Software industry is growing at a snail’s pace

TAIPEI, Taiwan, The China Post Staff

Taiwan’s software industry has developed for 40 years, but most of the companies in this industry are still struggling for survival, said Acer Chairman Stan Shih when he spoke at a recent meeting of the high-tech CEO association.

The primary reason for their failure, as Shih noted, is that most of them operate with the wrong business model. “Most of the software companies are focused on the particular niche of the Taiwan market, with limited market potential,” Shih noted. He urged Taiwan software companies to go into the international market, and that’s the only way to support a steady growth of their revenue.

“The software industry could become a crucial industry for Taiwan, especially when the IT hardware industry has been suffering slashed profit margins,” he stressed. Basically, he added, “software is an industry for generating products with high value added.”

Regarding the small operational scale of Taiwan’s software companies, Shih pointed out two approaches for them to sharpen their competitiveness. One is horizontal integration among the companies producing the similar products. “It’s the short cut for them to expand market share and enlarge operational scales. The other is vertical integration for a company to develop strategic alliances with its upstream and downstream partners so as to streamline the production procedure as a whole. As the Market Information Center (MIC) indicated, there are currently 1,200 software companies in Taiwan, with a total annual production value of NT$158.4 billion in 2003. Given a continued double-digit annual growth, the total production value will reach NT$500 billion in 2010. The figure still sounds relatively low when compared to an industry of 1,200 companies among which nearly 80 percent operate with a staff of less then 100 employees and 86 percent have never seen an annual revenue exceeding NT$5 million.