China's stream of creativity
By Greg Au-Yeung | 2009-12-15
The reaction of foreigners visiting China for the first time usually goes through several stages - surprise, yet more surprise and then even greater surprise. The myth is that everyone still wears white shirts with blue cotton jackets and wave the Little Red Book in streets where people are queuing up for food. Beggars are everywhere and they chase after foreigners hoping for US dollar bills and families still dream of receiving foreign-made TV sets from overseas relatives. This was true, for many households in the 1980s.
Naturally, when a society becomes more sophisticated, people demand more choices when selecting consumer products. Twenty years ago, consumer products in China were scarce and locked in glass cabinets for display, out of reach of the ordinary Chinese. Now, when you walk into electronic stores in China, you will find hundreds of local brands, with a great variety of designs and functions.
Similarly, with the financial software industry, in particular within the brokerage and fund management industry, in almost two decades since the reopening of the stock market (10 years for the fund industry), thousands of IT firms have emerged to try and capture a market share in the domain of trading platform, accounting applications, information security, middleware, data-mining.
Two top financial software firms in China, Hundson Electronics (1,700 staff, '08 rev - $9b, market cap - $1b), and Shenzhen Kingdom (400 staff, '08 rev - $850m, mkt cap - $2b) have maintained their market dominance by continuous product innovation, excellent enterprise integration and responsiveness to market changes. e.g. Hundson possesses a modular operating platform, providing fund management firms with a total solution for sales & distribution, stock trading, transfer agent and accounting valuation, but the modules are also available for sale independently. Many of their products are just as advanced as their Western counterparts, in terms of technology, functionalities, and user-friendliness. Furthermore, their prices are attractively low, compared to other overseas competitors.
Regardless of the two firms' market dominance, the financial software industry is fiercely competitive. As well as many other smaller local software firms fighting for a share of the same pie, foreign competitors (e.g. Sungard, DST, iflex) are now entering China helping to fuel the growth in the market. It is anticipated that more consolidation among local IT firms will take place within the next few years, and further accelerate product innovation and price adjustments, especially when the Chinese financial market liberalizes further, with new investment vehicles in the local market, and local residents being allowed to invest overseas. This is where foreign software firms are at an advantage due to their experience in dealing with a multicurrency investment environment, global trading, and more complex investment instruments.
Stuck in copy cat mode
It is probably true that China is still at the "copycat" stage of its development. You will continue to find Louis Vuitton look-alikes, Chinese-built cars designed to look like Mercedes Benz, and even Microsoft Office look-and-feel software in the local market. It is not so long ago that the Japanese were criticized for copying Western products. And likewise, the Koreans, when they followed in Japan's footsteps. Nowadays both Japanese and Korean products are regarded as "high-end" or "revolutionary". Innovation comes from creativity, which originates from learning through copying. Welcome to the New World Order - version 3.0 !
Greg Au-Yeung, was formerly Executive Director of Morgan Stanley (Shanghai) responsible for the investment bank's captive development center in China. He has been appointed by Shanghai's Fudan & Jiaotong Universities as Guest Professor, teaching their Master of Software Engineering courses.
Email him at: firstname.lastname@example.org