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IT Products and Services�Annual Analysis Report on Chinese IT Services Market(2005)
Analysys International, May 2005
Key points of the research report
- This report primarily researched the following four aspects of the Chinese IT Service market.
- Market size in 2004 and forecast for the next 5 years.
- Analysis of the Key success factors for specialized services and their markets.
- Analysis of customer demands and trends of various industries, including finance, telecommunication, and government.
- Analysis of strategies for major IT service providers.
Our Findings
General characteristics of China's IT service market
- In 2004, China's IT service market reached 24.8 billion Yuan, 18.3% higher than 2003. In the next four years, the IT service market will grow at a CAGR of 24.1%.
- In the next four years, sectors of the IT service market could be sorted by CAGR in a decreasing order as follows: IT consulting (26.4%), development and integration service (26.0%), IT management service (21.9%), and product maintenance service (9.9%).
Characteristics of Main IT Service Lines
- Maintenance services provided by some companies specializing in hardware maintenance tend to be replaced by professional services from IT management service providers that have a 'best-of-the-breed' attitude.
- Telecommunication system integrators are expanding into related fields of endeavors. For example, Asiainfo purchased Pacific Software in October 2003, abandoning its original tenet of sticking to 'all telecommunication' and expanding to other enterprise fields such as manufacturing and transportation. In July 2004, after Asiainfo successfully acquired Lenovo's IT service sector, the company further expanded into the financial industry.
- Hardware companies that traditionally offered post-sales service and support are extending their reach into the pure service side of the industry by offering a one-stop-shop for maintenance and management services.
- China is seeing more and more cases of IT outsourcing for operations and maintenance. Potential industry users may find more 'indicators' that more domestic users will accept IT management services. However, it still depends on the ease with which existing contracts can be converted into IT services that take advantage of the potential demand for services.
- There are more and more types of industry applications and they are becoming increasingly complicated. Hence, IT management services will take a greater part in the management of applications.
- As IT service providers gradually integrate IT professional services into their businesses, it is hard for IT consulting firms to retain independence as a third party. (IT service providers usually provide customers with IT consulting, development, and integration services).
Development trends of IT Services of Major Industries
- Forthcoming upgrades and updates of IT systems for joint-stock financial institutions will greatly incite the demand of system integration services for the financial districts. At present, domestic financial institutions are still in their wait-and-see stage on whether or not to implement IT management outsourcing services.
- Commercial applications of 3G networks will directly boost demands of various system integration projects and IT management services based on 3G systems, such as BOSS (Business Operation Support System), network management system and customer service systems.
- Government 'Golden' projects will still be an important source of system integration projects. It is possible for the Capinfo model of IT management outsourcing to be adopted in cities other than Beijing.
- Prospects of IT consulting services in the finance and telecommunication industries are relatively optimistic. The outlook is not as good, however, in governmental sectors, where IT consulting services are typically only additions to system integration contracts.
Main Challenges Faced by IT Service Providers
- Domestic firms are facing situations where their offered services are incomplete or missing critical solutions. This typically becomes a weak point when competing with foreign firms.
- For most domestic development and integration service providers, one of the biggest challenges is to enhance their software development and service capabilities. Domestic firms need to make themselves irreplaceable in the trade by enhancing these capabilities, thereby strengthening their ability to survive and continue to develop.
- Foreign firms are facing competition of increasingly powerful domestic firms. IT service providers that are rapidly expanding the scale of their businesses with mergers and acquisitions, such as Digital China and Asiainfo, have actually become major threats to foreign firms.
- Foreign firms are finding it hard to enter some industries that are controlled by monopolies like government, tobacco, and power facilities.
Opportunities of IT Service Providers
- A new round of IT construction from foreign enterprises will begin. In the next couple of years, the experience of foreign IT companies will be introduced into China as a number of international enterprises rush into the country; specifically, the industries that have been restricted by the strict rules of entering the market until China is admitted into WTO. These enterprises include telecommunication companies, finance districts, retail chains, etc… Since the efficient operation of these industries rely heavily on IT support systems, a unique market opportunity will be created; not only for system integration firms but also for IT management firms.
- As the domestic enterprises imitate foreign companies with mature IT applications, they will create an immense demand of IT professional services. Currently, when a domestic enterprise reaches a certain size, it's hindered by an operational efficiency bottleneck. By learning from foreign IT enterprises in the same industry, they could reduce the possibilities of frustration and failure.
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