CCID Consulting's data show that the growth rate of China's IT services market slowed down compared to that of 2005, even though it has increased 17.8% over 2005 and has reached a size of 59.5 billion Yuan in 2006. According to statistics, lower growth in system integration services was the key factor that pulled down the growth of the whole IT services market, as system integration at present accounts for nearly 30 percent of China's overall IT services market. Slowing down of integration growth signaled a major change in China's IT services market, indicating that the information society had gradually leapt from the procurement and use of basic systems to software and service applications, as China's IT services market began to enter a stage of structural adjustment since 2006. Jian Cang, an analyst of CCID Consulting, indicates the structural adjustment trends as follows:
1. System Integration Growth Slowed down with Gradual Increase in Outsourcing Activities
In terms of specific sectors, the IT consulting market benefited from various IT consulting projects of the telecommunication industry and the government and marked an increase of more than 20% over last year. For system integration services, some companies saw a negative growth over last year. However, under the effect of the Beijing 2008 Olympics project, the system integration market managed to maintain a momentum of high-speed growth and snapped the biggest share of the IT services market. With the growing popularity of human resources outsourcing, the operational procedure outsourcing market became the sector that grew fastest. The IT system outsourcing market also grew rapidly. At the same time, the fast growing sectors led to an over-20% growth rate of the IT technical services market, while the support and maintenance market continued to grow steadily.
2. Government Services Skyrocketed, Small Enterprise Market to be Nurtured and Market Structure Remained Stable
With the implementation of government projects, in some provinces and cities, IT services market for the government grew at the highest rate in the vertical markets. IT services market for large enterprises maintained a relatively high growth rate over last year and will remain the biggest sector of the vertical markets. By comparison, the services market for small enterprises grew relatively slowly and remained in the nurturing stage. In the parallel markets, projects such as 3G construction, customer support system, network management and security management in the telecommunication industry contributed to relatively rapid growth of IT services and the scope of this sector remained in the second place of industry markets. The IT services market in the finance industry kept a steady growth momentum over last year and was expected to continue to hold the largest share of the industry. IT services in the manufacturing industry grew most quickly thanks to the high demands of multinational manufacturing enterprises. Although services in the energy and circulation industries grew relatively slowly compared with other key industries, they marked a growth rate of around 15%, which indicated the robust growing demands for IT services in key industries.
3. Big International Companies Enjoyed Distinctive Advantages in Comprehensive Services, Domestic Companies Such as Digital China and Neusoft Kept their own Sphere of Industries
Among IT services providers, while IBM held the largest market share with its capacity of comprehensive IT services, other major providers like HP, Digital China, and Accenture continued their leadership position in their strongest areas. AsiaInfo achieved a larger market share, due to the fact that it purchased part of the telecommunication services of two companies and received a large number of orders from the telecommunication industry in 2006. Neusoft also had bigger market shares because of the rapid growth of its outsourcing services.
The structural adjustment in 2006 will continue in 2007 and the next few years. The trends in different sectors are as follows:
4. Ever-Greater Reliance of System Integration Projects on Consultation Promoted High Growth of IT Consultation
As customers' interests diversified and demands rapidly shifting, and as more attention is paid to their self-services and IT systems, system integration will tend to reply more and more on IT consultation. Meanwhile, greater awareness of the strategic importance of IT outsourcing enhances the position of IT consultation as more and more enterprises value these services. Consequently, IT consulting will continue to grow relatively rapidly in 2007.
5. Training and Education Market Tend to Involve Less Fields, but Demands Remain High and the Market Will Continue to Grow Steadily
The IT training and education market development has neither heated nor slowed in the last two years, but this was not a problem of demands. As a matter of fact, the rise of the IT training and education in China was subsequent to the fact that post-secondary IT education was not in line with the market. With the relative lagging behind of post-secondary IT education some years ago, there will not be a great many new employees and even students still in school enrolled in off-campus training. While vocational schools, software schools and other post-secondary educational institutions that even more highly target IT education were heavily launched in the past two years, and IT companies also directly collaborated with institutions of higher learning in IT education. Both were blows to the off-campus training market. However, due to immense demands and the inherent feature of information technologies to keep learning, IT education and training still shows growing potential in vocational training. It is forecast that the IT education and training market will maintain a growth of around 20% in 2007 and demand will increase in training game and software outsourcing experts.
6. Multiple Factors Promoted Outsourcing, Offshore Services Grew Fast, Domestic Demand will Take More Time Before Explosion and Expert Supply Will Also Restrict Market Development
Outsourcing was a highlight of China's IT services market in 2006. The government-sponsored BPO basis was launched, and as a result, the market responded positively and services providers were gathering. It seems that everything was ready. However, the biggest difference between the resources needed by manufacturing bases and plants and IT outsourcing is that the latter require much more highly qualified personnel than the previous. How to locate qualified personnel in a relatively short time is the most essential bottleneck of IT outsourcing development in China right now. This problem is expected to become even more pronounced in 2007, therefore the growth of outsourcing is not very likely to explode, but steady and rapid growth of over 25% is foreseen.
7. Customer Support and Maintenance Will Continue to Lean Towards Software
The focus of customer support and maintenance leaned more and more towards software since 2006. Hardware services declined by 2.4 percentage point in the overall support and maintenance services in 2006 over 2005, and the trend that will proceed and may even further in 2007. Software intellectual property rights protection procedure will also considerably affect the development of maintenance services. As a result, the growth of this sector will be fast but restricted.
8. Small and Medium-Sized Businesses (SMB) Will Become the Main Clients of Future IT Services
SMBs demand just as many IT services as large enterprises, but their structure and features of demands resulted in a relatively low level for IT services in the past ten-odd years. This situation will greatly change in the next few years. First, IT services providers will have to transfer the focus of growth to SMBs and actively explore the opportunities of serving them, because large enterprises become more cautious of spending, the competitive pattern among large companies already tend to become stable, and revenue growth with them slows down. Second, the diverse service modes, open-source software development, and the promotion of standard services and service products will expand the profit potential of serving SMBs and services providers will consequently invest more in services targeted at SMBs. Last but not least, lower costs and better understanding of SMBs of the relation between their competitiveness and the IT system will make them more willing than before to invest in IT and increase demands for IT services. So for a number of years in the future SMBs will demand rapidly increasing IT services, and fighting to win over SMBs will gradually become the focus of competition among IT services providers.
