The rapid growth of the Chinese economy has stimulated demand for IT services in the corporate sector. At the same time, the establishment of production facilities in China by large numbers of Taiwanese companies has created opportunities for Taiwanese IT service providers to develop the China market. This article will consider the relaxation of the restrictions on Taiwanese investment in China and its impact on Taiwan’s IT service sector in terms of the potential for expanding into China. The IT Services Market in China Continues to Grow Rapidly The world's IT services markets can be divided into two broad categories. The first of these is the mature IT services markets, of which the most important are theUnited States, Western Europe and Japan. These are large, highly developed markets with a large number of local IT services providers.

    The other category is the emerging markets, which include China, Latin America, the Middle East, Africa and Southeast Asia. In these developing nations, the market structure is still in the process of formation; the IT services market in these economies is still relatively small, but is growing rapidly. The highest growth has been seen in China, where the IT services market is forecasted to post a compound annual growth rate (CAGR) of 16.2% over the period 2006 – 2011. Latin America is in second place, with an anticipated CAGR of 14.8% over the same period, followed by Singapore, Malaysia and Thailand with 10.5%, and Africa and the Middle East with 9.6%. The Chinese Market is Still Main Focus of Taiwanese IT Services Providers' Overseas Expansion Efforts Taiwan’s own domestic IT services market is relatively small, and the potential for further growth is limited. Annual scale in the Taiwanese IT services market is forecasted to reach US$2.1 billion by 2011, representing a CAGR of 4.0% over the period 2006 –2011. To grow, Taiwan’s IT services providers have no choice but to look overseas.

    From the point of view of Taiwanese IT service providers seeking to expand into international markets, the barriers to entry in the mature markets are very high; successful development of these markets usually requires collaboration with leading international IT hardware vendors. In emerging markets, the entry barriers are less pronounced, but Taiwanese companies have to face competition from leading international IT services providers, which will have already been operating in these markets for some time. Enterprises in emerging markets tend to have more confidence in the big international brands; to succeed in these markets, Taiwanese IT service providers normally need to join forces with a local distributor which is familiar with the special characteristics of the local market, and to notch up some successes as quickly as possible. The service provider’s core competencies and development strategy are of key importance here.

    The rapid economic growth that China has maintained over the past few years has stimulated the growth of the IT services market in China. Geographical proximity, combined with linguistic and cultural affinity, have made China a popular choice for Taiwanese IT service providers looking to expand overseas. Although Taiwanese firms moving into China still need to adjust to a different regulatory environment and local business practices, while also facing competition from both leading international IT firms and new local IT service providers, most Taiwanese IT services providers continue to view the China market as a source of business opportunities that they cannot afford to miss out on.

    The Relaxation of Restrictions on Investing in China will Help Taiwan's IT Service Industries to Expand Overseas Both Chinese companies and the China-based operations of Taiwanese corporations are characterized by differences in levels of IT applications. Compared to Chinese companies, Taiwanese companies as a whole got a head start in the adoption and utilization of information technology. However, Taiwanese firms that have invested in China run the gamut from hi-tech companies to firm from traditional industries. While those Taiwanese companies engaged in hi-tech manufacturing have mostly developed IT systems on a par with their international partners and distributors, the level of IT adoption displayed by Taiwanese firms in traditional industries is often much lower. This situation is particularly pronounced in the traditional manufacturing industry clusters in South China.

    While Taiwanese IT service providers moving into the Chinese market may be aiming to eventually win local Chinese corporations as customers, initially they will need to focus on serving the Taiwanese companies operating in China. Clear market segmentation for clients with different levels of IT services adoption is vital if service providers are to achieve effective implementation of product design and sales promotion. Relaxation of the restrictions on Taiwanese investment in China – and in particular, the promotion of investment in the corporate IT sector – will help to boost the overall adoption level of IT services by Taiwanese companies.

    As Taiwanese IT services providers share a similar corporate culture to that of the Taiwanese manufacturers that have invested in China, they should be able to work well together, facilitating Taiwanese IT service providers' development of the Chinese market.