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Cloud Computing in a South African business context

Cloud computing is making headlines and South African businesses and organisations are starting to look for ways to integrate it into their operations. Part of this recent growth in interest could be attributed to its cost-effectiveness in that application development, maintenance, data storage and IT infrastructure in the cloud are in the hands of the third party service providers and the service is completely scalable according to an organisation’s needs. 

“One of the main concerns raised about migrating to the cloud is data security. We advise clients to take a holistic view of security, keeping it in mind with relation to the business process being migrated. To keep security concerns under control we usually recommend that clients migrate low risk applications to the cloud until such a time that the experience has proved itself safe. Ironically security if often better in the cloud than in many in-house managed environments, primarily as a result of the focus cloud service providers afford to it, given that is it seen as a major “trade barrier”,” said Robbie Quercia, Technology director, Deloitte. 

“It is somewhat ironic that most organisations have concerns around the potential security risks posed by cloud computing when their employees are using cloud applications such as gmail and Facebook or LinkedIn from their desktops without any major problems. The reality is that most enterprises have already put their faith in the cloud! And we can help them refine their processes and maximise their budgets by adopting the cloud in a structured way and layering security to ensure that all confidential data remains that way,” said Quercia. 

The location of data and where transactions are taking place also raise tax and legal compliance issues for organisations. In the South African context, there might also be exchange control implications for e-commerce transactions. According to Billy Joubert, Tax Director at Deloitte, one of the salient issues is that, by switching to a cloud computing option, IT expenditure may move from capital expenditure to operating expenditure on the balance sheet, which obviously changes the tax implications. An additional point is that the selection of a cloud computing solution within a multi-national group may well affect the transfer pricing implications of IT charges which flow within the group. It is necessary to consider all potential tax implications. For example, place of supply may well be an issue for VAT purposes. 

“While clients largely relinquish control over the IT elements they move to the cloud, the primary advantage of cloud computing relates to its perfect scalability; it is paid for on a purely on-demand basis. Because this creates complete transparency of costs, companies might initially be surprised to see what their IT is actually costing but in the longer term we are convinced that cloud computing will represent considerable savings to clients,” added Quercia. 

“In the case of data warehousing and business intelligence information, cloud computing is the most logical solution for many organisations because it provides low cost storage and very high computing capacity that will probably only be required on a monthly cycle,” he said. 

Further benefits of Cloud Computing include: 

  • Shared resources
  • Shared development costs on business applications 
  • New functionality can be up and running in a matter of days 
  • Can be likened to multi-tenant office block where organisation only pays for space and services it uses 
  • No maintenance, upgrades or new installation costs 
  • Pay as you go model allows total flexibility 
  • Applications are all customised to individual organisation 
  • Reduced time to market for new applications 

“While bandwidth might prove to be a challenge locally, we have one client which has a dedicated internet connection to the US to support its cloud computing. This has allowed them to take full advantage of the cost savings made possible by shared IT infrastructure and applications,” concluded Quercia.

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