China leads regional IT growth

China leads its Asia/Pacific neighbours in terms of the growth of its IT market in a way that 'cannot be ignored', says analyst

Business spending on IT in Australia and the Asia Pacific region will remain flat in the coming year, which means if IT companies want to grow they "cannot ignore" China, according to an IDC analyst.

"The amount of money businesses spend on IT as a whole will not grow, but the changes in what is purchased will see growth in some areas," Puni Rajah, vice president for IDC Asia Pacific told ZDNet Australia, saying that the development and deployment of software is becoming cheaper. "There will be a significant growth in the impact of IT, unfortunately most of us measure the market in terms of dollars spent rather than through another metric, such as return on investment."

Rajah said that even though the IT market across the Asia Pacific region would grow at an estimated 2 percent in 2003, it is far less than last year, where the market grew by 5 percent, or 2001, when it grew by 26 percent. "From that height 2 percent (growth) is going to feel like it's contracting," said Rajah.

The 2002 contraction in the mature Japanese IT market and the flat growth in the Australian IT market were offset by the large growth of China's IT market. China's software market exceeded that of Australia/New Zealand for the first time in 2002. China's hardware market exceeded that of Australia/New Zealand two years ago.

China's GDP growth is forecast to be 8 percent in 2003, and the IT sector is expected to grow by 13 percent, meaning it will comprise 4.2 percent of China's GDP.

"If Australia-based IT companies are serious about continuing to grow there's no way they can ignore the Chinese market," said Rajah. "China will continue to grow for a while because there's still a lot of automation that needs to happen."

According to Rajah, the big question is what the best entry strategy into China is. "The business model that seems to work best is to come into China and find a company you can joint venture with," she said. Rajah cited the IBM experience, which has three wholly-owned subsidiaries and seven joint ventures in China.

According to Charles Wu, IBM software group executive for the Greater China region, foreign companies directly invested $52.7bn in China in 2002. This includes opening factories and research facilities as well as fund managers buying shares in Chinese companies. Most of this investment came from outside the Asia Pacific region.

The only Asia Pacific companies investing heavily in China were Japan and Korea, which Rajah estimated comprised between 20-30 percent of foreign investment in China last year.

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