A report by research house International Data Corporation shows IBM has surpassed Microsoft as the number one supplier of software in China with sales of more than US$156 million on the mainland last year, compared with Microsoft's US$130 million.

Including Lotus, now part of the IBM empire, and Informix, which it took over earlier this month, the IBM group has total software turnover in China of more than US$240 million, giving it almost 10 percent of the market, compared with Microsoft's 5 percent and the 4.55 percent held by Oracle.

While investment in information technology in Western and Asian markets has slumped this year, demand for information technology products in China continues to power ahead as the economy grows at more than 8 percent a year.

IDC estimates the packaged software market in China grew by 40 per cent last year to more than US$2.6 billion as China's companies rushed to modernise their systems, new application providers soared in value and consumers pushed for the latest electronic equipment, and internet and mobile phone services.

The research company predicts the Chinese software market will grow by more than 40 percent this year and that the total market will top US$13 billion a year by the end of 2005.

Although it still has a long way to go compared with huge markets such as Japan and the US, China is IBM software's fastest-growing market.

According to Andrew Dutton, the Tokyo-based Australian appointed this year as vice-president of IBM's software group for the region, "China is a very good, sound, rapidly growing market. It's a great business to be there."

Founded in 1995, IBM's software division is not in direct competition with retail software companies such as Microsoft.

Big Blue has opted, instead, to specialise in wholesale, intracompany, B2B and "industrial strength e-business software" products, while Microsoft specialises in more brand-name retail products.

IBM's software business has a turnover of about US$26 billion worldwide. Although much smaller than the hardware business, it is considerably more profitable per revenue dollar, so much so that software makes up about a third of the company's profits.

Dutton says the two biggest areas for IBM software in China are in supporting databases and manipulating data from them and in middleware, or the software that allows different systems within a corporation to communicate.

"It's like a road infrastructure," he says.

IBM operates its software business under several different brands, including WebSphere, Lotus, Tivoli and DB2. Its Chinese customers include many banks, government departments and the railways. It is the technology provider for Kaifeng Securities, one of the 10 largest stock brokerages in China, for its e-trading project, and provides the software infrastructure for a rapidly growing number of software application companies.

Dutton says IBM is getting in on the ground floor as Chinese companies follow developed-country competitors in trying to link up the information from their different systems and corporate arms.

"In China they're building the infra structure from scratch," he says. "China is a huge manufacturing and importing country and our software plays very strongly in supporting them as they relate to the rest of the world."

One of the smaller but fastest-growing areas for IBM is in the software that helps companies send information to mobile phones -- a rapidly growing market in China, which has more than 80 million mobile phone users.

"The emerging countries of the Asia Pacific have skipped whole levels of technology," Dutton says. "You can see that happening in China. They have skipped over a lot of the physical infrastructure of landlines and they have gone straight to the very advanced mobile phone applications.

"The hunger of the Chinese people to grab hold of technology such as mobile phones and build applications against it is just staggering. They are the most amazing developers and absorbers of technology I've seen."

IBM operates a research laboratory in Beijing that it established in 1995. The lab has done extensive work in continuous voice recognition in Mandarin and in automatic translations in and out of Mandarin, as well as e-business and network technologies.

Dutton says China's entry into the World Trade Organisation will provide another fillip for the software business, as it will encourage more exports of Chinese products and will increase the demand for software applications in Chinese languages.

"The press have focused on the opening up of the Chinese market to allow access to China, but that's only half the game. As China opens up there will be the opportunity for more software manufacturing and software packages to flow more readily out of the country to foreign markets."

Dutton admits China is not an easy place to operate but says IBM has learned from more than 17 years' experience operating on the mainland, pioneered by the hardware side of the business.

"We've very deep infrastructure there -- a support team, a development team, office locations, hardware manufacturing. We find doing business in China just about the same as everywhere else.

"If we didn't have a 17-year history, China may have proved more difficult. But for us, as market leaders, we find it an exciting place to be," he says.

(21dnn 07/17/2001)