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China's enterprise software market to become Asia's largest

China's enterprise software market to become Asia's largest

Supply chain management, collaboration and middleware software are the fastest-growing segments

China's spending on enterprise software is projected to reach US$9.4 billion by 2012, according to Springboard Research.

Springboard said the Chinese market will grow at a compound annual growth rate (CAGR) of 18 per cent and will emerge as the largest market in the Asia Pacific.

These findings are reported in Springboard's study called 'Enterprise Software Market in China: Huge Opportunities, Major Challenges'. The study adds that a high-growth software-as-a-service (SaaS) market, rapidly expanding open-source adoption and a cultural acceptance of software piracy are some of the key characteristics of the Chinese software market.

"Enterprise software growth in China is being driven by a combination of strong, ongoing economic growth and a relatively low software adoption rate," said Michael Barnes, vice president, software research, at Springboard.

"Although existing software investments tend to be concentrated in local offices of foreign companies and internationally-focused Chinese companies, the market is expanding in all sectors, led by banking and state-owned enterprises," he said.

According to Springboard, system and infrastructure software represented nearly two-thirds of the market in 2008, with the remaining share taken by application software.

"Infrastructure software represents a larger portion of total software spending in China compared with more mature IT [information technology] markets in the region. As the China IT market matures, however, the gap in spending will close as projects and budgets shift from system and infrastructure towards enterprise application-focused projects," said Barnes.

Fastest-growing segments

Supply chain management (SCM), and content and collaboration are the fastest- growing segments in the application software category, while middleware and security software lead the system and infrastructure category, according to the study.

"The applications market is still quite immature in most of China. Given the relatively small installed base, we expect growth rates across most categories, including ERP [enterprise resource planning], SCM and CRM [customer relationship management], etc., to far outpace regional averages for at least the next three to four years," Barnes said.

Local presence a must for foreign vendors

Springboard also cautioned that global vendors need to pay attention to the enormous disparities that exist among Chinese businesses in terms of IT resources, process sophistication and technology adoption, adding that these disparities often pose a risk to the success of large-scale software projects.

"For software vendors, a local, direct presence is often critical to growth in the Chinese enterprise software market," said Bryan Wang, research director and country manager -- China, at Springboard.

"Given the language and cultural issues as well as the expectation of localised products and localised support and services, operating in China via an indirect model is extremely challenging," Wang added.


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