The software market in China will grow at a compound annual rate of 38 percent over the next five years, according to an International Data Corp. (IDC) report released Monday.
Total software revenue will grow to just over US$6.5 billion in 2005 from about US$1.3 billion in 2000, said Dorothy Yang, research manager for software and services at IDC China. In 2001, IDC expects the market to grow by 41.3 percent to US$1.8 billion.
IBM Corp. led the market in 2000, according to IDC, with annual revenue of just under $78 million and a market share of just over 6 percent. The market is dominated by foreign vendors, with just two Chinese software developers, User's Friend Software Co. Ltd. (UFSoft) and Kingdee International Software Group Co. Ltd., cracking the top ten in revenue in 2000. Following IBM are Microsoft Corp., with about $65 million in revenue and around 5 percent of the market, Oracle Corp., Sybase Inc., Informix Corp., Computer Associates International Inc., UFSoft, Novell Inc., Lotus Development Corp. and Kingdee.
Counting Chinese subsidiaries of foreign companies, there are more than 2,000 software vendors in China.
Domestic vendors hold only about 40 percent of China's software market today, and they will be hard-pressed to significantly boost that share in the next five years, Yang said. The domestic vendors have the strongest advantages in accounting software, because they understand China's special accounting laws, and security software, because government buyers prefer to secure their systems using homegrown products. Outside those markets, Chinese vendors face tough competition from established foreign brands. UFSoft and Kingdee both specialize in accounting software.
IBM's long tenure in China, its strength in large enterprises and the popularity of the AS/400 server platform helped it take the top spot, Yang said. IBM's Chinese subsidiary, IBM China Co. Ltd., was established in 1992, according to an IBM statement.
"IBM has been doing an excellent job in the banking sector," Yang said. "They have been in that sector for a long time," she added. Banking and telecommunication are the two biggest industries for IT sales in China.
Including its Lotus unit and Informix, whose core database operations IBM recently acquired, IBM holds 9.5 percent of the market, according to IDC's figures.
Over the next five years, Yang expects significant gains in the fight against software piracy, which is currently widespread in the consumer software industry, she said. However, piracy isn't widespread for enterprise software applications such as those from Oracle and Sybase, she said.
China's fledgling domestic vendors will suffer from piracy as much as foreign brands.
"The government has to reduce piracy because it will hurt the Chinese vendors' business as well," Yang said.
The sale of software as services, through ASPs (application service providers) or as Web-based services also is likely to grow in China.
"In the long run, definitely ASPs will play a key role in the applications market, because in China there is a huge number of small and medium-sized companies," many of which lack the capital to buy shrink-wrapped software and the expertise to implement and maintain it, Yang said. The government estimates there are about 10 million [m] small and medium-sized enterprises in China, and about 15,000 medium-to-large companies, she said.
IDC is a division of International Data Group Inc., parent company of IDG News Service.