of decisions. First, it would transform itself from a pure B2B player into both a B2B and B2C business, exploring the mass consumer market for corn oil and fructose. Second, to better implement this new strategy, management decided to relocate the company headquarters from Shandong to Beijing, the center of commerce and politics.

To carry out the strategy, Xiwang’s leadership realized it needed a new IT infrastructure to support its new consumer business and decided to explore cloud computing. Past

experience in constructing IT systems contributed to its interest in cloud computing. A few years before, Xiwang had implemented a local Chinese ERP system to meet its growing business needs. As many difficulties and conflicts with existing processes arose, the transition was not smooth. Employees resisted using the system, and it had to be aborted after less than four years in operation. The company’s top management saw an easier-to-use alternative in cloud computing. Xiwang selected 800App, a local Chinese SaaS provider that began business in 2004, for its CRM software service. The company began using the service in late 2009, paying for it on a fee-per-user basis. Xiwang provides access to the CRM portal to about 50 users located in over ten cities nationwide, including eight external distributors. These 50 users utilize data collected by several hundred Xiwang employees who upload data on their mobile phones from stores, warehouses, distribution centers and delivery routes.

To choose the vendor, the Xiwang engaged in several rounds of discussions on needs and requirements, service levels, and web page design. 800App gave Xiwang the chance to run trials of the service before signing up. The terms of the contract were also care-fully negotiated. One particular feature of the negotiating process played a critical role in Xiwang’s decision to use 800App: The cloud service provider assigned staff members to temporarily act as Xiwang’s representatives during the discussions. They worked with Xiwang to identify its business and technical needs, and then raised those

needs to 800App on behalf of Xiwang. This arrangement increased the company’s confidence and trust in 800App. So far, the five-month operation has produced satisfactory results and benefits. First, the transition to the new system was smooth and quick. The company was able to launch the new CRM application in three months instead of the nine to twelve months it would have taken to install a conventional CRM system. The system is simple and easy to learn; once up and running, few changes were necessary. As a result, employees are more receptive of the new system than they were to the old ERP system.

Second, the new service, which is customized to meet Xiwang’s business requirements, increased the company’s efficiency. It is not only loaded with the usual CRM software features, including sales planning, order tracking, expenses control and status reports, but it also provides video conferencing, office automation, email, and some financial functions. No matter where a manager is, access to the Internet enables him or her to process and approve requests within 24 hours instead of three or four days as was the case before. Third, the ongoing costs are only a fraction of several million RMB it would have cost to install an in-house system. Instead, Xiwang pays 60,000 to 80,000 RMB annually, less than what it would have spent on mainte-nance for a conventional system.

Cloud computing aids

business transformation at

Xiwang Group

Encouraged by the initial benefits, Xiwang’s management anticipates gradually adding more services to the 800App system. Over time, it will become a broader, quasi-ERP type of management service. It is likely that the company will also move its B2B busi-ness operations to the 800App system. Such plans would not be possible without adequate assurances on security. The trust established during the vendor selection, and subsequent interactions with the vendor, is critically important. Even so, the two companies are con-sidering how 800App can run Xiwang’s data while storing and handling it on Xiwang’s own server. This would ensure that 800App would not have access to sensitive Xiwang data. Asked what accounted for the success factors of cloud computing, Zhang Xuesen, sales manager of Xiwang’s Beijing subsidiary, noted that the reliability of the service is important. “The less downtime and support required,

the more successful the service is.” But the most important factor was people, says Zhang. “Employees who use a cloud computing service should first of all be able to specify their requirements, be willing to accept the change, and have the willpower to stick to it all the way through. In fact, good cloud services should be designed to be foolproof. Once the user gets through the initial adjustment period, using the service should be a habit. It is people who decide the success rate of the cloud.”

They are exploring many potential benefits from cloud computing.

Explorers are strongly interested in using cloud computing to reduce business and IT costs. But they are also show interest in using clouds to extend their organization’s capabilities, by enabling processes that would not otherwise be cost effective, developing new products and services and provid-ing IT platforms for processes. At this early stage, and because they come from many industries, it is not yet possible to point out a distinctive pattern of current uses. However, 43 percent are using clouds to run CRM, ERP or supply chain systems, and to test software.

They are more open to using foreign cloud providers.While explorers are concerned about the risk of sensitive data leaving the country, they are somewhat more willing than other companies to use foreign cloud providers, as long as they have a data center in China.

They are more likely to outsource their IT infrastructure and adopt virtualization.Explorers are less concerned with owning their IT infra-structure. They are also further along in deploying virtualization, which enables them to move forward on building internal clouds.

They believe cloud computing is important for China.Explorers are much more likely to agree that cloud computing is important to China’s economic competitiveness than other Chinese executives. They are also more likely to expect other Chinese companies to adopt the technology. Our cluster analysis of Chinese organi-zations revealed three other groups in which Chinese organizations tend to fall. Thebudget-cuttersare adopting private clouds and platforms as quickly as the explorers, but they lag in their use of other kinds of clouds. Nearly 40 percent of the enterprises in this cluster are in high-tech, communica-tions and energy. Besides their interest in private clouds, they are distinguished by their strong long-term focus on cost reduction. They see few other potential benefits from the technology five years from now, except enabling speed and flexibility. Reducing costs and establishing uniform processes are the two main reasons they are pursu-ing clouds. This narrow focus could limit the gains they can obtain from the technology.

The two other groups will still primarily be in the investigation and testing phases of using private and public clouds two years from now.

Cloudobserversare interested in using private and public clouds to run busi-nesses more effectively and efficiently, but they want to see the technology and the market develop further before they move forward. They are held back by concerns over the immaturity of the cloud computing market and the ability to integrate existing systems with clouds.

They also most frequently cite executive support, better understanding of cloud computing, and the ability to oversee cloud initiatives as internal factors that need be addressed in order to accelerate cloud adoption. Until the cloud market matures and other Chinese companies successfully begin to address these internal issues, the observers will hold back.

Another group can be described as cloudpessimists. In their view, cloud computing will either be a passing fad or will be used just as a way to save money. Respondents in this group will start to test private clouds in two years, but they foresee spending less on cloud computing, and lower levels of employee usage, than other respondents. The pessimists want to use cloud computing to improve business decision making and enable innovative processes, not unlike the early adopters. But they lack confidence in the technology’s future in China. They are much more likely than other respon-dents to cite a lack of clear government policies on cloud computing, or con-servative attitudes about technology adoption by Chinese business leaders, as impediments.

China Ocean Shipping (Group) Company (COSCO) is the world’s second-largest ocean shipping company, and China’s largest group specializing in global shipping, modern logistics services, and ship building and repairing. COSCO was number 327 on the Fortune Global 500 in 2009 with US$ 27.4 billion (187 billion RMB) in annual revenues. It is also one of the ten most profitable state-owned companies in China. Since 2004, COSCO has created a return of over 10 billion RMB per year. COSCO requires an up-to-date IT infrastructure to manage its massive operations. The company owns or operates a fleet of more than 800 modern merchant vessels, which sails to over 1,500 ports in 160 countries and territories across the globe. The group includes more than 1000 business subsidiaries in over 50 countries and territories around the world.

To support its employees, distributors, subsidiaries and customers, COSCO operates a logistics transport and shipping system. But as operations expanded, so did the number of users, from 4000 to more than 10,000. The company’s servers, scattered throughout China, were not able to handle the rapid increase of users and data processing. Instead of adding servers, top manage-ment has decided to make better use of the computing resources it already had.

COSCO has turned to virtualization— a computing technique that enables software to run on any available server in a network—to integrate its data processing capabilities. With virtualization, people throughout the supply chain draw on a cluster of servers dispersed in the network. This architecture makes more efficient use of its servers, thereby reducing energy consumption, while adding additional server capacity automatically when needed.

Having virtualized many of its servers, one COSCO unit is now looking to use them to support a cloud computing service. In 2009, COSCO Logistics Network Information Technology Co., Ltd, the arm of COSCO that provides IT services inside the group and out-sourcing services to other companies, began to reestablish its supply chain management system upon a cloud computing architecture. “Our goal is to provide SaaS service to all our customers, subsidiaries and distributors. This will allow them to avoid the huge investment and risk of establishing and maintaining their own logistics management software,” said Huang Dalei, the senior consultant of COSCO Logistics Network.

This service will reside on an enterprise private cloud that will be built within the group. It will include shipping, transportation, order management, billing and payment applications that will improve business processes and take COSCO’s customer service to a higher level. All these applications will be integrated through the use of a

services-oriented architecture, a way of designing systems that makes it easier to share data and information. Security is assured through the system’s identity management capabilities, including member login and access management. “We have a confiden-tiality agreement in the contract with COSCO, specifying rigorous rules on data safety,” Huang said. “We can’t afford to accidentally release data to wrong employees.” He added that there has been no record of data exposure in past years.

The transformation of COSCO’s supply chain systems into a set of software services is still in the trial stage, but Huang expects they will complete the move within a year.

Cloud computing integrates a

global supply chain for China

Ocean Shipping Company

Moving Forward

Cloud computing has great potential for supporting China’s large enterprises, its millions of small and mid-sized enterprises looking to use technology with minimal cost and administrative burden, and its high-tech industry, which stands poised to profit from cloud services. Cloud computing can make an important contribution toward the growth of China’s economy. To achieve its full value, all the parties involved must take a number of important steps.

Government leaders

Chinese executives are looking to the government to play a leading role in the establishment of cloud computing as a reliable and viable technology. A mix of regulation, investment and support is required if China is to optimize the use of clouds.

Continue to support and expand local cloud computing centers.These centers provide cloud services to local businesses and government agencies, establish partnerships between foreign cloud providers and local software companies, create IT jobs, provide cloud computing training, and develop the local IT sector. In the long run, they will provide new cloud services for the Chinese and global market and become centers of IT innovation.

Figure 16: Recommendations for advancing cloud computing in China

Support:Continue establishing local cloud computing centers and partnerships, and encouraging new cloud providers. Improve:Increase the speeds and availability of China’s broadband infrastructure.

Regulate:Establish clear guidelines and standards for cloud security, reliability, and service provider certification. Use:Set example for industry by using cloud services in government.

Learn:Become well educated about cloud computing technology, requirements, risks and benefits. Influence:Win executive support by presenting evidence about cloud benefits and ROI.

Solve:Identify technical and security issues with clouds, and develop plans to resolve them. Innovate:Seek out and develop innovative ways to use clouds.

Analyze:Conduct a careful analysis of costs, savings and benefits.

Assign:Decide who should be involved in cloud computing decisions, and what their responsibilities are. Lead:Make sure cloud computing receives focused thinking, planning and follow-through from IT and business executives.

Sponsor:Provide necessary financial, management and human resources support. Choose:Carefully select and evaluate cloud providers.

Assure:Gain trust through service level agreements, stringent security standards, and studying clients’ business requirements.

Offer:Provide a broader range of cloud services. Cooperate:Participate in establishing industry clouds.

Publicize:Provide the public with examples of successful cloud computing adoption in China and other nations. Government leaders Senior IT executives Senior business executives Cloud computing industry leaders

Improve China’s broadband infrastructure.China should bring broadband speeds to levels comparable to other leading industrial nations. In particular, China should install high-speed fiber-optic networks as part of its infrastructure-building pro-gram, and promote high-speed mobile network technologies. South Korea expects to create 120,000 new jobs by boosting its broadband speeds ten times to one gigabyte per second and wireless broadband to ten megabytes per second.32

Develop regulations and guidelines to improve cloud security, reliability, and business practices.For cloud computing to be widely adopted, say Chinese executives, the government should establish cloud security, data privacy and technical standards. Almost

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