NEC has agreed to set up a joint venture with Neusoft, China’s largest IT outsourcing provider, to offer cloud computing services in the country, the Japanese electronics company’s first move to offer such services outside its home market.
The venture reflects high hopes among outsourcing services vendors that China will become a large market for them.
NEC said it expected the nascent cloud computing market in China to grow to $2.3bn by 2012, expanding at an average pace of 30 per cent each year. The Chinese IT services market had revenues of $10.6bn last year and is forecast to grow to $20.6bn in 2014, according to IDC.
In cloud computing, information is housed remotely by centralised providers rather than on users’ computers.
The Chinese IT services market had revenues of $10.6bn last year and is forecast to grow to $20.6bn in 2014, according to IDC.
Last year, IBM topped the ranks of IT service providers in China with a 6.1 per cent market share. The top five were rounded out by HP; Digital China, a company affiliated with Lenovo; Huawei, China’s largest network equipment vendor; and Accenture, the global services firm. Neusoft ranked 7th.
Neusoft is the largest vendor in the offshore IT services segment, in which a growing number of Chinese companies are competing. They have been making inroads against their much larger Indian competitors, especially with South Korean and Japanese companies to which they are closer geographically and culturally than Indian firms.
China’s position as the global manufacturing base for most electronics products has also aided Chinese outsourcing providers.
Spurred by the massive employment generated in India and in the Philippines, the Chinese government is offering tax and other incentives to help develop the industry.
Foreign vendors have also started piling into the market. Ning Wright, a partner in charge of KPMG’s China outsourcing advisory service, points to the growing number of research and development centres of multinational groups in China as one indicator.
However, industry experts said the market would only fulfil its promise if large state-owned enterprises start embracing the idea of outsourcing. So far, state-owned banks and telecoms operators – some of the biggest potential customers – remain reluctant to share information, said the China head of a Western outsourcing company.
"SOEs are certainly a core customer target group,” said Masaki Kidowaki, NEC China president, though he noted that privacy and security concerns were paramount for these enterprises.
NEC has been trying to reduce its reliance on hardware manufacturing and reposition itself as a broad-based IT services group. Last year, for instance, it spun off its mobile phone handset business in a joint venture with competitors Casio and Hitachi.
Japan’s sprawling electronics companies have all come under pressure to focus on a few core businesses, in the face of lower-priced competition from South Korea and China and disciplined rich-country rivals such as Apple of the US.
Amid the gradual consolidation, NEC, Hitachi and Fujitsu in particular have targeted the global IT market. Fujitsu is also moving into China with a new data centre near Guangzhou, which it expects to open next year.
Wang Yongfeng, Neusoft president, said the cloud computing joint venture would target manufacturers with global export business in addition to Chinese small- and medium-sized enterprises who could save in IT expenses.
The two companies said their joint venture, in which NEC will hold a 70 per cent stake and which will be based with Neusoft in Dalian, would start in October with 70 employees. The headcount is expected to increase to 200 within three years.
