Press Centre

Top 10 Predictions for China's ICT Market in 2009: Crisis and Opportunity

Source: IDC中国  Date: 2009-01-07

Beijing, January 7, 2009--As the U.S. financial crisis has spread worldwide since September 2008, China's economic growth dropped to 9.0% in 3Q08 from 10.6% and 10.1% in 1Q08 and 2Q08, respectively. China's macro-economic policies evolved from aiming to prevent an overheated economy and inflation in early 2008, to striving to strike a delicate growth-inflation balance in mid-2008, to maintaining the stability of the macro-economy and of the financial and capital markets in 3Q08, as well as to finding measures to expand domestic demand for economic growth in November. The adverse impact of the China economy on the IT market began to emerge in 3Q08. 2009 is expected to be an extremely challenging year for both China's economy and China's IT market. Based on the economic development conditions in China and worldwide, IDC lowered expectations for China's ICT market in 2009, adjusting the size of the market by US$3.47 billion from an initial US$74.63 billion to US$71.16 billion, with the growth rate down from 13.5% to 9.1%, while growth for the telecom service market remains the same.

The Chinese government has launched an ambitious investment plan totaling over RMB4 trillion to cope with the economic challenge. The major investment period will be the end of 2008 and the whole 2009. Therefore, huge opportunities are to be expected in the ICT market. Based on current circumstances, IDC has the following 10 expectations for China's ICT market in 2009:

Prediction # 1: The growth rate of China's IT market will fall back in 2009 under the impact of the global financial crisis, but will remain high compared to the rest of the world.

China's economy and IT market will be able to maintain a relatively high growth rate for the following reasons:

1. Unlike Japan and Europe, China's financial industry is not completely integrated into the global market and has thus been spared the severe impact of the financial crisis.
2. There is a large domestic market in China. The newborn population exceeds GDP growth. China's urbanization process will also continue.
3. China's government is well funded and experienced in its efforts against the economic crisis. Government-guided investment exceeding RMB4 trillion over the 2009?C2010 period will help promote visible economic growth. Initial estimates from the National Development and Reform Commission indicate that this investment will account for GDP growth of at least 1% in 2009. IDC predicts that there will be an obvious impetus in the IT market.

Prediction # 2: An era of "software platformization" is dawning, and it is imperative that international and domestic service outsourcing be developed.
Midware platforms and service-oriented architecture (SOA) patterns will provide software enterprises with modern "production lines", raising expectations for dramatic improvements in productivity for software enterprises and in economies of scale. The software as a service (SaaS) pattern will notably lower software usage and maintenance costs, bringing this closer to customers, and particularly intensively in SMEs. IDC's study shows a penetration ratio exceeding 30% in the cost-sensitive manufacturing and retailing industries. In the coming years, China's SaaS market will see a compound annual growth rate (CAGR) exceeding 30%. The popularization of the SaaS pattern will promote the scale dissemination of software products, with Internet enterprises acting as fresh standard-bearers for the popularization of SaaS.

IDC data shows an approximate ratio of 2:8 for current offshore business services to domestic business services, and this is expected to grow to 3:7 by 2011. Service providers that dominate in offshore services will supplement their domestic industrial experience, customer resources, and solution capabilities through acquisitions and partnerships, hoping to find synergies in their international services and rapidly expand their domestic business operations.

Prediction # 3: Growth in the SME IT market will slip, but there are still plenty of opportunities for three such SME sectors.
Due to cost and distribution pressures, total SME IT expenditure will drop in 2009. According to IDC preliminary analysis, the IT cost growth rate for SMEs must be adjusted downward, to 8.5%, from 14.3% before the crisis. The share of the total IT market will be reduced from 30.6% to 29.3%. Total SME IT market size in 2009 will be US$22.96 billion.

Despite a certain slowdown in the SME IT market, there remain plentiful opportunities for the following three SME types:
1. SMEs involved in service outsourcing and service outsourcing training, located in China's 20 service outsourcing cities (Beijing, Shanghai, Dalian, Guangzhou, Shenzhen, Chengdu, Xi'an, Nanjing, Hangzhou, Tianjin, Suzhou, Jinan, Qingdao, Wuxi, Changsha, Nanchang, Chongqing, Ha'erbin, Hefei, and Daqing).
2. Internet businesses that are emerging or gaining momentum.
3. SMEs related to industries which are investment targets for the government's RMB4 trillion stimulus plan, such as the communications, education, and medical industries.

Prediction # 4. The transformation of channels and manufacturing is linked to the context of the crisis.
1. Channel Focus on Adding Value.
Service coverage can be extended through channels. To secure a certain profit margin, package sales that incorporate products and total solutions will replace the current pattern of selling individual products.
2. Channel Re-Flattening to Gravitate to Rationalization.
3. Change of Manufacturers' Channel Management from Broad-Range to a More Focused Style.
4. Cooperation Between Manufacturers and Channels to Lean Toward a Win-Win Basis and More Long-Term Commitment Oriented.

Prediction # 5. Telecom restructuring will provide powerful momentum for investment and create huge opportunities for equipment manufacturers.
Once 3G licenses are issued, three major telecom operators will begin wide-scale network construction in 2009. The three telecom operators will also invest in the construction of core networks, transmission networks, broadband access networks, operational support system (OSS)/business support system (BSS) and other networks/systems.

The investment momentum of the telecom operators is creating huge opportunities for equipment manufacturers. We should however also expect competition of unprecedented ferocity between equipment manufacturers. Every equipment manufacturer will have to make a tough decision between short-term sales and long-term strategy.

Prediction # 6. The optimization of IT resource management will create a "Super Sunday" for the construction of next-generation datacenters.
With the continuous development of information technology, datacenters are playing an ever more important role in business operations. Next-generation datacenters, which feature higher construction efficiency, lower costs, and faster response rates, will become a major focus in domestic enterprises' IT development. Improvements to datacenter operational efficiency have therefore focused on a series of IT resource configuration optimizations and management technologies and concepts such as virtualization technology, cloud computing, and Green IT.

Prediction # 7. Diversified products enable an enhanced user experience and provide a powerful momentum to the consumer market.
As time passes, China's personal IT product consumers are becoming younger. IDC believes that the young generation will further shape the characteristics of products on China's personal IT market. Simple desktop PCs, laptops, cell phones, and printers are far from satisfying today's personal consumer applications and personality demands. As personal IT consumer products become even cheaper, 2009 will see the fast-paced introduction of a wide range of products. For example, mini-notebooks, all-in-one PCs, mini-chassis PCs and mimic cell phones may become market highlights and drive the personal IT consumer market.

Prediction # 8. Next-generation customer contact centers are increasing amidst the financial crisis.
Technical factors and the increasing number of information technology consumers have been stimulating the rise of next-generation customer contact centers, in which Web 2.0 is used to ensure efficient management of customer interactions. IDC predicts that, in 2009, enterprises will accelerate their implementation of Web 2.0 technology in pursuit of greater, more efficient customer contact methods.

Prediction # 9. Mobile Internet will become fully operational in 2009.
The 3G networks and the strong push by operators, the expansion of the smartphone market and the wide-scale application of mobile widgets will become the three major forces shifting China's mobile internet into the fast lane. As a result, IDC predicts that internet data applications represented by mobile TV, mobile multimedia, mobile positioning, mobile social networking service (SNS), and mobile online gaming will overtake traditional services in 2009 and become a new growth point for China's mobile industry.

Prediction # 10. "iTrust" China-made — a governmental supervision and management system will be established in 2009, supported by information technology.
In 2009, China's government will continue its efforts to strengthen China-made product quality management, and step up funding for a supervision system that is based on a standard database covering major products nationwide. A large-scale network that safeguards the quality and safety of China-made products will soon be with us. Obviously, database vendors, server vendors, terminal vendors, network vendors and telecom operators will all make their respective contributions to the construction of such an electronic product supervision system.