Aches and pains of China's software industry.

That the software industry is a difficult trade to undertake is widely agreed in China. When discussing the difficulties, most people immediately blame the rampancy of "piracy". Nothing seems wrong with this, but is this the only source of all the complaints of the country's software industry lamenting in aches and pains? Comparing India's software industry with China's. India's software industry in 1999 achieved an output value of US$5.6bn, 3.9bn from exports and 1.7bn from home sales, respectively. Meanwhile, China chalked a home sale at RMB $17.6bn, or around US$2bn. Software enterprises in today's India number some 1,000 compared to over 5,000 in China. In terms of domestic sales, the two achieved an equivelant sum, and a larger figure had even been attained in China's. But considering the year's software exports, China's were so small a figure that it was almost negligible. India's exports showed a worth two times the whole home sale of China's. In the meantime, China has software companies five times over India's in number. However, most of these are small workshop-type operations and the largest of these has been noted with a staff of no more than 50 personnel. Contrarily, India boasts 280,000 software engineers, 280 for each enterprise on average, contrasting a total of merely 100,000 software developers in China, scattered in over 5,000 companies. When discussing software we usually look on India admiringly. But we should see that India's prosperity hinges on its exports. India's domestic sales are no better than China, as a matter of fact. But facing almost the same homegrown market conditions, India's software enterprises grow rapidly, while Chinas' keep on complaining about its dire domestic market.

* Ache One: Workshop Operation, one of the aches plaguing China's software industry.

China currently has over 5,000 software companies and 14 software parks across the country. Most companies, with a staff of some dozen or score, have been dabbling in small repetitions of software ordered by users. It is a waste of resources when taking the industry as a whole. Most people regard software development as primarily source code developing. A lack of management by these "workshops" has held them back from developing any possible large-scale software production. Puny software companies can in no way develop on an industrial production scale and therefore are weak in staving off risks. Plagued by rampant piracy, they keep on struggling and gasping to carry on, totally incapable of any software engineering, let alone technological innovations. Software development demands high cooperation and management. There will be no large software industry, and new advances to speak of, while numerous small operations are being developed. Small software operations must be limited in number and be run by improved performance. With no outside restraints the software industry will inevitably fall into a vicious circle: There will be no end to the endless cycle of low-level developing work by numerous small companies, which due to their fragility facing harsh domestic market conditions, forces in turn more companies to become low-level operations. What we should do is to weed out those fly-by-night companies to make room for developers doing real business. This requires a big shake-up of the country's software market to elbow those listless "booths' out and achieve raised application standards for new setups. Numerous small low-level developing operations such as those being launched in today's China explains why the country's software industry has been lagging behind India's and the fact why many software projects have flowed into India instead of into China.

* Ache two:Too Eager for instant Success and Quick Results

The second ache of China's software industry lies in its being too eager for short-term success and quick results. The current domestic software products mainly focus on the fields of Chinese language support system and application software, including Chinese language system, electronic publishing, CAD, financial software, education software, MIS and software developing tools. Meanwhile, no one dares to try the most profitable and technology-demanding fields such as operating system and database design. They are even unwilling to touch common software on word processing, multi- media and Internet, for they may not make money from them or can not wait for that day. In fact, only core software such as operating system and database design are able to reflect the technological level of a software industry and earn plaudits for a company. It is fair to say that China's software industry is drawing nearer and nearer to markets, and further from technology. Being too eager for quick success and profits, is partly because of poor market conditions, and partly because of the low self-esteem of these companies.

When discussing domestic software products we can name only a few such as WPS, foxmail, and Netant. A few individually developed free software programs, such as foxmail, are presented as representatives of the whole software industry. This highlights its backwardness, for most companies have turned to customised software, either unwilling to descend, or daring not to develop general software. Statistics show that of all general software used on domestic market only 5 percent are of copyrights, a terrible figure that frightened away most companies from the market.

How did Microsoft defeat homemade WPS with its Word? It was the pirated ones that took Chinese market, said Bill Gates. It earns Microsoft fame, if not direct profits, which will, in turn, bring huge economic gains on the enterprise market. If China, due to the bad environment, entirely gives up producing general software, it will lose both brand names and future markets. If we owe the meager profit of general software to crazy piracy, then why don't we see domestic companies trying their hands in the most profitable operating platform of database, and integrated software? Because this software, due to the sophisticated technology, requires huge investment, which Chinese companies are unwilling to put in. Instead they turn to second-hand development for short-term profits, depending on others to provide platform, language, data environment cooperating under established standards and protocols.

However, how long will they hold on? As Scott McNealy, CEO of Sun Microsystem, predicts, in the future the software industry will not, and should not, exist anymore. All the business will be in services, not products. There will be no demand for second-hand development, and what will become to an industry without any core software to support?

* Ache three- a lack of computer industry for support

The third ache of China's software industry is that the shortage of a strong computer industry for support missed a golden opportunity for development. As everyone knows, the prosperity of software is based on the transferred value from the hardware industry. Without it software is not capable of capital accumulation and growth. Microsoft's success owes much to IBM in the form of numerous OEM orders at its primary stage of business. In a sense, Microsoft is marching forward on the shoulder of IBM.

What were we doing in the mid 80s, the golden time for software industry in other countries? Zhongguaneun has built itself up by starting from selling components and personal computers while our hardware production is totally blank. Under such conditions, China's software industry has almost no space to start from without support from domestic hardware producers. Up to now, China's hardware is still lagging behind software. The software industry, without capital accumulation from hardware industry, is just like a child deprived of milk ever since being born. As a result, China's software can only pin its hope of capital accumulation by people using software with copyright. Doubtlessly, piracy is a big burden affecting the advance of China's software, but it is not as big as to form the largest enemy. In a view of economy and markets, any industry has a maximum of market capacity. That is, limited by market and economic environment, the 95 percent users, even not using pirated ones, are totally incapable of affording software with copyright. They may either use pirated copies or give up software altogether. We are still standing firm in striking against piracy to ensure a healthy industry, but this doesn't mean we can take piracy as a fig leaf forever. The industry only has itself to blame if it continues to criticize outside markets without any self-examination.

Is The Solution More Blue-Collar Workers?

Unable to get plenty of "blue - collar' workers at low costs Chinese companies have to use hi-degree professionals for simple program writing, which results in irrationally high cost of human resources and restricts the company scale thereby weakening their international price competitiveness.

As a solution China must launch training programs for industry workers as India, Ireland and Israel do to create a "blue-collar class to meet the industry's demand, on top of over 35,000 'white-collar' professionals trained every year. Beida Jade Bird turned out the first domestic enterprise that detected and seized the opportunity.

By cooperating with an Indian computer education company named APTECH it has introduced worker training programs promoted nationwide under APTECH's special permission. The input of numerous "blue-collar' workers into the software industry could help cut developing costs and standardize company management into a factory-like style. This ensures a stable and sustainable development for these companies since they no longer rely heavily on any individual program writers. Without plenty of workers at grassroots level and currently relying only on a handful people's capabilities, companies will never be able to develop large-scale software. Some worry that introduction of "blue-collar' workers would lower the general technological level of China's software industry. However, a small number of people could never put out really competitive products no matter how talented they are, Experts say Chinese software companies are quite weak in international competition therefore not suitable for high-risk, high-return and heavily funded projects. In the current "transitonal period" most software is still labor-intensive and 'blue-collar 'workers would remain as a mainstay for the industry for the foreseen future.

Li Heng, Peoples Daily