But to get started I wanted to ask JingJing few questions:

Q1. Tell briefly about your background and interest in software business

I have been working in the software industry in Finland since 2002. I first started as a research assistant on mobile services in Nokia Research Center while studying for my bachelor degree on software engineering. After finishing my bachelor, I became a software engineer working in the industry while continuing a further master degree study at Helsinki University of Technology on software business and engineering. I have been a software designer, software tester, test manager, and now a quality assurance consultant throughout these years.

Software business has always been of interest to me. In 2004, I started looking into open source software business through a course assignment in the university. The more I read and talk with people about it, the more attractive it appears to me. I was lucky to get the opportunity to work with you Mikko (I believe I was the lucky one) since the beginning of 2007 in research studies on open source software business in China. The result of my research will be presented in my master thesis work.

I like the idea of “openness” - open mindset, open development, open source and open competition. I have a strong believe in the future of open source. The software market in China is still very young yet growing intensively on yearly basis. The combination of open source and Chinese software market could provide true social and economy values to the development in China.

Q2. Please give a brief overview of the Chinese Software industry e.g. size, growth-rate, special areas of interest

I see the Chinese software market to be very attractive. In 2004, the market size was about 53.9 billion Yuan (5.2 billion euro). From Jan-May 2007, the software market reached 178.3 billion euros sales revenue. Though the current market size is still rather small, comprising 6% of the global market, one has to take into consideration that software industry was almost non-existing 15 years ago in China. Within the last decade, the Chinese software market has been growing through fast development and restructuring with around 30% growth rate annually. With the ever increasing internal interests and international focus on China, the Chinese government estimates a staggering growth reaching 4800 billion Yuan sales (463 billion euros), with 4.4 billion euro export and outsourcing, and 1.29 million professionals till 2010.

Some special areas of interests: Enterprise software market has been showing steady growth in the recent years, as more and more companies have come to realize the values that enterprise software could provide. Additionally, it has been predicted that the rapid growth in Internet use will further drive the demand for software that accommodates broadband services, such as multimedia compatible software that will enable users to enjoy broadband contents. Blog hosting and multimedia content sharing, similar to MySpace and Youtube, have been the hot investment spots in the recent years.

Q3. Are there any special characteristics as to how the Chinese software market works that you want to highlight?

The Chinese market does have some interesting characteristics:
- huge amount of IT graduates yearly: It is estimated that Chinese universities will provide about 150,000 – 200,000 IT workers annually.
- The low labor costs: According to the opinion of a local IT professional, an engineer costing $4000 in the US only costs $500 in Shanghai. And it could be much less other than in Beijing and Shanghai.
- 30% annual growth of the Chinese software market
- the government’s determination in supporting the software industry development. Special benefits are offered on taxation deduction (VAT and EIT), exempt on import and export tax.

The Chinese software industry is still very young and small comparing to the global market. The development of the software industry is far behind, and not in proportion compared to the hardware industry. The difference between enterprise market and consumer market is huge (96.62% vs. 3.38% in 2004). The Chinese government, telecommunication, education, banking and production have been the key places of investments into IT in 2004. Software piracy remains a big problem in the Chinese market. The situation in the consumer market will gradually improve as the campaign on fighting software piracy continues in China.

As the Chinese market in general is still immature, the Chinese government has been taking actions to protect and support the local Chinese companies against competitions from global players. This can appear in many forms - Chinese own standards, favoring domestic software products, regulations, etc. Foreign companies coming to the Chinese market must be aware of these issues before their entry.

Some additional comments on software piracy in China: Microsoft has been complaining about it since its entry to the Chinese market. Actually comparing to Microsoft, I think it is the whole Chinese domestic software industry that has suffered the most. And that is one of the reasons which causes the Chinese market to be still very immature and hinders a healthy growth through time.

Q4. How have the Chinese traditionally worked with foreign software vendors, do you see any emerging trends?

The most common means for foreign software vendors working in the Chinese market is to:

- buy Chinese companies,
- set up joint ventures with Chinese companies,
- outsourcing,
- set up subsidiaries
- or through partnership

The Chinese market has been very attractive and many foreign companies are looking into the Chinese market for opportunities. They have advanced technology and wonderful business models, but lack of real experience with the local environment of the industry and the market information. To get an initial understanding, many companies have started their piloting operation in China through partnership with local Chinese companies in localization, further development and marketing operations.

Q5. Do you see any big challenges in Chinese software industry that the companies and organizations from abroad could help to solve together with Chinese?

I see two issues here:

1) The Chinese software industry has lots of good programmers produced by the Chinese academy annually. But at the moment, the market is really in need of experienced IT professionals with various management skills in areas such as project, quality, process, IPR and business. The resource defines the capability of the market. In order to build up a better environment for further development, education, training and knowledge transfer could be a direction where foreign companies can bring extensive knowledge and experiences to the Chinese market.

2) Though China has good programmers, comparing to the foreign companies there is a lack of real technical and domain knowledge and experience. At the moment, in those international companies most of the complex R&D work is done abroad. Chinese subsidiaries are normally working on localization and marketing issues. One key reason I see is that the foreign companies are afraid of losing their IPRs. However, to build up the Chinese software industry, China needs to strengthen its R&D capability. I have been wondering - is there a possibility that foreign companies can gradually provide technology transfer to the Chinese market?

Part II will be looking at the Emergence of Open Source within Chinese software industry.

Some key advice Eero pointed out in the article was the importance of partners and channels:

‘’Another surprise is partner networking, or actually the lack of it. Maybe this is result of open source companies’ natural tendency to focus on services and, for the most part, on a direct sales model. Open source companies have created tight-knit partner communities, which are excellent vehicles for the self-promoting (every self-respecting open source company seems to be partner with at least 10 other open source companies), while at the same time there has been very limited success in creating truly significant partner networks (system integrators, VARs) to push open source solutions to the end users….’’

‘’ Focus on partners, partners that sell for you. Strategic partners are great to increase credibility, but won’t pay your bills. Peer partners are great to increase overall visibility, but won’t pay your bills. Partners who will deliver your solution to the paying customer are a godsend - they pay your bills. Understand what motivates partners, and keep them happy and productive!’’

I am 100% behind that piece of advice, but while agreeing that is the way to go, the big question for me (and I suppose for many entrepreneurs) is how? How to execute the sound strategy and identify and actually get those key partners critical for your business success or even survival?

Continuent has gone through couple of phases 1) under the name Emic Networks with more traditional proprietary approach and 2) under the current name Continuent changing the approach to Open Source.

Q1. How has your company’s partnering strategy changed while moving from a proprietary to open source model? Have you had to dismiss some earlier partners’ as they did not fit the new approach?

A1. Over the course of the years there have been natural ‘churn rate’ among channel partners for number of reasons, but we did not have to make major overhaul of the partner network. As a part of the change from completely proprietary solution to the commercial open source we have kept the licensing, pricing and partner discounts very attractive.

There was more significant change in our channel-strategy when we expanded database support from MySQL-only solution (which was the case with our proprietary solution) to also cover PostgreSQL and EnterpriseDB. MySQL’s adoption rate is clearly larger than any other open source databases, but interestingly enough due MySQL’s own quite aggressive direct sales approach and primary focus in embedded market, MySQL has not developed extensive network of resellers or systems integrators.

There is no one single company behind PostgreSQL. That has created more opportunities for local system integrators and there seems to be more partner opportunities for value-add providers such Continuent.

Q2. Any special challenges in building the business out of Finland?

A2. When Continuent was established in Finland, our mindset was from the day one to be ‘born-global’. It naturally did help us that my primary residence has been US for the past 14 years and I have been involved with cross-Atlantic software business this whole time. Finland has definitely significant good-will value and healthy respect within open source community with number of visible open source visionaries and leaders, for example Linus and Mårten, coming out of Finland. This creates a good ground to build successful open source companies.

The key challenge with Finland, and almost any European based companies, is the lack of the understanding in customers actual needs (largest open source customers are in USA, and their needs are not always same as smaller European based customers) and effectively getting solutions to the market.

There always is very good and solid technical foundation, but there seems to be disconnection what actual customer needs are and how to take those into account in the process creating solutions out of these core technologies.

As valuable the open source community is giving feedback, unfortunately you can’t solely trust the judgment of the masses. The key decisions need to be done internally, and those need to be based on solid market intelligence and true understanding of the customer needs.

Q3.Please outline a short description as to how to do it e.g. 3 do’s and 3 don’ts

A3. The three DO’s for the aspiring open source entrepreneurs from Finland, or from Europe in general:

ii) Follow Steve Job’s lead and build ‘insanely great’ solutions. ‘Me too’ just doesn’t cut it. ‘Good enough’ won’t create excitement.

iii) Think hard who can be the best partners to take your solution to the market. The larger partner the better, but early on you need to settle smaller partners until you have increase your credibility.

And Don’ts:

i) Don’t forget to define your ideal customers (note: first customers may not be ideal on the long run, thus you really need to define the ideal customer). You need to address a real need of this ideal customer. You also need to offer a complete solution. Don’t assume that all customers are alike. USA customers tend to build larger systems catering larger markets, thus they typically require more (quality, functionality, supportability), but this will also help your smaller customers.

ii) Don’t forget your community: as you give to your community, it is fair to expect real value (contribution, testing, support) back. Community will be your best marketing vehicle and also excellent source to recruit new talent.

iii) Don’t forget that your solution and market takes time to mature. Make sure you have adequate funding to ride the tough times, which there will be plenty. You can safely assume that you are in the business for a long haul, minimum 5-7 years, before you can see any significant success. For example MySQL has been around almost 15 years (taking account Monty’s early years) and it took first 7 years (10 if you count the early years) to reach 5 Million euro revenue.