1. PRODUCT MARKET STUDY ON
ICT PRODUCT - SOFTWARE
2011
Prepared by:
MATRADE-Guangzhou
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2. TABLE OF CONTENTS
1. Industry Brief ....................................................................... 3
2. Market and Competition Trend ............................................ 6
3. Prospect for Malaysia’s Export .......................................... 12
4. Distribution Channel ......................................................... 16
5. Regime ............................................................................ 18
Annex I. Potential Buyers ........................................................ 20
Annex II.Important Contact ..................................................... 23
Annex III.Related Exhibitions .................................................. 25
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3. PRODUCT MARKET STUDY 2011
ICT PRODUCT –SOFTWARE
1. Industry Brief
ICT products include integrated circuits, software, telecom, and
safety & security. This product market study will focus on
software.
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
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4. Association, software industry revenue accounted for 5.8
per cent of China ICT industry in 2000, while in 2010, the
share has increased to18 per cent.
In 2001, Chinese's software occupied less than 5 per cent
of the global software market, but now over 15 per cent of
the market share belongs to China.
According to statistics from China Custom, the export
value of software had increased from US$ 0.4 billion in
2000 to US$ 18.5 billion in 2009, with an annual increase
of 53 per cent. During January to November 2010, the
export value of software product and services increased to
US$ 21.3 billion, 26.9 per cent over 2009. Despite the fast
development of export, the local produced software is
mostly for domestic consumption instead of export.
iii. Industry Size
It is estimated that there are over 16,000 local certified
software companies, approximately 40,000 registered
software products. The employee engaged in software
industry has increased from less than 0.3 million in 2000 to
more than 2 million in 2010.
iv. Incentives
China’s software industry remains a key focus of the
nation’s central government, with incentives for both
domestic growth and foreign investment and cooperation.
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5. As a strategic emerging industry, software industry has
been enjoying various incentives since the mid-1980s. One
of the most important policies for software was the State
Council Notice, Guo Fa [2000] No.18 (Circular No. 18),
dated 24th June 2000. The circular includes incentives in
seven areas: finance & taxation, investment & financing,
research & development, import & export, human
resources, property right, marketing. In the following month,
the Ministry of Finance and State Administration of
Taxation issued several implementation notices to further
elaborate the tax incentives as supplement for Guo Fa
[2000] No. 18.
This year is the first year of the 12th 5-year-plan of China
and software industry remains the core and strategic
development point. It is stated in the 12th 5-year-plan that
revenue annual increase of software industry should
exceed 20 per cent and accounted for over 20 per cent of
the ICT industry revenue.
China's State Council issued the Circular Guo Fa [2011]
No.4, "Notice on Certain Policies to Further Encourage the
Development of Software Industry and IC Industry" on 28
January 2011. The notice contains 31 incentive measures
in eight major areas, which including taxation & finance,
investment & financing, research & development, import &
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6. export, human resources, intellectual property rights (IPR),
marketing and policy application.
On 9th February 2011, China's 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
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7. mobiles in China by the end of 2011, and there will be
more than 60 million internet TV users, more than 50
million tablet computer users in China by 2014. All of the
above provide ample development space for software in
private use.
A new development within China industry is for companies
to seek efficiency improvement by using software to lower
cost and improve productivity. With development in
digitalization and intelligentialization of production and
operation in industries, R&D software, advance digital
control software, production implementation software,
industry control software and management software are in
huge need.
It is estimated by China Software Association that
operation and management software will develop with
annual increase of over 25 per cent and the revenue will
exceed RMB700 billion in 2015. With the development and
popularization of internet, information solution for
metallurgy, building material, petrol chemistry,
manufacturing, energy, finance, telecom and logistic will
become a pressing need, which will increase by 30 per
cent in the next 5 years, estimated by the association.
It is also the estimation by the China Software Association
that revenue from smart grid will reach 70 billion, with
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8. annual increase of 65 per cent; ITO (Information
Technology Outsource) and BPO (Business Process
Outsource) will increase by 26 per cent annually in the
next 5 years. All the above will provide market
opportunities for both foreign and domestic software
companies.
It is stated in the 12th 5-year-plan that China determines to
renovate social management measure and higher social
management level, which means China need to fasten the
development of informationization of the social
management and civil service system. China government
promised to increase the investment on information system
by 30 per cent in the future 5 years in civil service, such as
social 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.
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9. The total revenue of these two services took up 25.5 per
cent of the software industry revenue, while in 2001 they
only 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&D
31.49%
4.44% 16.78% Software Product
Value-added Service
b. New Development Region Emerges
Software Industry development used to be centered in
Beijing and Guangdong but now the eastern coastal
area becomes the new growth-point. Besides Beijing
and Guangdong Province, some coastal provinces, such
as Jiangsu, Liaoning, Fujian and Shandong, managed to
make revenue growth of over 35 per cent in 2010.
The domestic market share of the above four provinces
were higher by 13.4, 3.8, 3.1 and 1.5 per cent
respectively, which breaks the previous status that
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10. 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
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11. price for local produced software is usually 20 to 50 per
cent lower than the foreign one. The local produced
software is generally for domestic consumption hence
takes a big share in local market.
b. Foreign companies
According to the statistics from China Software
Association, 80 per cent of the governmental agencies
made procurement of information solution from overseas
multinational companies.
In some industry, Malaysian products are eligible to
advantage tariff under CAFTA. However, tariff for
software for most favorable country is also zero.
Under Computer software with HS Code 9803, the top
import 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 84.71
reproducing phenomena other than sound or image)
with HS Code 8523 0420, the top 10 import origins in
2010 were Singapore, United States, Ireland, Germany,
Hong Kong, Japan, Austria, France, Finland, and United
Kingdom.
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12. 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
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13. segment, with local software products comprising less
than 30 percent of the market.
b. Malaysian products enjoy some advantages
compare to brands from developed countries.
Firstly, software price from developed countries is much
higher. Labor and R&D are expensive in and due to the
far distance, shipment and related service are costly too,
which made the price much higher than local and
Malaysian products.
Secondly, language is a barrier for the software from
those countries to penetrate into China market. Due to
the different in character and alphabet, the technology
for searching engine is different, which become a bottle
neck for some foreign software developer. However,
many Malaysian companies understand and master
Chinese, which is a sharp advantage when working on
software R&D.
Thirdly, incapability in providing comprehensive service
is one of the key reasons of the unsatisfactory sales of
foreign software in China market. Some foreign software
company representative offices are only in charge of
sales. The cost of setting up a technical or after-sales
service team is too high for them to make profit. The far
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14. distance is barrier for their home-base team to come to
China for product service. But for Malaysian company, it
takes only 4 hours to come.
c. There is huge need of several types of software in
current China. The best prospects for Malaysian
company are for high-end software solutions requiring
customization. These include the following:
Application software and specialty software: Solutions
pertaining to ERP, CRM, service-oriented architecture
(SOA), middleware and open-source software will have
good prospects in the China market.
High-end enterprise management systems software:
Solutions that address database management systems,
systems management software products, networking
security software products remain some of the fastest
growing areas for Malaysian companies selling into the
China marketplace.
Specialty software: Customized software targeted for a
specific industry or market sector is a market segment in
which foreign companies have an estimated 70 per cent
of the market. With trustworthy quality and competitive
price, Malaysian company can still make room in these
segments.
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15. ii. Strategy for Malaysia’s Export
Firstly, since service has become vital to software sales,
Malaysian companies should provide comprehensive
service in the meanwhile of selling software. Information
solution, such as software installation, database set up,
staff training and aftersales maintenance should be
provided as a package to enterprise or organization. For
software for household use, update of the software would
also be a good selling point.
Secondly, Malaysian companies should seek opportunities
in the second and third tier cities where economic growth
and demand for improved IT solutions remains high. First
tier cities, such as Guangzhou and Shenzhen have been
developing information technology since around 15 years
ago, so the market has become very mature. Furthermore,
there is less room for development.
Thirdly, middle to high end market should be the target
market for Malaysian companies. In China, low end
market is most occupied by local software. With the
comparatively high cost, Malaysian product does not have
much profit margin in the low end market. Due to the fact
that the high end market is mostly occupied by software
from US and Europe, the best penetrate point would be the
middle to high end market.
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16. Fourthly, choosing a right penetrate point is the key of
coming into China market. For technology and application,
electronic government affairs, electronic financing,
enterprise informationization and social security are the
main development areas. For private users, antivirus and
communication software are almost a must.
Last but not least, Malaysian company should pay
attention to intellectual property right protection. Pirate
Software downloaded from internet costs RMB 1.00-5.00
or even free. Pirate software disk in computer center costs
RMB 3.00-5.00 per piece. It is of great importance to have
good protection on property right. However, the status has
been improved year by year. Pirate software usually exits
in home use but no longer in government agencies and
most of the big enterprises. Hence, home use software
should be more careful on the intelligent property right
problem.
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17. 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.
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18. 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
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19. consumption habit to choose the product that is familiar
and reliable in consumer’s impression. Malaysian
software is not so renowned in the market. Extra effort
should be put for market recognition.
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20. Annex I
Potential Buyers
1. Nanhai Provincial Government
Address: Tender Dept, Procurement Center,
Hainan Provincial Government, 7/F, Anhai Plaza,
3 Huahai Rd, Haikou City, Hainan Province
Tel: 0898-66529844
Fax: 0898-66529852
Contact Person: Mr. Jing Peng
Website: www.hngpc.gov.cn
Email: hn@hngpc.gov.cn
Notes: Hainan government is under information technology
upgrade now. One of their recent projects is the
informationization of Procuratorial Section in town and village.
2. Jiangxi Machinery Equipment Tendering Co Ltd
Address: No. 4, West 2 Sheng Fu Yuan, Nanchang, Jiangxi
Tel: 0791-6226916
Fax: 0791-6260217
Contact Person: Mr. Lai
Website:www.jxbidding.com
Email: JXTC1110@163.com
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21. Notes: The company is in charge of some tenders, including
Jiangxi Chinese Medical University Medical Comprehensive
Building information technology building project.
3. Shenzhen Archive Bureau
Address: Rm 901, Red Tower, B District, Civil Center,
Archive Office of Shenzhen.
Tel: 0755-82105306
Fax: 0755-82001595
Contact Person: Ms. Xie Feng Hua
Website: www.szdaj.gov.cn
Email: sd@szdaj.gov.cn
Notes: the organization is under information technology upgrade.
One of the projects is to use RFID software to manage the
archives.
4. Security Bureau of Guangdong Province
Address: 698 Dongfeng East Rd, Guangzhou
Tel: 020-8311 0987
Fax: 020-8311 0987
Contact Person: Mr. Liang
Website: www.gdgpo.gov.cn
Notes: the bureau is looking for software to provide information
solution for e-passport.
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22. 5. Anshun Municipal Government
Address: 4/F, Unit 1, Building 19, Zheng Fu Da Yuan,
Anshun, Guizhou
Tel: 0853—3523018
Fax: 0853-3524818
Contact Person: Mr. Hong
Email: dzwz_zb@163.com
Website: www.anshun.gov.cn
Notes: the municipal government is looking for finance software
to upgrade its information technology.
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23. Annex II
Important Contact
1. China Software Association（CNCA）
Address: Zhongruan Plaza, Xueyuan South Rd, Beijing
Tel: 010-62178228
Fax: 010-51527167
Email: pengchen@css.com.cn
Website: http://www.csia.org.cn/home/index/index.htm
2. Guangdong Software Association
Address: 5/F, Ruanjian Plaza, Yuancun 1 Heng Rd
No. 17 Garden, Tianhe District, Guangzhou , Guangdong
Tel: 8620 -6681 4173
Website: http://www.gdsia.org.cn/
3. Shenzhen Electronic Chamber of Commerce
Address: 5/F, 418 Building, Sangda Industrial Zone,
Zhenxing Rd, Futian District, Shenzhen, Guangdong
Tel: 0755-83753390 0755-83759127
Fax: 0755-83759287
Contact Person: Ms. Luo Dan
Email: Service@Seccw.com
Website: http://www.seccw.com/
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24. 4. China Custom
http://english.customs.gov.cn/publish/portal191/
5. China Quality Inspection Bureau
http://english.aqsiq.gov.cn
6. State Intellectual Property Protection Bureau
http://english.sipo.gov.cn/
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25. Annex III
Related Exhibitions
1. China Import and Export Fair
Time: April and October every year
Venue: Pazhou Complex, Guangzhou, China
Website: www.cantonfair.org.cn/en/index.asp
2. China ASEAN Expo
Time: October every year
Venue: International Convention & Exhibition Center, Nanning,
China
Website: eng.caexpo.org
3. China International Small and Medium Enterprise Fair
Time: September every year
Venue: Pazhou Complex, Guangzhou, China
Website: http://www.cismef.com.cn/
-End-
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