For the IT industry the problems in China are larger than the opportunities, reports Angus Kidman.

Published in The Bulletin, November 26 2002

Faced with declining profits and depressed economies worldwide, the prospect of selling into China has many cash-hungry IT companies salivating. However, despite a potential market of 1.3 billion Chinese, the majority of whom have yet to purchase a PC, pushing technology in China requires more than just opening an office and developing skills in Mandarin.

"China is the only major market with GDP growth, so it is going to be the focus of many companies," says John Chen, CEO of United States-based database developer Sybase, which has operated in China since 1991 and enjoys a much higher market share there than in most other parts of the world.

In reaching that position, it hasn't hurt that Chen himself is Chinese, although he downplays the importance of his fluency in the language and culture. "The key thing with this market is you have to be patient and build a long-term relationship. This is not just an interest-bearing account."

One obvious technical issue for software developers is the need to represent Chinese characters onscreen, although the emergence of Unicode, a standard that applies a unique number to every character in every character set, has made the process less difficult.

More fundamentally, the desire to automate processes through IT is somewhat lower in China, in part because labour costs are so cheap. China also exercises tight control over the internet: a recent decision to ban popular search engine Google attracted international headlines.

There's also the ongoing challenge of dealing with Chinese politics. Linux developer Red Hat drew much criticism recently after it eliminated an option in its product which displays a flag on the user's PC desktop, based on their country and language settings. The reason? The flag choices included Taiwan, and Red Hat didn't want to risk offending the Chinese government, which views Taiwan as a rebel province. After being criticised by Linux developers for removing the Taiwanese flag from the available options, Red Hat decided it was easier to drop the display of flags altogether.

Given those kinds of problems, some companies reluctantly place the notion of dealing with China in the too-hard basket. "It's a huge market but it's a very controlled market and it's a market that doesn't respect intellectual property," says Mark Templeton, CEO of enterprise software vendor Citrix. "I don't see us having a direct presence in China any time soon."