Big bucks in China’s software industry
By Dan Ilett
Published: Wednesday 26 July 2006
Amid China’s tech boom, how is software shaping up? It might not receive the attention that internet- and even mobile-related sectors get but, finds Dan Ilett, the industry is addressing its challenges.
You commonly hear two phrases in China’s technology world: “there’s so much opportunity here” and “this is the new Silicon Valley”.
Whether there’s truth in either will be seen over time but China’s software industry – spanning indigenous software vendors, overseas arms of foreign companies and outsourcing operations, for example doing application development for users in China and overseas – is certainly growing at phenomenal speed.
China throws people at software because it’s so cheap to do so. The real problem though is that the Indian companies are coming.
— David Lewis, VP of corporate development, Worksoft
There are more than 13,000 companies producing software in China. In 2000, they exported $400m-worth of software but by 2005 that figure had grown to $3.6bn. It is set to jump again to $12.5bn by 2010, according to China’s Ministry of Information Industry.
David Lewis, VP of corporate development for Worksoft, a software outsourcing company, says: “China throws people at [software] because it’s so cheap to do so. The real problem though is that the Indian companies are coming.
“But they themselves have problems. There are cultural issues between Indians and Chinese and there’s a good deal of protectionism – not to the same extent as Japan has had but that’s a key issue people are overlooking.”
Some predict that just as the Chinese government has protected Chinese banks, the same will happen in software.
IBM, a large overseas player, has approached the market by putting Chinese people in charge of its operations. Lewis says Infosys is the only Indian company to have embraced the same approach.
Worksoft produces software for the likes of Citibank, EDS and Microsoft and also sells into Japan’s financial services sector.
According to the China Software Industry Association, China is the largest overseas software producer for Japan – a near-shore coding shop, if you like. Beijing alone did $150m worth of coding for Japan in 2005 and that figure is expected to grow by 50 per cent per year. Almost 4,000 Japanese-speaking software engineers are now required to meet the growing demand.
Yet, at first glance, China seems to have an abundance of qualified software engineers.
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Yu Bin, head of the Zhongguancun Software Association in Beijing, says: “International companies are getting in to China to develop their software. There are a lot of students who graduate in China – about three million every year, one-third of whom would be IT students.”
Bin says antivirus and ERP software companies – covering areas such as payroll, HR and manufacturing systems – are hot right now. Government figures also point to education and tax as growth areas.
And software companies argue that although there are a large number of IT graduates, finding the people with the right skills is proving difficult.
Worksoft’s Lewis adds: “The universities here blow away Indian universities. But in India they do more training. It’s still a young industry here. It still has to grow up but it will grow faster than India.
Another hurdle is creativity. Lewis believes the Chinese government is taking a risk by homing in on “what’s making big bucks” now rather than looking to the long term. He would also like to see a greater spirit of teamwork among the Chinese software engineers.
Cheng Peng, an academic from Tsinghua University – one of China’s most prestigious – agrees that a lack of creativity and innovation is holding back the software economy.
He says: “Innovation is so poor here. We can earn a lot of money from doing things like coding and having our own businesses but fundamentally the IT economy is something we can’t get yet because we’re not innovating. There’s a lack of real thinking. Everyone’s trying to break into a market – they just can’t do it without innovating.”
And analysts argue software engineers are taking advantage of an environment that allows them to change companies every few months.
Sage Brennan, MD at analysts Pacific Epoch, says: “In software China has a great chance but the main issue is project management skills. Chinese engineers are great at getting tasks done. But they have few skills in management – they just don’t have much experience.
“We’re starting to see companies get past the 50-person mark. We’re not seeing many 4,000-person software engineering companies, though – not like India, for example. If you can get high-quality managers and middle managers then that’s easier but people don’t manage teams very well. Not yet.”
China’s future in software clearly looks bright – though not without its issues.