by Noriko Takezaki

Once, if you had suggested to Japan's corporate leaders that China could soon be a powerful player in the information technology (IT) field, your prediction would have been met with polite but unbelieving smiles. The situation has changed, however, and Japan is beginning to realize that it can no longer afford to disregard China's potential in the global IT business.

Cognizant of the recent dramatic progress in China's technological level, several Japanese firms have begun to rely on Chinese computer engineers for assistance in developing software for the Japanese market. Most Japanese managers, however, still lack the foresight to develop a comprehensive strategy for offshore software development.

Solid IT growth
The Chinese IT industry, and especially China's PC market, has grown enormously in recent years. In 1996, some 2.1 million PCs were shipped, according to statistics compiled by China's Center of Computer and Microelectronics Industry Development (CCID). This was an 83% increase from the previous year, and that range of growth continues. Predictions are that the total number of PCs shipped in China this year will exceed 8 million units, rivaling shipments in the Japanese market.

China's software market, too, has been growing steadily. It is expected to reach $600 million this year, up over 40% from the previous year, according to Dataquest.

Academic and corporate use of the Internet has been expanding in China as well; there are now about 100 ISPs (Internet service providers) nationwide. In 1997, according to CCID data, the China Education and Research Network (CERNet), ChinaNET, Chinese Academy of Sciences Network (CSTNET), and China Golden Bridge Network (ChinaGBN), had 60,000, 30,000, 16,000, and 2,000 users, respectively.

So, how do Japanese IT firms regard China's potential? "Most Japanese have underestimated the power of the Chinese in computer technology," admits Hiroshi Sasaki, chief research fellow at Nikkei Research Institute of Industry and Markets (Nikkei RIM), who earlier this year compiled a research report on China's PC and Internet markets. "This was a big mistake by management in Japanese computer companies; they failed to gain a firm foothold in the Chinese market, and at the right time." "It is obvious," he continues, "that Japanese companies need help from computer engineers outside Japan -- especially with the Year 2000 issue at hand. Japanese corporations will have to rely more and more on Chinese software engineers in the near future, but many of them still don't have a concrete idea about how to proceed with offshore development of software."

Different countries, different cultures
Japanese companies that have launched joint software development in China include Alps Electric, CSK, Fujitsu, NEC, NTT Data, and Omron. The software work they are assigning to their Chinese partners ranges from simple data input tasks to complex C language module development. Advanced development remains mostly in the trial stage, however. According to a survey by PC World China, in 1996 the most popular software development languages in China were C (50%), C++ (19%), and Pascal (10%) for the DOS environment, and C (53%), C++ (22%), and Visual Basic (19%) for Windows.

The main reason that many Japanese companies have entrusted software projects to Chinese developers is financial: the opportunity to reduce the engineering cost of software development. The cost for data input work in China, for example, is one-fifth or less that in Japan. Most of the Japanese companies that have focused solely on the use of the inexpensive labor force in China, however, have ended up with unsatisfactory results.

To ensure successful software development in China, says Jian Lee, executive vice president at Sun Japan, "the Japanese have to consider the difference between the two countries in terms of business customs and work ethics, as well as culture." Lee, a native Chinese who earned a doctor's degree in information science at the University of Tokyo, speaks from experience. Sun Japan has been conducting software development for telecommunications systems and network systems in both Japan and China for about a decade. "There is a huge gap between Japanese and Chinese engineers in many ways," Lee cautions. "In delivery management, for example, Japanese companies tend to demand their subcontractors to 'keep the set schedule, even if it requires you to work overnight for days.' That may work for Japanese subcontractors, but it won't be easily accepted by Chinese engineers. Rather, in such a case the Chinese engineers perceive that something must be wrong with the delivery schedule itself, and they are not willing to simply follow such an ill-conceived schedule."

According to Lee, in order to motivate the Chinese engineers to make a commitment to the project, management-level Japanese staff must be prepared to demonstrate their zeal for the development project by literally working together 'overnight' with the Chinese engineers if a tight schedule demands it. "Software development is, in a way, like artisans' work; the mental aspect plays a key role," he says. "It is necessary to appeal to the Chinese engineers' mentality for producing quality work. But few Japanese understand this point, particularly when it comes to offshore software development. They tend to think lightly of the work they entrust to the Chinese side," and the Chinese sense this attitude.

Lee suggests that development of software for CAD/CAM applications and scientific computation are ideal for offshore development in China, since such products contain few country-specific factors. On the other hand, the development of business software, such as for corporate financing applications, could be difficult since these products require a deep understanding of the business customs of the country in which the software will be used. Lee's tips for succeeding with offshore software development in China are "to take the right development strategy, and to properly perceive the advancement of the information technology there."

An opportunity, and a danger
Meanwhile, Chinese developers are showing an interest in conducting joint software development with Japanese companies as a means of promoting the growth of China's software industry. According to Nikkei RIM's Sasaki, the Shanghai Institute of Computer Technology has been in contact with Japan for promotion of further cooperation between the two countries. The Institute's 50-member software companies have also decided to meet regularly to discuss how they can expand joint software development opportunities with Japanese companies.

The opportunity for cooperation is evident. But so is the potential for competition. "If the Japanese don't adopt the right strategy now," warns Sasaki, "'Japan Passing' may occur in the world of information and communications."

"Many American computer companies have already entered China, particularly in the hardware market," he notes. "Also, many young Chinese now go to the US to study computer science. If Japanese software managers stick to the traditional, outdated Japanese style, Japan is in danger of falling behind in technological advancement in the global scheme."

The Nikkei RIM Report on the current status of the PC and Internet industries in China referenced in this article is available for \15,000 from the Seifu Kankobutsu (Governmental Publishing Materials) Service Center (Tokyo 03-3504-3885, Osaka 06-942-1681)

Sun Japan, located in Tokyo's Chuo-ku, can be reached at phone 03-5640-1980, fax 03-5640-1998.

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