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Product Market Study - ICT in China (2011)
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    Product Market Study - ICT in China (2011) Product Market Study - ICT in China (2011) Document Transcript

    • TABLE OF CONTENTS1. Industry Brief ....................................................................... 32. Market and Competition Trend ............................................ 63. Prospect for Malaysia’s Export .......................................... 124. Distribution Channel ......................................................... 165. Regime ............................................................................ 18Annex I. Potential Buyers ........................................................ 20Annex II.Important Contact ..................................................... 23Annex III.Related Exhibitions .................................................. 25 2
    • PRODUCT MARKET STUDY 2011 ICT PRODUCT –SOFTWARE1. Industry BriefICT products include integrated circuits, software, telecom, andsafety & security. This product market study will focus onsoftware. i. Industry general info It is undeniable that software industry is one of the fastest development industries in China. At present, the industry remains diverse and highly fragmented. Over the next few years, the industry is expected to experience more consolidation. ii. Industry Output According to the statistics from Industrial and Information Ministry, the revenue from software had been increased from US$ 7.17 billion (@8.27) in 2000 to US$ 145.91 billion (@6.83) in 2009, with an annual increase of 36.8 per cent. In 2010, the revenue of software industry was over US$ 197.54 billion (@6.78), increased by 31.3 per cent compared with 2009. In 2001, the software industry revenue only accounted for 0.3 per cent of GDP, while in 2010, it took over 1 per cent of the GDP in China. According to the statistics from China Software 3
    • Association, software industry revenue accounted for 5.8per cent of China ICT industry in 2000, while in 2010, theshare has increased to18 per cent.In 2001, Chineses software occupied less than 5 per centof the global software market, but now over 15 per cent ofthe market share belongs to China.According to statistics from China Custom, the exportvalue of software had increased from US$ 0.4 billion in2000 to US$ 18.5 billion in 2009, with an annual increaseof 53 per cent. During January to November 2010, theexport value of software product and services increased toUS$ 21.3 billion, 26.9 per cent over 2009. Despite the fastdevelopment of export, the local produced software ismostly for domestic consumption instead of export.iii. Industry SizeIt is estimated that there are over 16,000 local certifiedsoftware companies, approximately 40,000 registeredsoftware products. The employee engaged in softwareindustry has increased from less than 0.3 million in 2000 tomore than 2 million in 2010.iv. IncentivesChina’s software industry remains a key focus of thenation’s central government, with incentives for bothdomestic growth and foreign investment and cooperation. 4
    • As a strategic emerging industry, software industry hasbeen enjoying various incentives since the mid-1980s. Oneof the most important policies for software was the StateCouncil Notice, Guo Fa [2000] No.18 (Circular No. 18),dated 24th June 2000. The circular includes incentives inseven areas: finance & taxation, investment & financing,research & development, import & export, humanresources, property right, marketing. In the following month,the Ministry of Finance and State Administration ofTaxation issued several implementation notices to furtherelaborate the tax incentives as supplement for Guo Fa[2000] No. 18.This year is the first year of the 12th 5-year-plan of Chinaand software industry remains the core and strategicdevelopment point. It is stated in the 12th 5-year-plan thatrevenue annual increase of software industry shouldexceed 20 per cent and accounted for over 20 per cent ofthe ICT industry revenue.Chinas State Council issued the Circular Guo Fa [2011]No.4, "Notice on Certain Policies to Further Encourage theDevelopment of Software Industry and IC Industry" on 28January 2011. The notice contains 31 incentive measuresin eight major areas, which including taxation & finance,investment & financing, research & development, import & 5
    • export, human resources, intellectual property rights (IPR), marketing and policy application. On 9th February 2011, Chinas State Council (the Cabinet) promulgated the "Notice of the State Council on Issuing Several Policies to Further Encourage the Development of Software and Integrated Circuit Industries". The notice requires regional and relevant departments to strengthen leadership & coordination and pay close attention to the implementation details & supporting measures of the "Certain Policies to Further Encourage the Development of Software and Integrated Circuit Industries".2. Market Demand, Market Trend and Competition i. Market Demand There is no doubt that software market in China is big. The country is under the process of information technology upgrade. Hence, the demand for software is huge from private user, enterprise and even on government level. With the fast development in economic, private computer user in China had exceeded 0.27 billion in 2007. It is reported in the 2010 China Yearbook that over 0.46 billion Chinese use internet. The survey by China Software Association reveal that there will be over 100 million 3G 6
    • mobiles in China by the end of 2011, and there will bemore than 60 million internet TV users, more than 50million tablet computer users in China by 2014. All of theabove provide ample development space for software inprivate use.A new development within China industry is for companiesto seek efficiency improvement by using software to lowercost and improve productivity. With development indigitalization and intelligentialization of production andoperation in industries, R&D software, advance digitalcontrol software, production implementation software,industry control software and management software are inhuge need.It is estimated by China Software Association thatoperation and management software will develop withannual increase of over 25 per cent and the revenue willexceed RMB700 billion in 2015. With the development andpopularization of internet, information solution formetallurgy, building material, petrol chemistry,manufacturing, energy, finance, telecom and logistic willbecome a pressing need, which will increase by 30 percent in the next 5 years, estimated by the association.It is also the estimation by the China Software Associationthat revenue from smart grid will reach 70 billion, with 7
    • annual increase of 65 per cent; ITO (InformationTechnology Outsource) and BPO (Business ProcessOutsource) will increase by 26 per cent annually in thenext 5 years. All the above will provide marketopportunities for both foreign and domestic softwarecompanies.It is stated in the 12th 5-year-plan that China determines torenovate social management measure and higher socialmanagement level, which means China need to fasten thedevelopment of informationization of the socialmanagement and civil service system. China governmentpromised to increase the investment on information systemby 30 per cent in the future 5 years in civil service, such associal security, education & employment, and medication.ii. Market Trends a. Services Becomes Growth Point Services become a profit-growth point in software industry, especially in Internet related service. In 2010, the revenue from information technology consultant service and information technology value-added service were RMB123.3 billion and RMB217.8 billion, with annual growth of 37.2 per cent and 44.6 per cent respectively. The revenue annual growth of the whole software industry in 2010 was 31 per cent, which is much lower than the growth from the above services. 8
    • The total revenue of these two services took up 25.5 percent of the software industry revenue, while in 2001 theyonly accounted for 6.6 per cent of the industry revenue.Chart 1 Software Industry Revenue Structure during Jan-Dec 2010 (100%) System Integrated& Support Service Consultant & Management 16.30% 21.77% Service Inserted System Software 9.23% R&D31.49% 4.44% 16.78% Software Product Value-added Serviceb. New Development Region EmergesSoftware Industry development used to be centered inBeijing and Guangdong but now the eastern coastalarea becomes the new growth-point. Besides Beijingand Guangdong Province, some coastal provinces, suchas Jiangsu, Liaoning, Fujian and Shandong, managed tomake revenue growth of over 35 per cent in 2010.The domestic market share of the above four provinceswere higher by 13.4, 3.8, 3.1 and 1.5 per centrespectively, which breaks the previous status that 9
    • market share of Guangdong and Beijing accounted for more than half of the domestic software market. c. Multi-compatibility is a new requirement With the development and popularity of intelligent mobile and tablet computer, more and more kinds of operation system exist in the market, such as Android and Apple IOS. If the software is not able to be compatible to different system, it will lose part of the market. d. Integration is the trend Multi-functional software, which covers every step of the operation, is the trend. R&D, planning, production, sales, logistics, management, human resources and correspondence, etc. should be all taken into consideration as integrated information solution for enterprises.iii. Competitions a. Local companies There is dramatic development in information technology in China in the past 10 years. Chinese company can now develop software that they could never develop decades ago and needed to import from abroad. With the low cost and geographic advantages, local developed software enjoys sharp competitive edge. The 10
    • price for local produced software is usually 20 to 50 percent lower than the foreign one. The local producedsoftware is generally for domestic consumption hencetakes a big share in local market.b. Foreign companiesAccording to the statistics from China SoftwareAssociation, 80 per cent of the governmental agenciesmade procurement of information solution from overseasmultinational companies.In some industry, Malaysian products are eligible toadvantage tariff under CAFTA. However, tariff forsoftware for most favorable country is also zero.Under Computer software with HS Code 9803, the topimport origins in 2010 were United States, Argentina,Denmark, France, Sweden, United Kingdom, Hong Kong,Japan, Singapore, and Taiwan.Under optical media (for the machines of heading 84.71reproducing phenomena other than sound or image)with HS Code 8523 0420, the top 10 import origins in2010 were Singapore, United States, Ireland, Germany,Hong Kong, Japan, Austria, France, Finland, and UnitedKingdom. 11
    • 3. Prospect and Strategy for Malaysia’s Export i. Prospect of Malaysia’s Export a. Despite of the dramatic development, there is still significant weakness of the local software, which makes room for Malaysian software in this huge market. First of all, China lacks of high-end software development talent and local software developer lacks innovation capability. Chinese software developers are very good at imitation of technology and making the interface look good. However, their slow sense of market need and incapability to develop technology to solve new problem hamper their development. Hence, there is still market for new Malaysian software and new technology. Secondly, up to now, China has not yet mastered the core software technology and still relied on import software in the area such as operation system and database, which make possibility for Malaysian products in these areas to penetrate into this field. Thirdly, China’s software industry fails to produce consistent high quality software products. The unstable quality exempts it of a large share in the high-end market. Foreign brands are still the giant in the high-end 12
    • segment, with local software products comprising lessthan 30 percent of the market.b. Malaysian products enjoy some advantagescompare to brands from developed countries.Firstly, software price from developed countries is muchhigher. Labor and R&D are expensive in and due to thefar distance, shipment and related service are costly too,which made the price much higher than local andMalaysian products.Secondly, language is a barrier for the software fromthose countries to penetrate into China market. Due tothe different in character and alphabet, the technologyfor searching engine is different, which become a bottleneck for some foreign software developer. However,many Malaysian companies understand and masterChinese, which is a sharp advantage when working onsoftware R&D.Thirdly, incapability in providing comprehensive serviceis one of the key reasons of the unsatisfactory sales offoreign software in China market. Some foreign softwarecompany representative offices are only in charge ofsales. The cost of setting up a technical or after-salesservice team is too high for them to make profit. The far 13
    • distance is barrier for their home-base team to come toChina for product service. But for Malaysian company, ittakes only 4 hours to come.c. There is huge need of several types of software incurrent China. The best prospects for Malaysiancompany are for high-end software solutions requiringcustomization. These include the following:Application software and specialty software: Solutionspertaining to ERP, CRM, service-oriented architecture(SOA), middleware and open-source software will havegood prospects in the China market.High-end enterprise management systems software:Solutions that address database management systems,systems management software products, networkingsecurity software products remain some of the fastestgrowing areas for Malaysian companies selling into theChina marketplace.Specialty software: Customized software targeted for aspecific industry or market sector is a market segment inwhich foreign companies have an estimated 70 per centof the market. With trustworthy quality and competitiveprice, Malaysian company can still make room in thesesegments. 14
    • ii. Strategy for Malaysia’s ExportFirstly, since service has become vital to software sales,Malaysian companies should provide comprehensiveservice in the meanwhile of selling software. Informationsolution, such as software installation, database set up,staff training and aftersales maintenance should beprovided as a package to enterprise or organization. Forsoftware for household use, update of the software wouldalso be a good selling point.Secondly, Malaysian companies should seek opportunitiesin the second and third tier cities where economic growthand demand for improved IT solutions remains high. Firsttier cities, such as Guangzhou and Shenzhen have beendeveloping information technology since around 15 yearsago, so the market has become very mature. Furthermore,there is less room for development.Thirdly, middle to high end market should be the targetmarket for Malaysian companies. In China, low endmarket is most occupied by local software. With thecomparatively high cost, Malaysian product does not havemuch profit margin in the low end market. Due to the factthat the high end market is mostly occupied by softwarefrom US and Europe, the best penetrate point would be themiddle to high end market. 15
    • Fourthly, choosing a right penetrate point is the key ofcoming into China market. For technology and application,electronic government affairs, electronic financing,enterprise informationization and social security are themain development areas. For private users, antivirus andcommunication software are almost a must.Last but not least, Malaysian company should payattention to intellectual property right protection. PirateSoftware downloaded from internet costs RMB 1.00-5.00or even free. Pirate software disk in computer center costsRMB 3.00-5.00 per piece. It is of great importance to havegood protection on property right. However, the status hasbeen improved year by year. Pirate software usually exitsin home use but no longer in government agencies andmost of the big enterprises. Hence, home use softwareshould be more careful on the intelligent property rightproblem. 16
    • 4. Distribution Channel i. For Private User In China, including Guangdong, most of the home used software is purchased through Internet or software stores in IT center. Like most of the foreign countries, software can be downloaded through official website and payment can be made by credit card through internet banking. In most cities in China, there is sales center for computer and IT product, where usually locates a lot of software stores. ii. For Enterprises Enterprise usually gets access to management and operation software through software companies. Due to the need of comprehensive service, procurement department of the enterprise will gather information, send out tender and make purchase directly from the software producer or official agent. iii. For Government Agencies With democracy development of China, more and more government procurement becomes transparent. Most of the procurement in government agency goes through open tender. Tender information will be published on newspaper or relevant government official website. 17
    • 5. Regime i. Tariff Regime Tariff for both code 8523.4020 (optical media for the machines of heading 84.71 reproducing phenomena other than sound and image) and 9803 (computer software) are zero for most favorable nation. Under CAFTA, software is also exempted of tariff. ii. Non-Tariff Regime a. Entry Difficulty There is no strict control on software import to China. But genuine certificate is a must for custom clearance. In some cities, registration in copyright bureau is needed. b. Penetrate Difficulty Though there is tender for purchase, connection is still important for most of the purchase in both enterprise and government agency. Friendship with the purchase party and knowhow of the operation culture is a must for getting business in China. c. Recognition Difficulty Local software is famous for its price advantage and software from United States for example is famous for its high intellectual content and quality. It is always a 18
    • consumption habit to choose the product that is familiarand reliable in consumer’s impression. Malaysiansoftware is not so renowned in the market. Extra effortshould be put for market recognition. 19
    • Annex IPotential Buyers1. Nanhai Provincial GovernmentAddress: Tender Dept, Procurement Center,Hainan Provincial Government, 7/F, Anhai Plaza,3 Huahai Rd, Haikou City, Hainan ProvinceTel: 0898-66529844Fax: 0898-66529852Contact Person: Mr. Jing PengWebsite: www.hngpc.gov.cnEmail: hn@hngpc.gov.cnNotes: Hainan government is under information technologyupgrade now. One of their recent projects is theinformationization of Procuratorial Section in town and village.2. Jiangxi Machinery Equipment Tendering Co LtdAddress: No. 4, West 2 Sheng Fu Yuan, Nanchang, JiangxiTel: 0791-6226916Fax: 0791-6260217Contact Person: Mr. LaiWebsite:www.jxbidding.comEmail: JXTC1110@163.com 20
    • Notes: The company is in charge of some tenders, includingJiangxi Chinese Medical University Medical ComprehensiveBuilding information technology building project.3. Shenzhen Archive BureauAddress: Rm 901, Red Tower, B District, Civil Center,Archive Office of Shenzhen.Tel: 0755-82105306Fax: 0755-82001595Contact Person: Ms. Xie Feng HuaWebsite: www.szdaj.gov.cnEmail: sd@szdaj.gov.cnNotes: the organization is under information technology upgrade.One of the projects is to use RFID software to manage thearchives.4. Security Bureau of Guangdong ProvinceAddress: 698 Dongfeng East Rd, GuangzhouTel: 020-8311 0987Fax: 020-8311 0987Contact Person: Mr. LiangWebsite: www.gdgpo.gov.cnNotes: the bureau is looking for software to provide informationsolution for e-passport. 21
    • 5. Anshun Municipal GovernmentAddress: 4/F, Unit 1, Building 19, Zheng Fu Da Yuan,Anshun, GuizhouTel: 0853—3523018Fax: 0853-3524818Contact Person: Mr. HongEmail: dzwz_zb@163.comWebsite: www.anshun.gov.cnNotes: the municipal government is looking for finance softwareto upgrade its information technology. 22
    • Annex IIImportant Contact1. China Software Association(CNCA)Address: Zhongruan Plaza, Xueyuan South Rd, BeijingTel: 010-62178228Fax: 010-51527167Email: pengchen@css.com.cnWebsite: http://www.csia.org.cn/home/index/index.htm2. Guangdong Software AssociationAddress: 5/F, Ruanjian Plaza, Yuancun 1 Heng RdNo. 17 Garden, Tianhe District, Guangzhou , GuangdongTel: 8620 -6681 4173Website: http://www.gdsia.org.cn/3. Shenzhen Electronic Chamber of CommerceAddress: 5/F, 418 Building, Sangda Industrial Zone,Zhenxing Rd, Futian District, Shenzhen, GuangdongTel: 0755-83753390 0755-83759127Fax: 0755-83759287Contact Person: Ms. Luo DanEmail: Service@Seccw.comWebsite: http://www.seccw.com/ 23
    • 4. China Customhttp://english.customs.gov.cn/publish/portal191/5. China Quality Inspection Bureauhttp://english.aqsiq.gov.cn6. State Intellectual Property Protection Bureauhttp://english.sipo.gov.cn/ 24
    • Annex III Related Exhibitions1. China Import and Export FairTime: April and October every yearVenue: Pazhou Complex, Guangzhou, ChinaWebsite: www.cantonfair.org.cn/en/index.asp2. China ASEAN ExpoTime: October every yearVenue: International Convention & Exhibition Center, Nanning,ChinaWebsite: eng.caexpo.org3. China International Small and Medium Enterprise FairTime: September every yearVenue: Pazhou Complex, Guangzhou, ChinaWebsite: http://www.cismef.com.cn/ -End- 25