China biz software sector to be Asia's largest

The enterprise software market in China is set to emerge as the sector's largest market in the Asia-Pacific region, reaching US$9.4 billion by 2012, said Springboard Research.

In a report released Thursday, the research firm said the Chinese market will grow at a compound annual growth rate (CAGR) of 18 percent.

The study identified the high-growth software-as-a-service (SaaS) market, rapidly expanding open source adoption and cultural acceptance of software piracy as some key characteristics of the Chinese software market.

Michael Barnes, vice president of software research at Springboard, said the enterprise software growth is driven by a combination of strong, on-going economic growth and a relatively low software adoption rate.

While existing software investments are concentrated in local offices of foreign companies and internationally-focused Chinese companies, the market is expanding to other sectors, led by banking and state-owned enterprises, Barnes added in the report.

According to the study, system and infrastructure software represented nearly two-thirds of the market in 2008, while application software took the remaining share.

Comparing China with more mature IT markets in the region, Barnes noted infrastructure software spending represents a larger portion of total software spending in the country. However, this gap in spending will close as projects and budgets there shift from system and infrastructure, towards enterprise application-focused projects, he added.

Supply chain management (SCM) and content and collaboration are the fastest growing segments in the application software category, while middleware and security software lead the system and infrastructure category, the study reported.

The application market is still rather small in China. However, Barnes said with its small installed base, Springboard expects growth rates across most categories such as enterprise resource planning (ERP), SCM and customer relationship management (CRM), to "far outpace" regional averages for the next three to four years.

Global vendors need to pay attention to the enormous disparities that exist among Chinese businesses in terms of IT resources, process sophistication and technology adoption Springboard said, adding that these disparities often pose a risk to large-scale software project success.

Bryan Wang, research director and Springboard's China country manager, said for software vendors, a local, direct presence is often critical to growth in the Chinese enterprise software market.

"Given the language and cultural issues, as well as expectations over localized products and localized support and services, operating in China via an indirect model is extremely challenging," he added.

Based in Singapore, Konrad Foo is an intern with ZDNet Asia.