Development of the ICT Industry in Mainland China
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Development of the ICT Industry in Mainland China Development of the ICT Industry in Mainland China Presentation Transcript

  • Development of the ICT Industry in Mainland China – the unique role of Hong Kong Dr. C.K. Wong, Distinguish Fellow Hong Kong Computer Society
    • 2004.11.26
    • A Joint Seminar Organized by
      • Hong Kong Institution of Engineers
      • (IT Division and Electronics Division) and
      • Hong Kong Computer Society
    • Full Scope of the ICT Industry in Mainland China
    • How this Industry Has Evolved
    • Hong Kong’s Role in the Two Decades of High-speed Growth of this Industry in Mainland China
    • New Opportunities and New Roles for Hong Kong in Moving Forward
    Contents
  • Review of the Mainland China ICT Industry Electronic and Optical Components Industry Software Products, Software Services and other IT Professional Services Industry Information Contents and Communication Services Industry Electronics Products, Information Processing HW and Communication Equipment Industry Full Spectrum of the ICT Industry in China Component Manufacturing Semi-Conductor and Optics Technologies Material Science Component Design
  • Review of the Mainland China ICT Industry Electronic and Optical Components Industry Software Products, Software Services and other IT Professional Services Industry Information Contents and Communication Services Industry Electronics Products, Information Processing HW and Communication Equipment Industry Full Spectrum of the ICT Industry in China Digital Electronic Products Computer Peripherals Computing Hardware Data Com Equipment Systems and Embedded SW
  • Review of the Mainland China ICT Industry Electronic and Optical Components Industry Software Products, Software Services and other IT Professional Services Industry Information Contents and Communication Services Industry Electronics Products, Information Processing HW and Communication Equipment Industry Full Spectrum of the ICT Industry in China Digital Contents Providers and Developers Valued-added Information Services Providers Communication Services Providers Infrastructure Services Providers
  • Review of the Mainland China ICT Industry Electronic and Optical Components Industry Software Products, Software Services and other IT Professional Services Industry Information Contents and Communication Services Industry Electronics Products, Information Processing HW and Communication Equipment Industry Full Spectrum of the ICT Industry in China Software Tools Application Software Products Software Development Services Business Consulting Services Security Design and Audit Services Other IT Related Professional Services System Architecture Design Services
  • A Complex and Sustainable Eco-system of Industries Electronic and Optical Components Industry Software Products, Software Services and other IT Professional Services Industry Information Contents and Communication Services Industry Electronics Products, Information Processing HW and Communication Equipment Industry Full Spectrum of the ICT Industry in China Component Manufacturing Semi-Conductor and Optics Technologies Material Science Component Design Digital Electronic Products Computer Peripherals Computing Hardware Data Com Equipment Systems and Embedded SW Digital Contents Providers and Developers Valued-added Information Services Providers Communication Services Providers Infrastructure Services Providers Software Tools Application Software Products Software Development Services Business Consulting Services Security Design and Audit Services Other IT Related Professional Services Architecture Design Services The Consumers and Organizational Users of the Technologies
  • Some Statistics on the Overall Market Size of the ICT Industry in China
    • In 2003, total realized value-added output of ICT industry in Mainland China was RMB 709B (US$88.6B) , ~ 6% of the GDP for the year.
    • Component, Equipment and Software Industry accounted for RMB 400B (US$50B) , Communication Services RMB 309B (US$38.6B).
    • Projected Growth Rate in 2004 is > 30% 。
    • At the end of 2003, total installed base of telephones ~ 532 million subscribers. Fixed line ~ 263M , Mobile ~ 269M. It has exceeded 600M by the end of 3rd Quarter 2004 (Rank Number 1 in the world).
    • Internet user base = 78 million (Rank Number 2 in the world).
    • Total ICT products and Services Sales = RMB1.88T (US$235B) (Rank Number 3 in the world).
    1996~2003 ICT Industry Output as % of GDP
  • Software Products and Services Sector of the ICT Industry in China
    • Average annual growth from 1997-2003 is 34%
    • Local content and value-add is around 30% of the market size. (National target is to reach 60% by 2005- Unlikely to achieve based on current figures.)
    • “ Software export” in 2003 was around US$2B (around 10% of total market size).
    • Over 60% of this export figure was related to Embedded software value-add onto hardware and equipment products.
    In US$ Billion Total Market Size for SW Products and Services in Mainland China Source: CCID (RMB figures normalized at today’s US$ exchange rate)
  • Software Products and Services Market Size Comparison 2000-2003 US$ Billion 2.58% 2.14% 2.69% 10.49% 30.05% 39.67% As % of World-wide Market Total in 2003
  • Some History Behind all these Figures
    • In the early days, just like its counterparts in other parts of the world, Communication Industry and Computer Industry of China were treated as two separate industries and administered by two different ministries until 1998.
    • The digital Computer Industry (HW and SW) in China can trace its origin to 1950, upon the return of Prof Hua from the Princeton Institute of Advanced Studies.
    • In the 1950s, technology level of the Computer Industry in China was comparable to Japan. However, it lacked the industry capacity, economic strength, social stability to grow the industry like Japan in the following years.
    华罗庚 (1910年-1985年) 中国科学院副院长,应用数学研究所所长。主持过中国计算技术研究所的筹建及早期工作,为中国计算事业作出了杰出贡献。 摘自《人民日报》 1958 年 8 月 3 日第二版 103型电子计算机  1957年11月底开始研制,1958年8月1日试制成功,1959年年底投入正常运行,由738厂小量生产,并正式定名为103型计算机,是我国第一台小型电子管数字计算机(又称八一型计算机)。
  • Some History Behind all these Figures
    • In the late 1970s and early 1980s, the most pronounced problem in the re-vitalization of the computer industry was the lack of qualified professionals and the necessary equipment for the training of a new generation of professionals.
    • Programs were established under the then Ministry of Electronics to re-start the computer industry from the disruption caused by the “Culture Revolution”.
      • Jump-start it as an assembly industry
      • Gradually increase the local contents (metal work, power supplies, PCB, peripherals, passive components, small-scale IC, ASIC…)
      • Chinese language support (GB2312-80 and later ISO-10646, CC-DOS, 2-byte UNIX kernel, Chinese terminals and printers, Chinese Windows…)
    • Strategic Business applications to drive the needs.
      • Banking-mid 1980s
      • Telecom-early 1990s,
      • 3-Gold projects-mid 1990s
      • eGovernment, SCM…..
  • Some History Behind all these Figures
    • In the late 1970s and early 1980s, the most pronounced problem in the re-vitalization of the computer industry was the lack of qualified professionals and the necessary equipment for the training of a new generation of professionals.
    • Programs were established under the then Ministry of Electronics to re-start the computer industry from the disruption caused by the “Culture Revolution”.
      • Jump-start it as an assembly industry
      • Gradually increase the local contents (metal work, power supplies, peripherals, passive components, small-scale IC, ASIC…)
      • Chinese language support (GB2312-80 and later ISO-10646, CC-DOS, 2-byte UNIX kernel, Chinese terminals and printers, Chinese Windows…)
    • Strategic Business applications to drive the needs.
      • Banking-mid 1980s
      • Telecom-early 1990s,
      • 3-Gold projects-mid 1990s
      • eGovernment, SCM…..
    Hong Kong investments and management know-hows have speeded up the growth of the electronic assembly and computer manufacturing industry in the Mainland. Some of the Work by HK Help to import some of the computers in the early 1980s for the support of training in universities (Comenco, IMSAI, SWT…) Designed some of the early indigenous computers for local manufacturing in the mainland and acted as the sourcing partner for components (Greatwall, Zijin and UNIX Servers…) Multi-byte UNIX kernel research was done in HK (Mainland, Taiwan and HK collaborative effort) The I18N Group from Japan, Korea, US, Mainland China, Taiwan and HK at a Dinner Gathering in the summer of 1990 (Lamma Island, HK)
  • Some History Behind all these Figures (Telecom)
    • From 1949 to 1978, investment into the communication infrastructure only grew from 40 million RMB to 410 million RMB. By the end of the 1970s, long distant capacity has only grown 16,000 circuits.
    • From 1978 to 1990, total telephone switching capacity has grown from 5.75 million to 20.26 million circuits (in a period of 12 years, 352% growth).
    • From 1990 to now, in a period of 14 years, another 3,000% growth in telephone capacity.
    • By August 2004, total telephone capacity reaches 619 million. Fixed line at around 303 million and mobile at 315 million.
    • The emergence of a group of sizeable telecommunication equipment suppliers supporting this growth. Some of them are: 华 为、 中 兴、 大 唐、 巨 龙 , UTStarcom…
    • The successful development of technologies and products with indigenous intellectual properties. [e.g. Time Division Synchronous CDMA (TD-SCDMA) was proposed by China Wireless Telecommunication Standards group (CWTS) and approved by the ITU in 1999 ]
    The Background It was a highly monopolistic industry operated by the government under the Ministry of Post and Telecommunication. Lack of economic strength and market demands to grow this industry in the first 30 years from 1949. By the early 1990s, economic critical mass has attained to fuel the demands. Gradual de-regulations of the industry and its detachment from direct government operations were required to support the growth. Post and Telecommunication were separated. Telecommunication administration became part of the Ministry of Information Industry in 1998. Hong Kong involvement was minimal in the early days. The new challenge in the convergence of the communication and information services industries presents new opportunities to HK.
  • New Opportunities and Roles for Hong Kong Electronics Products, Information Processing HW and Communication Equipment Industry Digital Electronic Products Computer Peripherals Computing Hardware Data Com Equipment Systems and Embedded SW From an OEM Assembly Industry moving into ODM and OBM manufacturing Information Contents and Communication Services Industry Digital Contents Providers and Developers Valued-added Information Services Providers Communication Services Providers Infrastructure Services Providers Very high-growth in the past 2 decades, particularly in the last 10 years. Moving very aggressively into VAS Services Electronic and Optical Components Industry Component Manufacturing Semi-Conductor and Optics Technologies Material Science Component Design Sector targeted for Strategic Growth in the coming years Software Products, Software Services and other IT Professional Services Industry Software Tools Application Software Products Software Development Services Business Consulting Services Security Design and Audit Services Other IT Related Professional Services Architecture Design Services Internal demand is very strong. It is an area targeted for strategic and value-add growth in Software Products and Services Opportunities in the Full Spectrum of the ICT Industry (with the exception in the more regulated Telecom Sector)
  • Some of the Strategic Growth Areas that Hong Kong can Capitalize on:
    • IC Design (Due to high growth of the HW and electronics industry, Mainland China is the largest single market for IC in the world. High demands for ASIC supporting the Appliances, Communication, Wireless and Mobile Equipment, RFID, Consumer Electronics, Instruments and related industries…..)
    • Design of ODM and OBM Electronic Products and their Export Markets.
    • Value-added Services for the Telecom Industry (e.g. Digital Contents and Entertainments)
    • Application Software Products (e.g. Supply Chain Management Solutions, Financial Services Solutions….)
    • Overseas Software Engineering Services
    Will Focus our Discussion on these Two Opportunities
  • An Analysis of the Software Products and Services Market in the Mainland
    • Local value-added Software products and services only account for 30% of the total market (~US$20B in 2003)
    • The target for local value-add in 2005 was to reach 60%. (will not be able to achieve in the near future without more aggressive and innovative strategies.) A big gap to be filled!
    • Software industry as a whole has suffered from a syndrome of high-turnover, high-growth but very low profit-margin.
    • 日前,在电子信息百强企业揭晓仪式上公布的一项数据让人吃惊: 2003 年中国软件类企业平均销售收入下降 2% ,利润率更是史无前例地下滑了 57% ,营业利润率仅仅维持在 2% 。
    • 软件行业太“软” -> 质量太“软”、心太“软”、利润太“软”。
    • Software Services (e.g. SI) is a very competitive, crowded and high-risk industry in the Mainland.
    • This type of crisis is forcing the SW industry to review its practices to quickly attain maturity.
      • SI Certification program
      • Professional Certification program
      • Progressive use of SW products instead of custom-built solutions
      • Educating the user community in IT Governance
  • The Changing Software Services Industry in the Mainland
    • Local Software Services industry will further evolve to improve accountability and professional quality.
    • An interlocking industry chain will be developed based on international best practices
    • SW development and Systems Integration are becoming engineering disciplines instead of an art form practiced by gurus or “magicians”.
    项目业主 / 客户 (Project Owner or Customer) 策略研究和咨询 系统整合、软件开发和其他外包服务 Systems Integration, SW Development Outsourcing Services 项目完成后的支持和维护 Hardware Products 系统集成项目监管和审计服务 Project Management and Audit 结构设计 项目完成后的审查咨询 系统建造的投标管理 Software Products (ISV) 策略研究和咨询 系统集成项目监管和审计服务 Project Management and Audit 结构设计 项目完成后的审查咨询 系统建造的投标管理 Software Products (ISV) 策略研究和咨询 Opportunities for HK IT Service Firms
  • Software Products for the Mainland China Market
    • Demand for high-quality and affordable software products (particularly applications for various industries) is increasing rapidly.
    • Take advantage of CEPA arrangement to bring SW products into mainland China under Hong Kong brand.
    • Hong Kong becomes the productization center for local SW, as well as SW products from mainland and international SME software firms.
    • Hong Kong value-adds on product localization, productization, quality control, branding and marketing
    内地 SI 市场 客户关系管理 需求管理 项目管理 谘询服务 業务流程设计 软件客户化 銷售 系统实施 系统设计 项目监理 自主產权软件產品 合同法规 HK SW firms Mainland SI Firms Complementary Capabilities
  • A High Potential Area -- Offshore Software Engineering (OSE)
    • OSE is part of the global trend for the outsourcing of services from higher-cost areas to lower-cost alternative locations.
    • “ Manufacturing Service” is one of the largest scale offshore outsourcing economic activities in the history of mankind. Asian countries have been the primary locations of such outsourcing activities since the 1960s.
    IT outsourcing in 2001 is US$193B (70% of the total) CAGR for 2000-2005 is 13% and is forecast to maintain this rate for next 3-5 years. Worldwide Outsourcing Spending Forecast 2000-2005 (US$Billion) Source: Accenture As inevitable as water flowing from high maintains to valleys
  • Offshore Software Engineering Services
    • Pressure on Profitability
    • Capital Investment Control
    • More nimble and smaller organizations adaptive to changes
    • Offshore locations as new markets and revenue opportunities
    • Merger and Acquisition activities promote the use of offshore services for broader coverage
    • Global business potential encourages many governments to offer tax benefits and other advantages to attract offshore business
    • Debates over “sending jobs away from home” by politicians
    • Shrinking of “wage-gap” in offshore locations
    • Increased concern over data privacy and confidentiality
    • New technologies and solutions have dis-intermediated some of the more labor-intensive business processes.
    The Drivers: The Challenges:
  • Essential Elements in OSE Business Under Contract to Perform SW Engineering Work
    • Predicable results over a period of time
    Customer Receives:
    • People
    • Processes
    • Technology Infrastructure
    Service Provider Assumes Responsibility for: People Interacting with Customers Process and Quality Management Technology Infrastructure People Delivering the Services
  • Capabilities Comparison of Some Outsourcing Locations India China Low High High
    • Mature Judicial System
    • IP Protection Laws
    • Favorable Labor Laws
    • Mature Management Talents
    • Breadth and Scalability of Services
    • Political Stability
    • Government Incentive
    • Infrastructure
      • Telecommunication
      • Transportation
      • Living conditions
    Location Attractiveness: People Strength: Source: McKinsey & Company Hong Kong Singapore Mexico Philippines Holland Ireland UK Australia
    • Qualifications and Capabilities
    • English Language Skills
    • Cost Differentials
    • Breadth of Technical and Business Skills
    • Quality of Work and Work Ethic
    Size of indicates number of qualified workers.
  • Comparing Against the India Software Industry Very small inward-looking industry. Highly innovative applications for the large users Internal Demand Driven (over 85%) Primarily small enterprises (Avg. size ~ 20 employees) ~ 25K, Needs more breadth in training in order to enter into the OSE market. Currently, 50% are in the user organizations. Late comer. Some isolated success in the US Market in the 1990s. Hong Kong SAR Application Development and SI dominating. Heavy reliance on 3 rd party Tools. OSE is the dominating business. Lack of SW products with own IP. Current Industry Characteristics Internal Demand Driven (over 90%) OSE market (over 80%) Current Market Focus Primarily SME enterprise (Avg. size ~ 70 employees) There are firms with over 10,000 software professionals Size of the Software Firms ~ 650K, some areas of training need improvement, numbers are increasing rapidly. ~ 800K, many well-trained professional with English speaking capabilities. Software Workforce Late comer. Some early success in the Japanese Market since the 1980s. Started in the mid-1970s, A high growth period in the 1990s Timing entering into OSE Market China India
  • The Combined Capabilities of Mainland China and HKSAR India Low High High Location Attractiveness People Strength China (mainland + HK)
    • Overall Capabilities of Mainland China and the Hong Kong SAR are complementary in the OSE Marketplace.
    • Their combined strength can become a powerful force in the international OSE market.
    China Hong Kong Singapore Mexico Philippines Holland Ireland UK Australia China (mainland + HK) Over Time and Capabilities Improvement Initiatives
  • OSE Market International Sales and Marketing Customer Relationship Management Contract Admin and Legal Requirement and Spec. Management Implementation and Support. Services Usability Design System and Architecture Design Component and Product with Own IP Overall Project and Quality Management Code Development Management Customization Work Software Construction Work Capabilities of Mainland China Software Firms Capabilities of Hong Kong Software Firms Capability Spectrum of the Combined Strength Full Capabilities for the Successful Penetration into the OSE Market
  • An Operating Model used by a Hong Kong OSE Firm
    • Code modules and subsystem Development
    • Customization work based on pre-built components
    • Component Assembly and subsystem testing
    • Compilation of Engineering Notes and Test reports
    • Configuration Management
    • Packaging and Release
    • Sales/Marketing
    • Customer requirements articulation and Clarification
    • Customer relationship management
    • Change management and customer expectation management
    • Domain knowledge expertise
    • Implementation services and support
    • 1 st line post-implementation support
    • Requirements analysis and breakdown
    • Architecture design
    • Usability and user interface design
    • Testability design and test planning
    • Detailed spec. of subsystems and modules
    • QC enforcement and integration testing
    • User documents compilation
    • Change management
    • 2 nd line post-implementation support
    • Business Development and Process Development
    Internet based tool for the management of these processes and to support collaborative work Associated Companies and SI Partners in North America with focus on selected Industries. Software Factory (or Development Center) located in the City of Shenzhen Software Design and Project Management Office located in Hong Kong
  • Conclusion
    • Hong Kong has contributed to and benefited from the period of high-speed growth of the ICT industry in the Mainland during the 1980s and 90s.
    • Mainland China is moving very quickly into its next stage of growth in this ICT industry and all the sub-sectors.
    • We must quickly discover and assume our new roles in this changing environment. Old formula for success may no longer work. Our role as a “middle-man” in 引进来 is diminishing; we must strengthen our role as mainland’s “preferred partner” in its desire and needs to 走出去 .
    • There are immense opportunities for the new generation of explorers equipped with the skills and vision to navigate in a broader landscape.
    路不是找出来的;勇敢的人把路走出来!
  • Thank You! [email_address]