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.