by CBfeature
To safeguard the future of UFIDA, the group's chairman and president, Wang Wenjing, resorted to a secret weapon last year. His company renovated rented space on a floor in the Huasheng Building, located in Beijing's Shangdi Hi-tech Industrial Zone. It quickly became a round-the-clock home for UFIDA's U9 development team, made up of several hundred engineers. "Competition with international suppliers will come sooner or later, but the competence of local suppliers is not as it used to be," says a confident Wang. "Our management software differs greatly from the purely technique such as operating system, database and middleware products on the market. We concentrate more on the demand for localization and service quality." He infers an innovative way of development for UFIDA.
Although Wang avoids revealing more details about U9, it's certain that U9 fully supports internet applications, which is actually the trend of the global software industry. Software application programs are evolving in an internet age, and enterprises in the future will all increasingly access key applications via the Web. According to technical leaders, all jobs in the future, ranging anywhere from customer relationship management to distributor coordination, could be handled via internet services instead of by traditional software programs. This change in business practice could also trigger new changes in IT applications and deployment, which would make it essential for license-dependent software companies to constantly update services and adjust their profit base accordingly. To some enterprises, such changes signal impending crises, while to others, they offer exciting opportunities.
As a matter of fact, the existing economic structure and business model of the software industry has already encountered challenges. The number of profit-making manufacturers in the software industry has been dwindling over the past several years, boosting profits at the world's three software giants - Microsoft, IMB and Oracle. The "big three" now account for 80% of the whole industry. A former executive of Oracle indicated at the SOFT 2006 Annual Meeting that the present development pattern of the software industry was unsustainable, and the need for software enterprises to find new forms of development was pressing. Some software firms need to figure out brand-new, user-oriented design methodologies in their innovation processes, instead of simply modifying those existing enterprise application programs based on old frameworks. Only by doing so can their products be optimized in performance and utility, so to satisfy the needs of demanding users and an ever-changing environment.
Not long ago, two major Chinese management software suppliers, UFIDA and Kingdee, released their respective accounting reports of 2005. UFIDA realized an expected RMB1 billion (US$125 million) in sales volume, while Kingdee saw a 19% increase in turnover and a 40% jump in net profit. But in terms of overall strength, the two groups' recent success pales in comparison to that of international rivals. Therefore it might not be advisable for them to try their luck on the international stage, at least not for the next five years. They should learn from the lessons of their foreign counterparts before making a major move.
Technical leaders anticipate that all work in the future, from customer relationship management to distributor coordination, will be handled through internet services instead of traditional software programs.
"Everything is changing, from the customer profiles of software suppliers to the motivations affecting the design methodologies of developers. Problems that previously could be solved just by software now must be solved by software combined with internet services", says Ray Ozzie, Microsoft's CTO. With its grass-root diffusion model and a high cost/performance users' experience, this massive tide of booming software services around the corner might either expedite the emergence of a number of new large enterprises, or smash some former software sharks. Therefore the latest developments in the global management software industry and the changing focus towards Service-Oriented Architect (SOA) are good news for Chinese management-software suppliers.
The Chinese market has become a coveted cake for the global software industry, where legions of international competitors vie with each other in layout schemes and strength accumulation. As a result, local SMEs of software suppliers are losing ground and facing mounting pressure.
On March 7, Oracle China declared it was tapping the SME market in China with unprecedented force, planning to expand its business to 26 medium-sized Chinese cities and invite more local partners. "The SME business is critical to the growth of Oracle China," says Li Hanzhang, Oracle China's North Region General Manager. He believes Chinese SMEs are transforming from a labor-intensive to an automation-focused management mode, incorporating upgraded productivity and lower costs via information technology. Herein lies a huge window of opportunity for Oracle.
Only two weeks after Oracle's announcement, SAP, the world largest management software supplier, unveiled SAP Labs China in Zhangjiang Hi-Tech Park, Shanghai. With a US$20 million investment, this institute will have housed 1,500 employees by 2008. It will specialize in developing solutions for SMEs. During the unveiling ceremony, SAP Executive Board member Claus Heinrich said his group's main aspiration for the SME market would be bringing R&D closer to the customers and the market.
However, a fact that Heinrich concealed was that he had come to China with several other colleagues from Germany. Besides Shanghai, they visited Southwest China's Chengdu City, where SAP was to launch another new research institute. "Most of the world's 'Top 500' companies are our loyal customers, and we will maintain stable growth in this top-end market. But to reach our next expansion objective, SME-oriented development will be a must," remarks Rui Xianglin, head of SAP Labs China.
It seems to be a case of "survival of the fittest": to adjust themselves to the new changes as soon as possible, domestic management software companies have to make the best of their natural advantages. In Shanghai, the center of the Yangtze Delta and the most active economic zone in China, UFIDA unveiled an advanced software application research center in April. The center's general manager, Professor Yang Baogang, says that, by learning from the best practices of domestic and foreign enterprises, UFIDA will design a series of advanced application models and management guideline systems for local enterprises.
Meanwhile, Kingdee is intensifying its investment in network and mobile commerce. Xu Shaochun, the group's chairman and CEO, notes, "The trend of software as a service in China should be closely linked to local applications." Quite noticeably, exploration relating to new business models is changing the approach of many small software companies in China.
Beijing Emay Softcom Technology Ltd., a company that develops mobile commercial software, combines SMS and enterprise applications. It has pinpointed profitable opportunities in three fields: selling mobile commercial software to customers; charging for communication services and sharing profits with mobile communication operators as an SMS provider; and offering a variety of features such as mobile real name, mobile searches and mobile payment. This different business model has attracted attention from risk investors, such as IDG, which has invested over US$10 million in two rounds within one year. Until now, Emay has developed its customers to around 30,000 corporations, such as Mengniu, HP, L'oreal and other top domestic and foreign firms.
In view of the present situation, Chinese software suppliers could not yet become menacing rivals to global software giants. "I think it possible that Kingdee or UFIDA could seize current opportunities to leapfrog into the application of a new generation of technology on a new platform, and eventually reach international levels of competition. Either of them could be an Oracle, IBM or Microsoft," remarked Xia Jiaxi, Member of SAP Executive Board and SAP's CTO, during a recent interview in Shanghai.
SAP COO Leo Apotheker made a similar comment in an interview with Reuters in Paris, saying that a "more threatening rival" would rise from within China over the next five years. Meanwhile, he listed Oracle as his group's largest future rival.
Although such comments do not offer any substantial help to management software providers in China, they are testimony to the potentially explosive power of latecomers. Judging from various factors, a great opportunity is beckoning for Chinese software suppliers, which could be grasped either by UFIDA, Kingdee, Inspur, Neusoft or other existing software companies. But it's also not too late for a rank outsider to come in and steal the show.