The Chinese domestic market for software and other IT services is exploding. People’s Daily reports that in 1999 China’s software output value totaled RMB$18.2 Billion, an increase of 31% over the previous year. Last year software output valued to RMB$20 billion. Experts say China’s software output will increase to RMB$120 billion by 2004., and that China’s online business-to-business (B2B) market could be worth US$125 billion by 2005. Oracle expects that in 2001 China will become the second largest market in the Asia-Pacific region, eclipsing Korea and Australia.
In the next decade it will become their second largest market in the world, trailing only the US. A unique convergence of trends – extraordinary economic growth, enormous international investment, and a rapid maturing of government policy – makes it clear that China is soon to be a major player in the international IT industry. Multinational companies are consistently committing more and more resources to China. According to the People’s Daily, 158 of the world’s top 500 companies have a presence in Beijing, and even more have a presence in Shanghai. This past summer Computer Associates International (CAI), which presently occupies the number two slot among the world’s leading software companies, set up five Joint Venture Services in China for catering to the domestic market.
Recently, it set up a fifth Joint Venture Service in China with the intention of exploring software services export opportunities. In order to orient themselves to local customs, and to save costs, the majority of these companies elect to outsource all or some of their IT service requirements to local partners. Such companies represent a significant portion of WorldClass’s target market, because they emphasize quality, adherence to standards, and ability to speak English, and they are willing to pay a premium for superior service. China’s software market is large, and growing quickly In 1999 domestic software sales reached $2.75 billion.
This number is expected to rise at about 30% annually for the next five years. According to IDG, spending for IT in general, including hardware, and infrastructure is expected to rise 20% annually for the same period. At present, the top companies are foreign firms, including IBM, Microsoft, and Oracle. However there is an increasing need for domestically produced software, as demonstrated by the increasing reliance of the top multinationals on Chinese partners for localizing, adapting, and tuning their products for local markets. Ascension to the WTO is widely expected to accelerate demand for software services.
Chinese firms will be forced to find new ways to be more competitive, leading naturally to increased spending on IT. We see this already in the rapid adoption of the latest ERP and CRM technologies in the airline, telecommunications, and manufacturing sectors, all of which will be particularly affected by the shift in business climate. As China embarks on vast urban development projects throughout its cities, government funds made available for IT infrastructure are truly enormous. For instance, in the wake of Beijing’s successful bid to host the 2008 Summer Olympics, the government has announced that $34 billion will be spent over the next several years to improve the environment and develop infrastructure.
A significant portion of this is earmarked for IT-related projects. Favorable Policy The Chinese central and regional governments are actively promoting investment in information technology.. Such initiatives played a vital role in stimulating growth in hardware manufacturing form the late 1980’s through the 1990’s. Now, China aims to repeat this success in software. Heavy government investment, large grants, and tax breaks are all available to enable Chinese software firms to be more competitive globally. WorldClass is taking maximum advantage of these opportunities to reduce costs and improve margins.
Vast Potential The domestic Chinese software market exhibits vast potential. Indeed, demand is so strong that even a global economic slowdown seems to be having virtually no impact. Many of world’s leading multinational software companies are seeing their highest revenue growth rates in the Greater China market. Structural shifts in China’s local software development firms and consultancies are beginning to have a large impact. Adoption of western management techniques and quality control practices are allowing Chinese companies to become more competitive, particularly in the higher-value spaces such as ERP and CRM. WorldClass is at the vanguard of this trend.