Market Research Report : Software market in china 2014 - Sample

Software Market – China

October 2014

2 SOFTWARE MARKET IN CHINA 2014.PPT

Executive Summary

Market

Drivers and Challenges

Competition

Software market in China was valued at USD xx bn in 2013 and is projected to grow at a CAGR of y% between 20–

to 20--

Eastern region of China earned USD xx bn, accounting for z% of the total software revenue in China in 20--

Government Initiatives

Government Measures to Cut Software Piracy

Lower Duties and Tariffs

Standards and Regulations

Drivers:

- Increase in R&D Activities

- Large Internet and Mobile Phone User Base

- Increased Adoption of E-commerce

- Rise in Income

- Largely Untapped Rural Market

- Strong Education and Training

Trends Increasing Importance of Cloud Computing

Rapid Growth of Smartphones and Apps

Challenges:

- Language Barrier

- Loss Due To Software Piracy

- Lack of Intellectual Property Rights Protection

- High Costs of Entry

Beijing’s 12th Five Year Plan (2011-2015)

for Software Market

Major National Policies Regarding

Software & IT Service

Increasing Importance of SaaS

Increasing Investment in Software and IT services

Major Domestic Players

Player 1 Player 2 Player 3 Player 4 Player 5 Player 6

Major Foreign Players

Player 1 Player 2 Player 3 Player 4


•Macroeconomic Indicators

•Introduction

•Market Overview

•Software Outsourcing

•Direct Investment Scenario

•Drivers and Challenges

•Government Initiatives

•Trends

•Opportunities

•Competitive Landscape

•Mergers and Acquisitions

•Strategic Recommendation

•Appendix

4

SAMPLE Economic Indicators (1/3)

Current Account Balance

Exchange Rate: Half Yearly

0

USD bn

20--e

f

20--e

e

20--e

d

20--

c

20--

b

20--

a

5/1/14 4/1/14 3/1/14 2/1/14 1/1/14

USD/INR

c

a

b c

a

b

c

a

b

c

a

b

b

a c

Period Low Period High Period Average

SOFTWARE MARKET IN CHINA 2014.PPT


Software Industry - Definition

Organizations engaged in sales of computer software or services related to computer systems

Software Industry

Data for ISIC Rev.3 division 72, which includes activities related to the design, setup,

operation and maintenance of computer systems and networks, as well as custom

software development and software publishing

OECD Statistics

Takes its point of departure in the products and markets, and thus include packaged software,

custom software, and computer-related services such as system design, maintenance

Private Sources of Statistics

Software that handles different request for

using the hardware, many housekeeping work,

storage of data and other tasks

Software that handles a specific task and are

developed to fulfill specific requirement of the

user

Major Types of Software

System Software Application Software

Note: OECD refers to Organization for Economic Cooperation and Development and ISIC Rev.3 refers to International Standard Industrial Classification of All Economic Activities Revision 3

6

SAMPLE China’s software industry is not only highly promoted, but also a heavily regulated sector


State Council

National Development and Reform Commission

Ministry of Industry and Information Technology

Ministry of Science and Technology

General Administratio

n of Press and Publication

Ministry of Finance

Ministry of Commerce

National Development and Reform Commission

• Text

Ministry of Industry and Information Technology

• Text

7

SAMPLE managed by several government authorities at both the macro and micro levels


Ministry of Science and Technology

• Text

General Administration of Press and Publication

• Text

Ministry of Finance

• Text

Ministry of Commerce

• Text

8

SAMPLE


Remarkable annual growth rate and demand from a wide range of industries has boosted software market in China

• By the end of 20--, it is estimated that the Chinese software market will generate revenues worth about USD xx bn

• In the year 20--, the top 10 players accounted for almost y% of the total revenue generated in the market

• The rapid development is on account of the initiatives by the government and growing demand from software users

Demands for ERP, CRM and accounting software has significantly increased post their adoption and usage by SMBs

• Promotion of cloud computing by domestic and foreign players along with major government support accelerated the

growth of the software market

Strong adoption of cloud or subscription based services by enterprises and increased usage of cloud based software and platforms are

driving the software market

0

USD bn

20--e 20--e

e

20--e

d

20--e

c

20--

b

20--

a

X% f

China Software Market Overview

Software Market Size & Growth - China Software Market Revenue Composition – China

2013 2014*

f%

e%

d% c%

b%

a%

Segment 6

Segment 5

Segment 4

Segment 3

Segment 2

Segment 1

f%

e%

d% c%

b%

a%

9

SAMPLE


• China is the world’s fourth largest information technology (IT) market by spend after the US, Japan and Germany

• In the first four months of 2014, software products and information system integrated services generated most of the software revenue

followed by data processing and operating services

Segment - wise Software Revenue

Software Products

System Integrated

Services

Embedded System Software

Software Segments

IC Design IT Consulting

Services

Data Processing and Operating

Services

0

USD bn

d

c

Segment 3 Segment 6

f

Segment 5

e

Segment 4

b

Segment 2 Segment 1

a

Revenue Composition – China Software Market (Jan – Apr 2014)

Software sub-sectors in China are expected to be the areas of highest growth presenting attractive opportunities

10

SAMPLE


East China is a major growth pole for future software development

• Beijing and Shanghai located in the eastern region are the two main hotspots of the software industry

• By region, revenue from the eastern area of China was USD x bn, accounting for y% of the total software revenue in

China in 20--

• By Nov, 2013, the software revenue in region1 grew rapidly, with an increase of x% y-o-y, while that in Region 2 climbed

at a slower pace with z% y-o-y growth rate

Region - wise Software Revenue

Region 3

b d

Region 2

c

Region 1

a USD bn

Region 4

Revenue Composition – China Software Market (Jan – Dec 2013)

11

SAMPLE Imported software product registration guidelines (1/2)


• According to the Administrative Measures for Software Products, the term “software product” refers to the

computer software, or software embedded in the information system or equipment, or accompanying computer

software being utilized when technical services such as computer information system integration or application

service are offered

• “Imported software” refers to software products developed outside of China, but are produced or under business

operation in various forms within China

Text

GUIDELINES

Text

12

SAMPLE


• Text

Text

• Text

Imported software product registration guidelines (2/2)

13

SAMPLE Import and Export of software products - Do’s and Don’ts


According to relevant Chinese regulations, the development, production, sale and import/export activities of any software product must not • infringe on the IPR of others • contain computer viruses • cause harm to computer system security • fail to meet China’s software regulation standards • contain contents prohibited by law and administrative regulations

• Text

14

SAMPLE China is fast emerging as a major global software outsourcing destination

• Text

China’s Strategic outsourcing locations


15

SAMPLE


• China’s rising importance in the global outsourcing market is evident

• China is rapidly emerging from the competitive software outsourcing industry as one of the world's leading suppliers of software outsourcing services

Emphasis on ISO standard compliances, creating incentives and building a robust infrastructure along with a proper process orientation will help China emerge as a prominent outsourcing destination and

will soon enable it to compete with India and Japan in the global arena

0

+X%

Period 2

b

Period 1

a

USD bn

Exports – Outsourcing Services

0.0

Period 2

+Y% b

Period 1

a

USD bn

Outsourcing Services

Despite being faced with challenges the development of the China’s outsourcing market cannot be overlooked

16

SAMPLE Software Parks in China (1/5)


Xi'an Software Park

It is located within the Xi’an High-tech Industries

Development Zone, a special economic

development area

Set up in 1998 to promote and develop software and service outsourcing industries

Spread over an area of 7 square kilometers, it has been engaged in the cultivation of high tech environment and infrastructure construction

The parks‘ main activity is to bring the national preferential policies to the member companies and absorb global investors

In 2009 total revenue of the park from software and

information service outsourcing industry

reached USD 4.669 bn with 41% y-o-y growth

The total export earnings reached US$ 154 mn, marking year-on-year growth of 36% in 2009

In 2009, the total number of enterprises were

increased to 870 and the total number of employees

to 82,000

The Xi'an Hi-tech Zone Software Industrial Supporting Policies

• House rent subsidy • Personal income tax subsidy • Market exploration reward • Export reward • Telecommunications data reward • Corporate merger reward • High-end talent finding reward • The best employee reward • New staff's internal training reward • Intern reward • Corporate capability certification reward • Corporate loan discount reward


Direct Investments – Player 1

X%

Total Investments – Sector-wise IT Investments – Geography-wise

Sector

IT Investments – Segment-wise

0% 20% 10% 50% 60% 30% 40% 80% 90% 70% 100%

100

A%

B%

Region 2

Region 1

Segment

Investment Snapshot

• The company has invested in the IT sector only

A total of 4 investments were made in the x sector

• Maximum number of investments were seen in the region 1

SAMPLE


Drivers & Challenges – Summary

Drivers

Increase in R&D Activities

Large Internet and Mobile Phone User Base

Increased Adoption of E-commerce

Rise in Income

Largely Untapped Rural Market

Strong Education and Training

Challenges

Language Barrier

Loss Due to Software Piracy

Lack of Intellectual Property Rights Protection

High Costs of Entry

19

SAMPLE


• In 20--, software and IT services industry R&D expenditures was USD x bn an increase of x% from the previous year

• R&D investment ratio (R&D expenditure as a percentage proportion of main business income) was more than y%

• China’s investment in R&D as a percentage of its GDP shows a strong and steady growth and if the growth rate remains consistent China will surpass the United States by the next decade

• China’s 12th Five Year Plan (2011-2015) targets R&D spending at 2.2% of GDP by 2015

Increase in R&D Activities (1/2)

Increase in China’s R&D expenditure on software has Paved the way for the country to become a

Major Software R&D Centers in China

Impact

A

B

C

D

Note: The list is not exhaustive

Major companies with their R&D centers in China

20

SAMPLE


Improving condition of e-commerce will boost further growth in China’s software market

Increased Adoption of E-commerce Impact

0

2015e

d

2014e

c

2013

b

2012

a

No of buyers bn +x%

No of online buyers

• China is expected to become the world’s largest e-commerce market surpassing the US

More than x mn Internet users in 2013 and y mn online shoppers in 2013

In 2010, x% of China’s urban population shopped online, which is to become y% in 2015

• Growth in e-commerce market is one of the key factor that will drive growth in software market

Chinese shoppers spent around USD x bn on online shopping in 2012

By June, 2013, China e-commerce transaction reached USD y bn

Around x mn people work in e-commerce enterprises

• Mobile e-commerce market has also witnessed a high growth rate

Increasing smartphones and tablets are fuelling the growth of the mobile e-commerce market

0.0

Jan-Jun 2013

b

Jan- Jun 2012

a

+y%

USD bn

B2B revenue

21

SAMPLE


Language barrier is the key challenge for bringing software …

• For companies trying to enter Chinese market, the biggest challenge is the language barrier

China’s large market attracts different customers from diverse backgrounds and cultures, many of whom do

not read or speak Chinese, leading to serious negotiation problems

In China, all verbal and written communications would need to be in Mandarin, which would further be

complicated by thousands of local dialects

– Capturing pertinent data in systems presents a challenge even if these problems were solved

• Language barrier hinders software exports, since communication is a critical component of

software development

• Language barrier affects e-commerce as it hinges on language too, thus indirectly affecting

software market

Language Barrier (1/2) Impact

Foreign Perspective

22

SAMPLE


Software piracy is hampering the growth of e-commerce market

• China’s estimated software piracy rate remains excessively high despite some progress in recent

years and the overall value of stolen software has increased with the growth in Chinese software

market

The proportion of China’s personal computers with pirated software installed was 77 percent in 2011

‘BRIC’ economies of Brazil, Russia, India and China are home to rampant piracy inspite of being the world’s

fastest-growing technology markets

• In China, almost four out of five programs in use are pirated

Piracy poses a problem for companies such as Microsoft Corp. (MSFT), the biggest software maker, as PC sales

growth is fastest in countries that have high rates of software theft

A company could lose USD 114 bn yearly if its IT system crashes because of pirated software

Loss Due to Software Piracy Impact

Chinese private enterprises, state-owned enterprises and government agencies continue to use pirated software

The commercial value of unlicensed software in China was $8.9 billion in 2011

• The lack of criminal remedies against this form of software piracy

• Ineffective civil • enforcement procedures

• Inadequate administrative

enforcement

23

SAMPLE


Government initiatives have contributed to the recent drop in piracy rate, still there is scope for further development

• Bilateral negotiations with the US through the Joint Commission on Commerce and Trade (JCCT) includes the following commitments Ensuring the use of legal software in government agencies and state-owned and other enterprises

Requiring pre-loading of legal operating system software on computers produced or imported into China

Delaying indefinitely the implementation of certain discriminatory government procurement regulations

• During the 2007-2010, Chinese government has spent USD 169.84 mn on purchasing copyrighted software

• In 2011, central and local government computers were investigated by teams of inspectors to ensure that all

the departments are using authorized software and inspections of software pre-installation on computers sold

in the country are stepped up

135 central government departments, including all ministries, completed installing licensed software at a cost of more

than USD 22 mn in May 2011

• Copyrighted software has already been installed in central government departments, and it was popularized

among local authorities in 2012

• The government's frequent campaigns against IPR infringement helped create a sound business environment

and greatly boosted the development of the country's software industry

• By the end of 2013, most of the Chinese government departments have started to use licensed software in

the latest move to IPR rights and to provide business opportunities for software providers

Government Measures to Cut Software Piracy

24

Summary – Trends

Increasing investment in Software and IT Services

Increasing importance of SaaS

Increasing importance of cloud computing

Rapid growth of Smartphone devices and Apps

Trends


25

SAMPLE


Increasing importance of cloud computing (1/2)

Prioritization of cloud computing by the Chinese government has caused the market to boom in China

Government Initiatives and Investments

Strategic Partnerships in Investment by Foreign Players

Promising National Policy

Chinese government will invest USD 1 bn to drive cloud computing deployment in China over the next few years and has set up several projects for the development of key domestic cloud computing hubs

Strategic partnerships among domestic vendors like 21Vianet and Microsoft and investments' made by foreign players including IBM and HP are driving the cloud market in China

The 12th 5 year plan has recognized the need of cloud computing and has formulated policies that support the cloud business

NDRC has established a Cloud Computing Special Fund with an initial investment of USD 101.54 mn in 15 pilot

projects in Beijing, Hangzhou, Shanghai, Shenzhen, and Wuxi to launch the initial development and

innovation for cloud computing under supervision of MIIT as of Oct 2011

Investment in new cloud computing projects in China are on the rise

26

SAMPLE


Though software piracy issue shadows the country, still it’s a huge market and provides sales opportunities

Opportunity in IT Consultancy and Outsourcing Sector

Note: ERP refers to Enterprise Resource Planning; CRM refers to Customer Relationship Management

Foreign companies entering with IT systems which are integrated with their operational processes (e.g. ERP and

CRM systems) are implemented in China Need for Service Providers

China’s second and third tier cities with scarce quality

service providers

Potential Source of Opportunity

More foreign companies and organizations

entering China

Setting up their own websites

Good opportunity to web developers for building attractive

and stable websites

By the end of 2015, China will have 350 mn online shoppers

Boost to e-commerce in China

Underdeveloped consultancy services market

Banking and health sectors as they upgrade their systems

More online activities driving demand for compatible software

Opportunity in Web development

27

SAMPLE Porter’s Five Forces Analysis

Competitive Rivalry • Text

Bargaining Power of Buyers • text

Threat of New Entrants Text

Impact High

Impact High

Impact Medium

Bargaining Power of Suppliers • Text

Impact Medium to High

Threat of Substitutes • Text

Impact Low


28

SAMPLE Competitive Benchmarking (1/4)

Trading Comparables (FY 2013)


Player 1 Player 2 Player 3

Market Capitalization (USD mn)

Share Price (USD)

EV/EBITDA (USD)

EV/Revenue (USD)

PE Ratio

29

SAMPLE Key Ratios of Major 3 Companies – Operational Basis (FY 20--) (x/x)

Competitive Benchmarking (x/x)

• xxx

0

2

4

6

8

10xx

Player 3

Player 1

Player 2

xx

xx

Debtors Turnover Ratio

Note: Assuming all sales are credit sales


30

SAMPLE Public: Domestic Company – Player 1 (x/x)

Key People

Products and Services

Company Information Locations – China

Corporate Address

Tel No.

Fax No.

Website

Year of Incorporation

Ticker Symbol

Stock Exchange

Name Designation

Headquarters

Category Products/Services

Software related products


31

SAMPLE Financial Snapshot Key Ratios

Financial Summary

• The company earned a net profit of USD xx mn in FY 20--, as compared to a net profit of USD xx mn in FY 20--

• The company reported total Income of USD xx mn in FY 20--, registering an increase of xx % over FY 20--

• The company earned an operating margin of xx% in FY 20-- an increase of xx percentage points over FY 20--

• The company reported debt to equity ratio of xx in FY 20--, an increase of xx % over FY 20--

Financial Summary

Total Income Net Profit/Loss

c b

b

0 0

a a

y

x

20--

y y

Profit USD mn

x

Total Income USD mn

x

20--

y

x

20-- 20--

Indicators Value (12/05/2014) Market Capitalization (USD mn) xx

Total Enterprise Value (USD mn) xx

EPS (USD) xx

PE Ratio (Absolute) xx

Improved Decline

Particulars y-o-y change

(20--) 20-- 20-- 20-- 20--

Profitability Ratios

Operating Margin

Net Margin

Profit Before Tax Margin

Return on Equity

Return on Capital Employed

Return on Working Capital

Return on Assets

Return on Fixed Assets

Cost Ratios Operating costs (% of Sales)

Administration costs (% of Sales)

Interest costs (% of Sales)

Liquidity Ratios Current Ratio

Cash Ratio

Leverage Ratios Debt to Equity Ratio

Debt to Capital Ratio

Interest Coverage Ratio

Efficiency Ratios Fixed Asset Turnover

Asset Turnover

Current Asset Turnover

Working Capital Turnover

Capital Employed Turnover

Public: Domestic Company – Player 1 (x/x)


32

SAMPLE

A%

B%

0% Z%

Y%

20--

x

Z%

Y%

20--

x

0%

A%

B%

20--

x x

20--

Y% Y%

20--

x

Y%

Industry1 Region 1 Region 2

Key Business Segments Key Geographic Segments

Key Recent Developments

Description News

Overview

Approval

Joint Venture & Cloud news



33

SAMPLE

• Text • Text

• Text

• Text

T O

W S Strength Weakness

Opportunity

Threat



34

SAMPLE

Key People

Products and Services

Company Information Locations – China

Corporate Address

Tel No.

Fax No.

Website

Year of Incorporation

Category Products/Services

Solutions

Services

Product Name Designation

Regional Offices


Private: Foreign Company – Player 2 (x/x)

35

SAMPLE Financial Snapshot Key Ratios

Financial Summary

• The company earned a net profit of USD xx mn in FY 20--, as compared to a net profit of USD xx mn in FY 20--

• The company reported total Income of USD xx mn in FY 20--, registering an increase of xx % over FY 20--

• The company earned an operating margin of xx% in FY 20-- an increase of xx percentage points over FY 20--

• The company reported debt to equity ratio of xx in FY 20--, an increase of xx % over FY 20--

Financial Summary

Total Income Net Profit/Loss

c b

0

b

0

a a

x

y

Total Income USD mn

x

y

Profit USD mn

20--

y

x x

20--

y

20-- 20--

Indicators Value (12/05/2014) Market Capitalization (USD mn) xx

Total Enterprise Value (USD mn) xx

EPS (USD) xx

PE Ratio (Absolute) xx

Improved Decline

Particulars y-o-y change

(20--) 20-- 20-- 20-- 20--

Profitability Ratios

Operating Margin

Net Margin

Profit Before Tax Margin

Return on Equity

Return on Capital Employed

Return on Working Capital

Return on Assets

Return on Fixed Assets

Cost Ratios Operating costs (% of Sales)

Administration costs (% of Sales)

Interest costs (% of Sales)

Liquidity Ratios Current Ratio

Cash Ratio

Leverage Ratios Debt to Equity Ratio

Debt to Capital Ratio

Interest Coverage Ratio

Efficiency Ratios Fixed Asset Turnover

Asset Turnover

Current Asset Turnover

Working Capital Turnover

Capital Employed Turnover



36

SAMPLE

0%

B%

A%

Z%

x

Y%

x

20--

Y%

20--

Z%

A%

0%

B%

x

20--

Y% Y%

20--

x x

Y%

20--

Industry1 Region 1 Region 2

Key Business Segments Key Geographic Segments

Key Recent Developments

Description News

Overview

Approval

Joint Venture & Cloud news



37

SAMPLE

• Text

• Text

• Text • Text

T O

W S Strength Weakness

Opportunity

Threat



38

SAMPLE Mergers and Acquisitions (2011-2014) – (1/6)


Announced Date Closed Date Target Buyer/Investors Sellers Size (USD mn)

39

SAMPLE • Text

1 Text

2 Text

3 Text

Brand Building And Creating Brand Awareness

Text

Strategic Recommendations (2/2)


40

Thank you for the attention

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Market Research Report : Software market in china 2014 - Sample

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Transcript of Market Research Report : Software market in china 2014 - Sample