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Software Developers Face Growing Pains
China has to overcome great difficulties to fulfill its ambitious plan of developing the software industry, experts said.
According to a State plan, the combined sales of the software and information service industries is expected to reach 250 billion yuan (US$30.12 billion) during the 10th Five-Year Plan (2001-2005) period.
China's global market share is expected to increase from the current 1.2 per cent to 3 per cent, with the value of software exports expected to hit US$2 billion during the period.
To reach the goal, the country needs more than 20 software enterprises, each with a production value of over 1 billion yuan (US$120 million).
Related data showed that the production value of the world's software and information service industries totalled US$500 billion last year. Sales of software products reached US$175 billion in 2000, a 13.6 per cent increase over the previous year.
Among the 10 top software developers, seven are from the United States, two from Japan and one from India. India is the second largest software exporter with its exports reaching US$5 billion in 2000, only after the United States.
Sales of China-made software products totalled 23 billion yuan (US$2.77 billion) last year, a tiny 1.6 per cent of the world's total. Moreover, many Chinese software enterprises are in small scale. Software businesses with less than 50 employees make up 55 per cent of the total software industry. About 42 per cent of such enterprises employ between 50 and 200 workers.
To encourage the development of software and integrated circuit industries, the Chinese government issued related regulations last July and they include a tax reduction of three percentage points for the software industry.
At present, the State-owned China Software is the only domestic software business whose annual sales has reached 1 billion yuan (US$120 million).
Software sales of the Founder Group, well-known for its Chinese language page-making system, was HK$633 million (US$81.153 million) in 1999. Based on the figure, its annual sales have to increase an average of 10 per cent in the next five years in order to reach 1 billion yuan (US$120 million) by 2005.
It is difficult for the software department of the Founder Group to keep that growth. Its software sales in 1999 was only 5.1 per cent higher than that in 1998. However, the group's total sales declined from 1998's 2.164 billion HK dollars (US$277.43 million) to 1.583 billion (US$202.94 million) in 1999.
Among all the Chinese enterprises specialized in manufacturing software products for enterprises management, the Gold Disk is the most successful one. Its sales was close to 200 million yuan (US$24.1 million) last year. To realize an annual sales volume of 1 billion yuan (US$120 million) in five years, its sales have to grow 40 per cent annually.
However, the expansion of software enterprises has been not only reflected in the sales increase but also in the capital operation, experts said.
A representative of the Gold Disk said if the company's sales cannot reach the target, it will purchase some competitors. With new technologies from the purchased companies, it can save the company the time to be spent on the research and development and help it directly enter the period of making profits, he said.
Many software enterprises may try to realize fast development by purchasing counterparts. However, after China's entry into the World Trade Organization (WTO), foreign firms with powerful capital foundation will enter the Chinese market. By that time, Chinese software enterprises may become purchasing targets of these foreign enterprises.
"The legal environment is also important for China to reach its goal," experts said.
For fear of infringement, most promising software enterprises now are concentrating on enterprise-use products.
International experience shows that such business often has smaller sales than that engaged in developing software for personal use.
Annual sales of Microsoft, for example, is about US$19 billion. While, that of Oracle, specialized in enterprise-use software, is less than US$9 billion. Sales of CA is even smaller.
Even if China can reach its target of selling US$2 billion worth of software products by 2005, its products account for only three per cent of the world market, experts said.
But according to a plan of the Indian Government, the country's software sales are expected to reach US$87 billion while exports to hit US$50 billion by 2008.
"The gap between China and India will be even wider if the plan is realized," experts said.
Source: China Daily
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