Following the revelations about the snooping activities of the US National Security Agency, China has been adopting a harsh stance on technology products from the US. Among other things, authorities have banned Microsoft’s Windows 8 from use in government offices, citing potential security threats.
In the past week, rumors have been swirling that there are some security problems with regard to the products of US information security solutions provider Symantec Corp. The Chinese government has reportedly ordered all its public security offices not to purchase Symantec products.
Given the security concerns, authorities have turned to application software developed by local software companies. But all these initiatives have yet to lift the domestic industry, with many software players still struggling.
According to the China Securities Journal, seven out of 13 Chinese software companies that have announced worse-than-forecast half-year resultsas of last Wednesday have posted losses.
Shi Shuicai, a general manager at Beijing TRS Information Technology, has admitted that the quality of locally developed application software lags international standards. Private enterprises therefore tend to prefer foreign brands, he said, also noting that intense competition is driving down margins in the industry.
Low profitability means many local software houses cannot pay attractive salaries to lure top talent. Shi said most fresh graduates are not interested in joining the industry nowadays. They would rather work for internet firms which could easily pay their staff three to four times more than the software firms.
Diao Zhizhong, managing director of Glodon Software, told the Journal that the business model of the software industry has to change in order to break the bottleneck.
In the software food chain, platforms that sell all kinds of software, such as those of Baidu and Tencent, are most profitable. Product developers like Glodon Software, on the other hand, get much thinner margins.
Small and medium-sized software developers should band together to form some sort of alliance in order to create a powerful sales channel that can take on those of the internet titans.
As the industry struggles, consolidation moves may intensify among software developers. Statistics show that M&A deals in the sector topped 250 billion yuan last year, a lot higher than that seen in the previous two years.
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