China - ICT Sector Summarized Fiche Date 17 October 2011
"ICT industry in China" by Embassy of the Kingdom of the Netherlands in Beijing, Consulate General in Shanghai, Guangzhou & Hong Kong, NBSO in Nanjing, Wuhan, Tianjin, Qingdao, Dalian & Jinan and NABSO Kunming 17-10-2011 Colophon Contact Bij NBSO Qingdao: Wei Wei Siauw, Chief Representative T +86 532 6677 7515 F +86 532 6677 7519 nbsoqingdao@nbsoqingdao.com www.hollandinchina.org A02505 Top Yihe International 10 Hong Kong Middle Road Shinan District Qingdao 226071 China Bij NL EVD Internationaal: Kamal Afarmach, marktadviseur China T +31 088 602 80 00 T +31 070 778 88 89 kamal.afarmach@agentschapnl.nl www.agentschapnl.nl/evdinternationaal NL EVD Internationaal Juliana van Stolberglaan 148 2595 CL Den Haag P.O. Box 20105 2500 EC Den Haag Author(s) Focal point: NBSO Qingdao Other participating offices: Embassy of the Kingdom of the Netherlands in Beijing, Consulate General in Shanghai, Guangzhou & Hong Kong, NBSO in Nanjing, Wuhan, Tianjin, Dalian & Jinan and NABSO Kunming Pagina 3 van 29
Index Colophon 3 Index 4 1 ICT Industry in China 6 1.1 Summary of general developments and opportunities for Dutch ICT industry 6 1.2 1.2.1 Opportunities for ICT industry in China 6 ICT software industry 7 1.2.2 ICT outsourcing industry 8 1.3 The Chinese ICT industry overview 8 1.3.1 ICT software industry 8 1.3.2 ICT outsourcing industry 10 1.3.3 Technology development in ICT industry 11 2 Regional Development in the ICT industry 12 2.1.1 Liaoning province- NBSO Dalian: description of ICT industry 12 2.1.2 Tianjin & Hebei Province - NBSO Tianjin - description of ICT Industry 12 2.1.3 Chengdu - NBSO Wuhan - description of ICT Industry 14 2.1.4 Jiangsu Province - NBSO Nanjing - description of ICT Industry 14 2.1.5 Shandong Province - NBSO Jinan & Qingdao - description of ICT Industry 15 2.1.6 Guangdong Province - Consulate General Guangzhou - description of ICT Industry 16 2.1.7 Shanghai - Consulate General Shanghai - description of ICT Industry 17 2.1.8 Hong Kong - Consulate General Hong Kong - description of ICT Industry 18 3 Government plans and incentives 21 3.1 Investment and development plans by the Chinese government in ICT industry 21 3.2 Incentives and promotion by the Chinese government in ICT industry 22 4 Market information 24 4.1 Major local and foreign players in ICT industry in China 24 4.2 Trade Fairs & Exhibitions ICT sector in China 25 5 Dutch Government Economic Network 28 5.1 Contact details: 28 Pagina 4 van 29
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1 ICT Industry in China 1.1 Summary of general developments and opportunities for Dutch ICT industry In 2010, total revenue of the ICT software industry was 1,336.4 billion Yuan (148.5 billion euros) and around 2 million people were employed in this sector in China. The outsourcing sector has achieved sales of over US$2.16 billion (1.5 billion euros) in 2009, which resulted that China has become the second largest ICT outsourcing market globally after India. China is heavily investing in the new ICT sector, such as cloud computing centers and mega data centers. For example, an investment of 400 million Yuan (44 million euros) in Nanjing, the largest cloud computing industrial base of China will be established there. By region, the largest part of the revenue is generated in the eastern areas of China, i.e. Beijing, Shanghai and provinces of Guangdong, Jiangsu, Liaoning, Fujian and Shandong. The upcoming Chengdu in West China has witnessed great increase in the last decade too. For the Dutch ICT outsourcing industry, China provides low labor costs, large educated workforce and great amount of software parks with tax incentives and regulations. Furthermore, Chinese software sector is in need for ICT products with local customization and other cutting-edge technology in the sectors such as e-government, banking and finance, manufacturing, healthcare, telecommunication, transportation and security. In order to enter the Chinese market successfully, the Dutch companies will need to be able to point out their unique selling points, knowledge, experience in combination with their cutting-edge technology. 1.2 Opportunities for ICT industry in China The ICT sector in this overview is divided by ICT software development and ICT outsourcing business. In recent years, the Chinese government has shifted its attention to more sustainable and high value added growth strategy, which has a great impact among others on the ICT sector s development in China. As a result, investment and increase in the knowledge intensive service sector is put high on the political agenda at central, provincial and local level. Since the 1990s, dedicated software parks has been established throughout China and the ICT industry was a prominent industry and considered as one of the driving engine of the national economic development shift from agricultural to industrial and manufacturing base. In these software parks, supportive infrastructure and policies together with financial incentives are put in place to attract local and foreign investors. A supporting policy by the Chinese government is for example providing grants or tax incentives to Chinese firms active in the ICT sector. Pagina 6 van 29
Beijing, Shanghai and Shenzhen are regarded as the first-tier cities with the largest concentration of software players in China, where many multinationals have already invested there. However, some second-tier cities like Hangzhou, Dalian, Suzhou, Chengdu, Xi an, Nanjing and Jinan are becoming more and more attractive to software companies due to its relatively low labor and operational cost base. 1.2.1 ICT software industry Information technology has made great changes to our world, and it will move on to every corner of our society and daily life in the long term, the same trend is for China. In the ICT software sector, opportunities can be found in the fact that China is becoming a significant market for foreign ICT products where a great deal of local customization is required (for instance Chinese language interfaces). Furthermore, it seems that many provinces and IT companies are into the cloud computing concept with really ambitious investment plans. For example, Inspur (www.inspur.com, a leading server producer in China in Jinan, Shandong province) has a plan to invest 1 billion Yuan (about 110 million euros) to the cloud computing technology. Fujian province is going to invest 6 billion Yuan (660 million euros), Chengdu is going to establish a cloud computing industry with a scale over 300 billion Yuan (33 billion euros) and recently the largest cloud computing base is settled in Nanjing at the Shuguang Cloud Computing Industrial Base with a total investment of 400 million Yuan (44 million euros). In these huge projects of cutting-edge IT technologies, high-tech and capital-intensive through establishment of large data centers and cloud computing centers in China, the industry will focus on companies with the right business integrity, industrial experience, and branding as well. It will be important for the Dutch companies in this industry to brand their competiveness and or uniqueness, knowledge, experience, and their cutting-edge technology. For software companies in China, there will be also opportunities in several sectors like e-government, banking and finance, manufacturing, healthcare, telecommunication, and transportation, etc. Potential Growth Point in ICT software industry in China: Software exports ERP 3G applications Intelligent transportation Management software Middleware IT education and training Weaknesses of the ICT software industry in China: Inabilities to serve multinationals Weakness in high-end software development and innovation Weakness in primary software, e.g. operating system, data base Talent pool, shortage in personnel with high proficiency and management expertise Weakness in English language skills Pagina 7 van 29
1.2.2 ICT outsourcing industry The advantages in the Chinese ICT outsourcing business are primarily the cheap labor and land costs. In the ICT outsourcing business preferential, policies are applied to outsource or relocate part of its labor and knowledge intensive programming work to the various software parks in China. ICT outsourcing is furthermore considered as a promising industry by the Chinese government, due to its labor and knowledge intensive character. It provides relatively good return on investment compared to the export manufacturing industry. Moreover, the current Chinese leadership stresses the development of its service sector. However worldwide competition is fierce, India is taking the lead as the greatest outsource destination, but also developing countries like the Philippines, Malaysia, Brazil and Mexico are competing for a bigger slice of the outsourcing pie. All with all, the Chinese ICT industry provides great opportunities for Dutch ICT companies to outsource or relocate part of its labor and knowledge intensive programming work to the various software parks in China. 1.3 The Chinese ICT industry overview 1.3.1 ICT software industry With the support of government incentive programs, China s software industry has been expanding steadily in terms of scale and is becoming an important industry in the country s overall economy. China's software industry posted revenues of 1,336.4 billion Yuan (148.5 billion euros) in 2010, a 31.3% year-on-year growth. The scale of China s software industry has been expanding tremendously up to over ten times compared to 2001. It has an average annual growth rate of over 38% over the past ten years. Meanwhile, there are roughly 2 million employees working in this industry nationwide, in 2001 it was merely 300,000 employees. The top 100 key software developers in China completed revenues from software businesses of 290 billion Yuan (32 billion euros), a year-on-year increase of 21% and accounting for 21.7% of total revenue of the country. Pagina 8 van 29
China s software industry can be divided into five main segments: 1 Software products (e.g. operating system, ERP system, network security system, anti-virus software, and a wide range of software products) 2 System integration (e.g. setting up telecommunication network, power grid) 3 Embedded system software (software that executes on machines, robots, telecommunication devices, aircrafts, appliances and other non-computer devices) 4 Software technology services (including R&D, consulting, training, certification, etc.) 5 IC design In 2010, the revenues of these five segments represented respectively 31.49%, 21.77%, 16.78%, 25.53%, and 4.44% of the market shares in China s software industry. By region, revenue from the eastern (coastal) areas of China was 1,145 billion Yuan (127 billion euros), accounting for 86% of the total software revenue in China, while central areas of China took 5.66% and western areas took 8.22%. Besides Beijing, Shanghai and Guangdong province, which are traditionally regarded as strong areas for software industry, Jiangsu, Liaoning, Fujian and Shandong provinces and Chengdu (West China) have witnessed great increase too. The total revenue of Jiangsu, Liaoning, Fujian and Shandong provinces took about 35% of the total revenue of the country. With the advantages of well-established infrastructure and large talent pool, and additional preferential policies other than from central government, some second-tier cities have become the best destination for software businesses. Pagina 9 van 29
Figure 1. Map Dutch Economic Network in China : Embassy of the Kingdom of the Netherlands in Beijing, Consulate General in Shanghai, Guangzhou & Hong Kong, NBSO in Nanjing, Wuhan, Tianjin, Qingdao, Dalian & Jinan and NABSO Kunming By the end of 2010, a percentage of 80% of country s total revenue in the ICT industry are originated from : The 4 municipalities: Beijing Shanghai Chongqing Tianjin The 15 vice-provincial-level cities: Changcun Jilin province Chengdu Sichuan province Dalian & Shenyang Liaoning province Guangzhou & Shenzhen Guangdong province Hangzhou & Ningbo Zhejiang province Harbin Heilongjiang province Jinan & Qingdao Shandong province Nanjing 9 Jiangsu province Wuhan 10 Hubei province Xiamen Fujian province Xi an Shaanxi province 1 2-10 The 80% of country s total is only accounted to Mainland China, hence excluding Hong Kong See Figure 1 Benefitting from the opening-up policies since the beginning of 1980s and rich human resources from Chinese top universities and research institutes, Beijing, Shanghai and Guangzhou became the first three centers for China software industry. While as the labor cost rose and second-tier cities joined the competition with even more favorable and flexible policies from their local governments, more cities in China have set up software parks and attracted software companies. For example, Dalian is a main software exporter especially focusing on Japan and Korea. While the U.S. and EU market are main destinations for the software companies in Hangzhou and Jinan traditionally has focused on the U.S. and Japan market. 1.3.2 ICT outsourcing industry Given the preferential policies, state of the art telecom infrastructure, Pagina 10 van 29
large talent pool combined with moderate labor costs, the Chinese ICT outsourcing business has increased rapidly in the last decade and in particular the last couple of years in the ICT outsourcing sector. In 2009, this sector achieved sales of over US$2.16 billion, and has reached to be the second largest ICT outsourcing market globally after India. Japan, U.S., and the EU represent the main three origination areas for Chinese ICT outsourcing business. Although China ranked as the second, the gap between China and India is still obvious in areas of total volume, technical expertise, English skills, and size of the main players in this sector. For example, Chinese ICT outsourcing accounts for a share of 11% in the global market in 2009, compared to India s 54% accordingly. This shows that Chinese ICT outsourcing industry is still at an early stage with enormous potential. It is increasingly recognized that ICT outsourcing is an efficient way to optimize business operations both strategically and financially, especially in the time of global recession. The demand for ICT outsourcing is believed to remain strong, and the worldwide market is expected to exceed US$1 trillion by 2012. By taking full advantages of consistent focus and investment from the government in infrastructure, technology and education, the Chinese ICT outsourcing industry, as well as the players, will be more competitive in the global market. Furthermore, China is world s most populous nation with the second largest economy, and the largest market proportion of the Chinese ICT outsourcing still lies on the fast-growing domestic market. More and more companies have shifted their focus to concentrate on their business efficiency and in addition, well-educated workforce is able to operate complex software and automation devices. This provides foreign contractors who outsource their business to China, with numerous opportunities to explore the Chinese domestic market. 1.3.3 Technology development in ICT industry Chinese government has released incentive schemes to encourage Chinese companies or institutes to activate international exchanges and cooperation in information and communication technology, and attract multinationals to set up R&D centers and research institutes in China. Up to now, many well-known IT companies including Microsoft, HP, Cisco, and Intel, have set up R&D centers and research institutes in China. Pagina 11 van 29
2 Regional Development in the ICT industry 1 2.1.1 Liaoning province- NBSO Dalian: description of ICT industry Most of the high-tech companies are located in Dalian High-Tech Industrial Zone. Dalian High-Tech Industrial Zone was one of the first state-level industrial zones approved by the State Council. The zone covers an area of over 170 sq kilometers and is divided into 5 main sub zones. These zones are: Qixianling industrial base, Dalian Software Park, South Lushun software industry belt, Longtou Park and DD (Digital and DNA) Park. The total number of registered companies is about 2900, among which over 800 are foreign funded, over 700 approved as high-tech and about 53 enterprises are Fortune Global 500 companies. The software and information service sector is the core segment of the High-Tech industry in Dalian. In 2009 the software industry revenues in Dalian was 40 billion RMB, an increase of 31% than previous year; export value was 1.4 billion US dollars, an increase of 33%. There are about 800 companies engaged in software and outsourcing business, 300 are foreign invested, and 30 companies passed appraisal of CMM, 10 of which passed CMM5/CMMI5. Examples of companies within the park in 2010 were: IBM, Accenture, HP, NEC, Sony, Kawasaki Heavy Metal, Sumitomo, Neusoft, Hi-Soft, Sunyard, BHR, Alpine, Fujitsu, Panasonic, SAP, OKI, Ericsson, Genpact, Dell, Kokuyo, Softbank Mobile, Omron, Alpine, Fuji Xerox, Hitachi, BT, Oracle, Mitsubishi, Avaya, CS&S, etc. (see also attachment ICT industry report in Liaoning province and Wikipedia Dalian Software Park). 2.1.2 Tianjin & Hebei Province - NBSO Tianjin - description of ICT Industry As one of the 9 ICT industrial bases in China, Tianjin is quite advanced in this field. There are four ICT industrial parks of the state level in Tianjin. In terms of market share, the city is ranked among the top 5 for 40 key ICT products that are defined by the Ministry of Industry and Information Technology of China, and for 17 products, Tianjin is listed the first. There are 22 categories of basic ICT appliances that are produced in China, and 11 categories that are produced in Tianjin are among the top 3.From 2006 till 2010, the annual increase of sales income of ICT products in Tianjin is 14%. 1 See figure 1 Map of Dutch Economic Network in China Pagina 12 van 29
The ICT industry in Tianjin is mainly focused on the following sub-sectors: mobile phones, PCs, LCD (liquid crystal display) products and automotive electronics. Mobile Phones Tianjin is tagged the Chinese Capital for the Production of Mobile Phones. Motorola and Samsung have both chosen Tianjin as their important production base. The annual production capacity is over 200 million mobile phones. Computers The fastest supercomputer in the world Tianhe No. 1 is operating Tianjin. The speed of the supercomputer is 257 billion times of operation per second. More supercomputers of Xingyun series are being produced in Tianjin Shuguang (Morning Light) Industrial Base. The supercomputers can be used for the aviation and aerospace, meteorological, petroleum exploration, information research, financial analysis, life science, materials engineering, cartoon and gaming, video storage, and so on. Motorola has decided to produce its new 4G tablet PCs in Tianjin. Hong Kong Goldin Group is also building its production base for tablet PCs in the city. LCD (liquid crystal display) products Tianjin has solid basis for the LCD products and supplies to the TV, laptop, and digital camera industries. Samsung, the dominant LCD supplier in China, has several LCD plants in Tianjin. There are also dozens of relevant suppliers in the city. Automotive electronics As an old production base for the automotive industry, Tianjin is quite advanced in the development of automotive electronics. The famous companies in this field in Tianjin include Motorola, Panasonic, Fujitusu Ten, Denso and Hyundai. STMicroelectronics and Infineon both have set up their laboratories on automotive electronics in Tianjin. In 2010, the city s sales income of the automotive electronics industry was over RMB10 billion. In the automotive electronics field, in 2011, the local government will place its emphasis on the controlling system technologies, the development of on-vehicle electronic facilities, the development and industrialization of CAN and vehicle safety technologies. Beside the above mentioned sub-sectors, Tianjin will also further develop integrated circuits, photoelectron and laser, optical communication, artificial intelligence, and so on in the coming years. In Hebei province, Langfang City and Qinhuangdao City have focused to develop ICT industry. Langfang city has developed high-tech industries in Pagina 13 van 29
recent years, including telecommunications, flat panel display, advanced manufacturing, electronic materials and integrated circuit devices. Some ICT big manufacturers have settled in Langfang: Huawei, ZTE, Foxconn, BOE, and their products related communications equipment, LCD mobile display system and mobile phone production, and other areas. These 4 large projects have a total investment of 200 billion Yuan. The city has gathered more than 40 ICT enterprises, with annual sales revenue of over 30 Billion Yuan. Qinhuangdao city plans to invest 34.0 billion Yuan to develop the electronic components, fire electronic equipment, digital medical equipment manufacturing, software, flat panel display, semiconductor and LED lighting industries. Qinhuangdao has attracted IBM, HP, CAS Institute of Computing, China Unicom to settle, this will build the data industry of the city, and the local government wishes it will become the Chinese "Data Valley". 2.1.3 Chengdu - NBSO Wuhan - description of ICT Industry As one of top national software bases in China, there are currently over 700 enterprises and 150,000 employees active in the software sector in Chengdu, covering IC design, software outsourcing, applications, digital entertainment and information security. Most of the software companies are located in the Tianfu Sofware Park (launched in 2008) which is part of the state level Chengdu Hi-tech Development Zone In 2010, the cumulative major business income (operators included) amounted to 100,25 billion RMB, increasing over 30% when compared to 2009. The major business income of the software industry was 86,3 billion RMB (annual increase of over 35%) and the software export achieved 604 million USD in 2010, an increase of 40%. It is forecasted that by the end of the year 2011, export will be over 850 million USD and employees for the industry will reach over 220,000 Chengdu is lately attracting large investments in the service outsourcing sector. It has a huge talent base in software engineering and the local government is deeply involved in developing this sector. The city s living environment and young work force makes it a preferred city for setting up a company for young Dutch entrepreneurs. Some of these Dutch (software) service related companies are: IJO Technologies, Nexocial & N- Pad, WeFlexForce, Lighthouse and Maxxelli. 2.1.4 Jiangsu Province - NBSO Nanjing - description of ICT Industry Information and communication industry, as one of the six burgeoning industries in Jiangsu province, has developed rapidly in recent years. The ICT industry in Jiangsu province including software and service sector has the following features. Pagina 14 van 29
First, in 2010, the ICT service revenue had increased dramatically and reached 229.1 billion RMB (1 Euro = 9.1 RMB), accounting for 17.1% in the whole industry nationwide and up 42.7 % compared with the revenue of last year. Among them, the revenue of information service was 89.3 billion RMB, taking up 39% in the total revenue; the revenue of embedded system software 69.2 billion RMB, 30.2%; the revenue of software products 56.8 billion RMB, 24.8%. Whereas, in the first half of 2011, the ICT service revenue has arrived at 15.47 billion RMB. Among them, the revenue of information systems integration service reached 23.42 billion RMB, taking up 15.1% in the total revenue; the revenue of embedded system software 58.98 billion RMB, 38.1%; the revenue of software products 35.47 billion RMB, 29.4 %. Second, ICT enterprises are highly concentrated. According to the statistics in the first half of 2011, there are 2551 software enterprises in Jiangsu province. Since most of the companies are located in the southern part of Jiangsu, Nanjing, Suzhou and Wuxi, the ICT industry is welldeveloped in the southern region. In the first half of 2011, the five cities i.e. Nanjing, Suzhou, Wuxi, Changzhou and Zhenjiang, have realized service revenue of 149.28 billion RMB, accounting for 96.6% of the total revenue in Jiangsu. Third, key software parks are on the rise. There are five key software parks in Jiangsu province, namely are Jiangsu Software Park, Nanjing Software Park, Suzhou Software Park, Wuxi Software Park and Changzhou Creative Industries Park. The business revenue of those parks had come to 90 billion RMB in the year of 2010, occupying 39.3% of the total revenue of the whole industry in Jiangsu. Fourth, in 2010 the industrial revenue of electronic and information products had realized 1.85 trillion RMB increasing 29.5% from 2009. The export value was 164 billion US dollars increased by 28.2%. The industrial growth rate is 32% - 48% for the first half of 2011. In 2010 top 100 manufacturers has realized 953.3 billion RMB together by 49.9% increase, among which four companies had exceeded 30 billion each. The industrial capacity has been upgraded in the fields of project development, product innovation, and market development. The main products are personal computer, laptop, integrated circuit, optical fiber cable, and color TV set. The companies are mainly located in the South of Jiangsu province (82%). 2.1.5 Shandong Province - NBSO Jinan & Qingdao - description of ICT Industry In 2010 the total turnover for Shandong's ICT industry reached 90.5 billion Yuan (10 billion euros), up 49 percent year-on-year. The ICT exports totaled 450 million US$, up 45.3 year-on-year. The ICT industry Pagina 15 van 29
development is one of the major pillars for Shandong province s economic development. In Qingdao, software parks (e.g. Qingdao Software Park and Qingdao International Animation and Game Industrial Park) are established to attract national and international well known software (e.g. Microsoft, Alcatel-Lucent and NEC) and animation companies are located there. Young generations of high calibre are clustered in the software park for high quality product like animation movies; while the cost of production is much lower even than Shanghai and Beijing, much less than European cities. At the same time software service outsourcing remains on a trend on the priority list of local government, especially with companies from overseas. Jinan has one of China largest software parks and it is an important ICT outsourcing destination in China. Many international companies, such as IBM, CISCO, NEC, already invested in Jinan Qilu Software park. Qualified personnel available and labour costs are minimal comparing to Europe and also significant lower than Beijing and Shanghai. 2.1.6 Guangdong Province - Consulate General Guangzhou - description of ICT Industry In 2010, the total turnover of Guangdong s ICT software industry reached 241.71 billion Yuan with an annual increase of 22.2%, ranking itself 1 st nationwide. The ICT software exports totalled 12.75 billion USD, up by 14.6% comparing to year 2009. Guangzhou and Shenzhen city still keep dramatic development speed leading in the sector. These two cities, accounting for 92.4% of the Province s industrial scale, reached the total outputs of 72.39 billion Yuan and 150.67 billion Yuan respectively. Eyeing on the sector itself, the turnover from embedded system softwares accounts for the largest share of 32.6% with the accumulated revenue of 78.84 billion Yuan. Although IC design only reached 9.55 billion Yuan, it becomes the fastest growing subsector up by 107.6% on a yearly basis. Others including information technology value-added services, software products, system integration and supportive services, information technology consultancy and management services also develop with a steady pace. During the past 11 th Five-year period, Guangdong s software and information service industry continuously kept an annual growth of 20%, even when suffering the global economic downturn. The sector s overall dvelopment speed is even higher than Guangdong s traditional priority sector electronic information manufacturing industry, which reached 2382 billion Yuan of total turnover in 2010 accounting for one third of the total national output. Furthermore, Guangdong s ICT outsouring business is also running very well, which provides foreign contractors great opportunities to further explore the local market and to transfer their business for cooperation. Pagina 16 van 29
A number of national emphasised projects settled down in Guangdong, such as the Shenzhen Cloud Computing Centre with the total investment of 1.2 billion Yuan and the South China Data Centre, a worldwide toplevel data center invested by Foxconn, also motivate and further deepen the local ICT industry. At the same time, it also shows huge market potential and good prospects of Guangdong s ICT industry. The provincial government strives for attracting more and more foreign investors to local industrial parks, and has orientated the software and information service industry as one of major strategic emerging industries for the Province s 12 th Five-year Plan. Adjustment and transformation of industrial struture will largely reinforce the great importance of the ICT industry for years to come. 2.1.7 Shanghai - Consulate General Shanghai - description of ICT Industry The total turnover of ICT industry in Shanghai has reached nearly 900 billion RMB in 2010. In Shanghai, ICT development zones and industry parks are mainly located in Pudong District and Yangpu District. Due to the advantage of land resource, Pudong District established one national level industry base which is Pudong Software Park, and several municipal level industry bases such as Lu Jia Zui Software Park. Yangpu District has good resource in education and technology. Fudan University and many research institutes are located in this area. Therefore, Industry parks in Yangpu District are focusing on SME with unique technology. Famous industry parks include Fudan Software Park, Knowledge and Innovation Community (KIC), etc. In Aug 2010, the Shanghai Cloud Computing Industry Base has been established in Shanghai Shibei High-Tech Park in Zhabei District. It's a part of Plan for Promoting Cloud Computing Industry in Shanghai 2010-2012. It will build the first domestic commercial pubilc platform of service based on cloud computing. It plans to reach a turnover of 5 billion RMB within 3 years. Large companies include SVA Information Industry Group, Alcatel-Lucent, Huawei, ZTE, CISCO, HP, etc. In addition, in Zhangjiang High-Tech Park, there are some leading local companies focusing on cloud computing industry such as INTPLE, SYNACAST, ACTIZ, etc. In Green IT, INTEL and Huawei are the marker leader currently. Dutch companies may have opportunities in the field of software development, mobile communication, game, information service, etc. Pagina 17 van 29
2.1.8 Hong Kong - Consulate General Hong Kong - description of ICT Industry The Hong Kong IT market is forecast to grow from around HKD $40.5bn in 2011 to HKD $50.6bln in 2015 (Business Monitor International). The computer hardware market has grown with 6% since 2010, equal to HKD $17.9bn in 2011, mostly due to the high spending power of HK and Chinese consumers. Nearly 25% of the HK IT revenues come from software sales, forecast at HKD$10.1bn in 2011 and are expected to reach around US$12.4bn by 2015. Under one country two systems the HK has a distinctively different judicial system than the mainland of China, based on rule of law. This makes HK attractive for companies in patent and copyright sensitive industries, as they have stronger judicial protection. Although Hong Kong has excellent university programs, there is a lack of experienced IT service specialists. In the 2011 Manpower Survey of Information Technology indicated that 26% of companies indicate to have difficulties recruiting employees with sufficient experience. There is demand for short-term training, especially targeting in-depth conversion IT training for non-it/computing professionals. Government Support The HK government wants to develop Hong Kong into a leading digital city. Under name Digital 21, the government invested to promote IT. The IT market is also supported by initiatives encouraging the integration of Hong Kong's economy with mainland China and the abolition of taxes on cross-border trade. Regional Clusters The HK government has attempted to create an IT cluster called Cyberport, designed to provide the city with a major regional hub that would attract leading IT companies and professionals. These efforts have been only moderately successful. While the infrastructure for a cluster is present, a booming district has failed to form. Possible reasons could be a lack of a mature venture capitalist community, lack of favorable e- government policy, and lack innovation and R&D possibilities to attract start-ups. The broader science cluster Science Park is more successful in attracting start-ups and fostering innovation. Areas of Opportunity IT applications Local HK businesses are increasingly interested in applications that enhance business efficiency and effectiveness. Interest specifically target ERP, CRM, SCM, Business Intelligence (e.g. OLAP and data mining), GPS, and industry specific software for logistics, import export, manufacturing and financial transactions. Cloud Computing HK was named as the 2 nd most attractive region for cloud computing in Asia (Asian Cloud Computing Association), mainly because of its excellent Pagina 18 van 29
international connectivity, power grid quality, high business efficiency index and excellent data protection policies. Especially date protection policies are gaining in importance as China is changing its security laws to make supporting parties liable if their services are used to threaten state security. This increases the risk for data center operators on the Chinese Mainland. Now main competitor Japan is struggling with power grid quality following the earthquake earlier this year and Singapore is lagging behind in data protection policies, Hong Kong has been attracting cloud computing related industries. The HK government is investing in cloud computing, hoping for HK to emerge as a regional cloud computing hub. Cloud computing is also a major focus for vendors in the private sector. Companies such as Hitachi Data Systems (HS) and CloudService360 dominate the market, but are also facing competition from local telecom service providers such as PCCW that are making an increasingly aggressive move towards cloud computing. Apart from IaaS and PaaS, private vendors also show interest in development of the SaaS market. Digital Entertainment Industry The HK digital entertainment industry is growing quickly, not only benefiting from the HK market, but also from the increases in the market on the Chinese Mainland. Hong Kong possesses the best design and multimedia capabilities in the region. Computer generated images are becoming trends in electronic games, advertising, film production and web design. The main focus of the digital entertainment market in HK is games development (45%), followed by Animation production (30%) and digital effects production (25%) While the online gaming market in Hong Kong is largely saturated, there are vast opportunities for sales on the Chinese mainland. Sales on the mainland are forecast at USD 6.3bn in 2012. The combination of the judicial system based on rule of law, and the availability highly experienced human resources, makes HK very attractive as a base for companies to venture into the Chinese mainland market. A niche market of digital advertising is emerging in Hong Kong. The 2009 digital advertising revenue in HK was estimated at 3.6% of overall advertising revenue, with growth rate of approximately 7%. There is strong demand for tools and applications facilitating digital advertising. E-learning The HK government is making changes to the school curriculum in HK schools. In the new curriculum the government also wants to promote the use of e-learning in the classroom. While the market is still in a start-up phase, in the next decade demand for e-learning is expected to grow in HK. In addition the education system in HK is competitive, causing many children to take additional tutorials or courses next to the regular education system. E-learning is also expected to receive demand from this sector of education. Pagina 19 van 29
Read more on: www.digital21.gov.hk/eng/strategy/2008/chapter_5_5_13_1.htm www.marketresearch.com/business-monitor-international-v304/hong-kong- Information-Technology-Q3-6468067/ www.hktdc.com/info/mi/a/hkip/en/1x006nli/1/hong-kong-industry- Profiles/Information-Technology-Services-Industry-In-Hong-Kong.htm www.vtc.edu.hk/uploads/files/publications/committee_on_information_technology _training_and_development/en/2010_executive%20summary%20(eng).pdf www.globalservicesmedia.com/news/home/hong-kong-is-cloud-ready,-says- Industry-Body/21/27/0/GS1109156610043 www.hongkongkvk.nl/assets/cms/file/ict%20sector%20in%20hong%20kong%2 0-%20May%202010.pdf Pagina 20 van 29
3 Government plans and incentives 3.1 Investment and development plans by the Chinese government in ICT industry Significant investments and progress have been made by the Chinese government in the past two decades for the long-term strategy of ICT industry. Most investments have been focusing on the following areas: The construction of high quality infrastructure, from highways, airports, hi-tech development zones and software parks across the nation, to reliable power supply, state-of-the-art telecommunications and highspeed broadband connections, etc. Supportive policies and financial incentives have been carried out at all levels of Chinese government to help the ICT industry players to compete internationally. Education in technical and language skills. China has a massive talent pool of engineers and technicians working for ICT industry, while the percentage of the senior-level employees still remains low. Meanwhile, a relatively low level of English skills is a bottleneck to win business contract from the U.S. and the EU market in the competition with countries like India and the Philippines that have the advantage of strong English skills. Therefore, it has been well recognized that the education should be as a strategic priority for the Chinese national education system. The most important and influential policy by the Chinese central government in the ICT industry is the 1,000-100-10 Project, announced by the Chinese Ministry of Commerce in 2006. The main objectives include the following: Establish 10 demonstrative base cities that are internationally competitive for ICT outsourcing business. By 2010, 21 cities have been entitled as demonstrative base cities for ICT Outsourcing in China. Among these cities, Beijing, Shanghai, and Shenzhen are regarded as the first-tier cities with most the largest concentration of software players in China. However, some second-tier cities like Hangzhou, Suzhou, Chengdu, Xi an, Nanjing, Wuhan, Dalian and Jinan, are becoming more and more attractive to software companies for its relatively low labor and operational costs. Encourage 100 well-known multinational corporations to transfer their outsourcing businesses to China. Many multinationals have already invested in China, including Microsoft, Oracle, Accenture, SAP, and NEC. Pagina 21 van 29
Cultivate 1,000 large and medium-size service outsourcing enterprises with international qualifications. By 2010, the number of companies in the sector exceeds 8,000 nationwide, with the workforce over 1.2 million. Among them, 3 companies, Neusoft, ChinaSoft International, and VanceInfo rank the 3 largest companies of China in term of number of employees. Each of them has a workforce of over 10,000 employees. 3.2 Incentives and promotion by the Chinese government in ICT industry The supportive policies and financial incentives for the ICT outsourcing industry from the Chinese government can be summarized as follows: Funds and incentives for improved training in technical skills and upgrading of quality standards to achieve international certification levels A framework for better protection of intellectual property A centralized website providing information on China s outsourcing market for academia, research institutes and businesses Improvements in IT infrastructure Loans and credit insurance for outsourcing enterprises A subsidy of US$650 to vendors for every college graduate recruit employed for at least a year Interest rates which favor exporters of software service in the ICT outsourcing industry Priority of software businesses when applying for public listings on domestic or overseas exchanges Support to research and development centers set up by domestic business with academic institutions The Chinese government has taken steps to provide support for domestic software companies in several aspects. 6 Financial and Tax Policies Software enterprises which engage in software development and testing, information system integration, consulting and operation maintenance and other businesses, are able to enjoy tax exemption. For example, the eligible software enterprises in China may get '2- year exemption and 3-year reduction by half' preferential enterprise income tax policy from the profit making year. 7 Investment and Financing Policies The aim of the policies would seem to be not only the growth of the domestic software industry, but also merger and consolidation. The relevant departments of the State Council and local government at each level shall give positive support and guidance to trans-regional restructuring and mergers carried out for the purposes of realizing Pagina 22 van 29
resource integration and becoming bigger and stronger, and prevent obstacles in any form. 8 Research and Development Policies The software industry in China is still in the primary stage with low added-value compared to international competitors in the U.S. and India. The central government already realized and dedicated to change this situation, by encouraging software companies to make more efforts on software testing and assessment technologies, standards improvement, enhancement of software R&D ability and software quality, and brand building as well. 9 Import and Export Policies Financial institutions may provide financing and insurance support to those software companies with a high credit rating. 10 Talent Policies In regards to developing talent for the domestic software industry, the government is promoting a multi-pronged approach, including developing existing domestic talent, as well as pursuing and developing talent overseas. 11 Intellectual Property Policies As IP piracy is still one of the main hurdles to overcome for domestic software providers, various solutions for rights holders have been carried out. These efforts appear to be having some positive results. For example, it was reported about 54,000 genuine software copies sold to 37 central government institutions from last October to this February. In addition to the above mentioned supportive policies and financial incentives, the government at different regional (provincial, local) levels also makes supplementary policies to attract investment from domestic and abroad. Pagina 23 van 29
4 Market information 4.1 Major local and foreign players in ICT industry in China ICT outsourcing industry With the rapid growth of the global outsourcing market and strong support from Chinese government in forms of preferential policies and well-constructed infrastructures, the Chinese ICT industry is taking off rapidly. By 2010, the number of companies in the sector is over 8,000 throughout China, with a workforce of over 1.2 million. In order to become more competitive to get outsourcing business from overseas market, local Chinese companies have invested a lot to develop their capabilities both at technical level, management level and as well as foreign language proficiency. Usually, a new employee in this sector will receive an intensive training program of at least a month in technical and foreign language before start, while the program will be longer even up to 6 months for potential senior level employees. In addition, Chinese companies in this sector have adopted international management systems, ISO and Capability Maturity Model (CMM; a measure for operating level capabilities) for instance, to improve competitiveness and access the global market. Companies that achieve such CMM level 4 or 5 will get financial support from the government. Neusoft is the largest software outsourcing and service vendor in China. It is ranked in the 25th top global outsourcing company, thereby becoming the first Chinese company to be on the list. Neusoft has launched international outsourcing bases in Beijing, Shanghai, Chengdu, Nanjing, Shenyang and Dalian. ICT software industry Within China s software industry, the top three software developers are Chinese embedded equipment manufacturers - Huawei, ZTE and Digital China. Integrated in diverse fields such as network communications, consumer electronics, medical equipment, security systems and power systems, the value of China s embedded software industry has exceeded 224 billion Yuan in 2010. Top 10 Software Companies in China, 2009 No. Company Name Software Revenue (billion Yuan) Province 1 Huawei Technologies 72.6 Guangdong 2 ZTE 27.1 Guangdong Pagina 24 van 29
3 Digital China 13.0 Beijing 4 Haier 8.2 Shandong 5 Founder Group 6.2 Beijing 6 Panda Electronics Group 6.1 Jiangsu 7 Insigma Technology 4.9 Zhejiang 8 Inspur Group 4.8 Shandong 9 Neusoft 4.2 Liaoning 10 Tsinghua Tongfang Co., Ltd. 4.1 Beijing Foreign players in the ICT industry in China In China, foreign vendors have a more dominant presence in the high-end software market. Within the industry, the leading foreign software companies are Microsoft, IBM, Oracle, Cisco, SAP and Sybase. So far, several Dutch companies have been involved in the ICT outsourcing business in China. For example, BMBO B.V. signed contract with a Chengdu-based software company in software outsourcing business in 2008 or Web Power, specialized in web marketing, located in Shanghai. Since the 1990s when the first software park was established in China, a number of global outsourcing companies and numerous local companies have set up throughout China. Japan, U.S., and EU currently represent the main three origination and destination market for Chinese ICT Outsourcing business. In the early stage of Chinese ICT Outsourcing, Japan once was the market that China relied on the most, with 70%-80% of total Chinese offshore outsourcing business from Japan, and less than 15% from U.S., compared to nearly zero from EU. In recent years, Japan still provided the most offshore outsourcing business to China, but the percentage went down quickly due to the fierce competition and consistent low profit margin. On the contrary, the demand from U.S. and EU market increased gradually. For example, in Dalian, one of the top 3 ICT Outsourcing cities in China where outsourcing business from Japan used to occupied more than 80% of the total, now has its leading contractors including Microsoft, Oracle, HP, Intel and Accenture, which are all from U.S. and EU market. 4.2 Trade Fairs & Exhibitions ICT sector in China China International Software Expo Date: yearly in June Venue: Beijing Web: http://isc.ccidnet.com Pagina 25 van 29
China International Software & Information Service Fair Date: yearly in June Venue: Dalian, Liaoning province Web: www.cisis.com.cn/en/ China (Jinan) International Information Technology Expo Date: Every 2 years (next session will be held in 2012) Venue: Jinan, Shandong province Web: www.itexpo.gov.cn/en/aboutus.asp China Sourcing Summit Date: yearly in June Venue: Chinese model cities for software outsourcing Web: http://fbh.chinasourcing.org.cn/en/ Solarcon China Date: yearly in March Venue: Shanghai Web: www.semi.org.cn/solarconchina/en/ ChinICT Techstars in China Date: yearly in May Venue: Beijing Web: www.chinict.org/ SINOCES China International Consumer Electronics Show Date: yearly in September Venue: Qingdao Web: www.sinoces.com/ InfoComm China Date: yearly in April Venue: Beijing Web: www.infocomm-china.com/en/index.php Nanjing International Software Product Expo Date: yearly in September Venue: Nanjing Web: http://en.cis-expo.com China International Service Outsourcing Conference Date: yearly in June Venue: Nanjing Web: www.outsource-china.com.cn/index.aspx ChinaSoft Date: yearly in April Venue: Chengdu Pagina 26 van 29
Web: www.chinasoft.org.cn/en Pagina 27 van 29
5 Dutch Government Economic Network The Dutch Government Economic Network consists of the Economic Department of the Embassy, Consulates and the Netherlands Business Support Offices. The network supports Dutch companies and other organizations to find their way to do good business in the Chinese market or help with the preparation for a market entry. All the services are provided uniquely to Dutch organizations/companies, free of charge The Dutch Government Economic Network provides the following services to Dutch companies: - Provide industry and market information (from small request to larger individual Market Scans) - Support in the match making of trade missions - Provide connections with the right partners in China to do business - Support in connecting with local authorities - Identification of market opportunities - Trade promotion For more information on the services and the activities of the Dutch Government Economic Network: http://business.hollandinchina.org 5.1 Contact details: Dutch Embassy Beijing Liangmahe Nanlu #4, Chaoyang District, Peking 100600, China Tel: +86 10 8532 0200 E- mail: pek-ea@minbuza.nl Consulate-General Shanghai 10/F Tower B, Dawning Center, 500 Hongbaoshi Rd., Changning District Shanghai 201103, China Tel: +86 21 22087288 E-mail: sha-ea@minbuza.nl Consulate-General Guangzhou Teem Tower, verdieping 34, 208 Tianhe Road, Guangzhou 510620, China Tel: +86 20 3813 2200 E-mail: gnz-ea@minbuza.nl Consulate-General Hong Kong Suite 5702, Cheung Kong Center, 2 Queen's Road Central, Hong Kong, China +852 2522 5127 Pagina 28 van 29
E-mail: hon-ea@minbuza.nl NBSO Dalian 4910 World Trade Center, 25 TongXing Road, Zhongshan District, Dalian 116001, China Tel:+864113986 9998 E-mail: nbsodalian@nbsodalian.com NBSO Jinan 31/F, Jinan Qilu Bank Building, 176 Shunhe Street, Shizhong District, Jinan 250002, China Tel:+8653186065138 E-mail: nbsojinan@nbsojinan.com NABSO Kunming Room 1604, Hongta mansion, 155 Beijing Road, Kunming 650011, P.R. China. Tel.: +868713578322 E-mail: nbsokm@nbsokunming.com NBSO Nanjing Suite 2316, Building B, 23/F, Phoenix Plaza, No. 1 Hunan Road, Nanjing 210009, China Tel:+862584703707/84703708 E-mail: nbsonanjing@nbsonanjing.com NBSO Qingdao A-2505, Top Yihe International, 10 Hong Kong Middle Road, Shinan District, Qingdao 266071, China Tel:+8653266777515 / 17 E-mail: nbsoqingdao@nbsoqingdao.com NBSO Tianjin Office 3515, Golden Crown Building, No. 20 Nanjing Road, Hexi District, Tianjin, 300042, China Telephone:+862223025001 E-mail: nbsotianjin@nbsotianjin.com NBSO Wuhan Tower I, Room 1306, 568 Jianshe Avenue (Jianshe Dadao), 430022 Wuhan, China Tel:+862785766511 E-mail: nbsowuhan@nbsowuhan.com Pagina 29 van 29