China’s enterprise software market is forecast to maintain its strong performance, with an estimated compound annual growth rate (CAGR) of 14,6% from 2008 to 2013 – the highest growth rate in the world, according to Gartner.
Despite current global conditions, the software market in China is expected to rebound to an annual growth rate of 14.8 per cent in 2010. Gartner analysts said that the increasing globalisation of the Chinese economy is leading to a growing need for modern software with the latest features and improved functionality.
“Software vendors have strong growth potential in China, but also face the challenges of operating in a commercial environment that is still developing,” says Hai Hong Swinehart, research analyst at Gartner. “Chinese organisations have historically preferred to develop applications using their own labour because it costs less. However, this tendency has resulted in legacy and quickly obsolete software, as well as inhibiting Chinese organisations’ sustainability and business IT continuity.
"Growth will mainly be driven by replacing immature infrastructure with standardised systems and the large vendors stand to benefit.”
According to Gartner's latest forecast, in 2010 China will for the first time surpass $6-billion in software revenue in 2010. China is the largest software market in Asia/Pacific and the country is forecast to account for 27% share of the region’s revenue in 2010, the equivalent to 2,7% of the total worldwide software market share. By 2013, China’s share of the software market in Asia/Pacific is expected to reach 30%, representing $9,4-billion in revenue or 3,3% of total worldwide software market revenue. Compared with mature countries in the Asia/Pacific region such as Australia (with 21 per cent share of regional spending in 2010), the software market in China is still relatively young and evolving.
The top four major vertical industries in terms of software spending are manufacturing, financial services, communications and government. Gartner estimates that in total these industries account for 60 per cent of total software spending in China.
A 2009 Gartner survey found that 46% of respondents in China planned to increase their software spending in 2010, far higher than other countries surveyed, such as those in Europe, the Middle East and Africa, North America, and Latin America. The same survey found organisations in China in 2010 are expected to spend approximately 23% of their IT budgets on software compared with 33% on hardware.
“China is still a hardware-centric country that tends to spend more on infrastructure, and we expect this to continue through the forecast period to 2013,” says Swinehart. “Optimism regarding spending within Chinese organisations reflects confidence in China's regional economic performance, as well as the need to adopt better technology to effectively compete in a tougher global environment.”
Gartner expects increases in spending across the infrastructure and application software segments in 2010. However, the infrastructure software market's size is forecast to be nearly double that of application software through 2013, with a CAGR of 15,1%, while application software has an expected CAGR of 13,7%. Priority areas of software spending include enterprise resource planning (ERP), office suites, operating systems and database management systems.
In the next five years, the fastest-growing segment will be data integration and data quality tools, with a CAGR of 32,4%, although it is growing from a small base. Gartner said Chinese organisations are lagging behind in terms of adoption of these tools, resulting in the fast growth of this market.