The global information technology market research house International Data Corp (IDC) predicts the packaged software market in China will more than double in the next five years to 48.11 billion yuan (US$5.81 billion).

IDC said in a report yesterday that the packaged software market will grow at an average annual rate of 22.4 percent from 2004 to 2008.

According to the definition of the US-based research house, packaged software includes software vendors who sell licenses, but does not include embedded and tailored software.

The company said the sales of packaged software were 17.48 billion yuan (US$2.11 billion) in 2003 with a 15.4 percent year-on-year growth.

"We believe there are many drivers for growth in every software product, region and industrial sector," said Grace Han, senior analyst of software and service with IDC (China).

She said that although many IT spenders used to like tailored software developed specially for their own purposes, more and more choose to use packaged software now, as their information systems need to communicate with other IT systems, both internal and external.

In the light of that trend, application software will continue to be the biggest segment in the market with an average annual growth rate of 24.8 percent.

Last year, application software generated 48.7 percent of total software sales, while the other two categories -- system infrastructure software and development and deployment tools -- contributed 30.5 percent and 20.8 percent respectively.

Han said that the growth in the three traditionally large regional markets -- North China, East China and South China, would remain a dominant factor in the country's spending on packaged software, but demand in northwestern and southwestern regions will boost growth there because of the Go-West campaign.

In the industrial sector, telecommunications was the biggest spender on packaged software last year and purchased 3.60 billion yuan (US$435 million), about 20 percent of the total market.

Han believed that with telecom companies continuing to upgrade information systems to gain higher efficiency, demand will be steady.

The government sector, which IDC predicted earlier would take over the finance sector and become the biggest IT spender in five years, will also be a stable growth engine, as government agencies pay more attention to e-government.

However, Han warned software vendors still face many challenges, despite good prospects.

Piracy remains a top concern for software companies. IDC said in a report on the global situation in July that the piracy rate in China was 92 percent last year.

Han said that figure mainly concerned the consumer desktop software market. The situation in the enterprise market was much better and has improved greatly in the past year, but piracy is still a big problem.

She said industrial restructuring in various sectors may also add uncertainty about procurement, such as delays or even cancellation of orders.

Software vendors should pay more attention to distribution channels, especially in the small and medium businesses segment, to expand their customer bases, she added.

Microsoft, IBM and Oracle ranked the top three vendors in the market last year, while CS&S, UFSoft and Kingdee were the only three domestic vendors in the top 10 list.

(China Daily August 27, 2004)