Current situation and future trend of China's furniture market
This article will conduct an in-depth analysis of the current situation of the outsourcing industry, predict future trends, and share the key factors for standing out in the enterprise service sector, through 10 years of cross-market size analysis, the performance of leading players in the foreign outsourcing field, 12 listed domestic outsourcing service enterprises, and a three-year market survey conducted by the Big Four accounting firms.
A Preliminary Exploration of the Global Outsourcing Market
According to a report from the American market research institution Statista, the total size of the global IT outsourcing market in 2013 was 288 billion US dollars, equivalent to 1.8 trillion RMB. It is expected to grow at an annual rate of 5.84%, and will reach 2.6 trillion RMB in 2019.
In such a huge market, the companies with top market shares are IBM, HP, Fujitsu, CSC, and Accenture. And these companies only account for 28% of the entire market. Unlike the mobile phone or computer system market where there is an obvious dominant enterprise, the IT outsourcing market is relatively fragmented.
Andreessen Horowitz, one of the most influential investment institutions in Silicon Valley that has invested in most unicorn enterprises including Facebook, Airbnb, Twitter, Slack, has invested $10 million in Series A funding in Gigster, a low-cost outsourcing service provider with fast quotation, in the IT outsourcing field. It can be imagined that there are still many possibilities for subversion and transcendence in this field.
Analysis of China's Outsourcing Market Share
Compared with foreign markets, China's market seems to grow faster than overseas markets. One of the main reasons may be that the Chinese government has vigorously promoted the Internet Plus initiative. According to the survey results from Analysys, the size of China's outsourcing market doubled from 2011 to 2015. The growth forecast for China after 2017 is just a conservative estimate based on the global growth rate of 5.84%.
Jiniu has analyzed the 12 currently listed IT outsourcing enterprises. Among them, Neusoft is the market leader, and China Soft International ranks second. But even as the industry leader, its market share is only 1.7%. This shows how fragmented China's IT outsourcing market is, and also tells industry players the potential of this market.
Neusoft and China Soft International together account for half of the total revenue of the top 12 listed companies (but their combined share of the total market is still less than 3%). Ultrapower, Hundsun Technologies, and Insigma Zhejiang University, which rank third to fifth, account for 28% of the market among the top 12. That is to say, the top five enterprises account for as high as 80% of the total revenue of the 12 listed companies. But the figures shown in this chart are the proportion of turnover. What a sound enterprise actually needs is profit.
The figure below shows the proportion of total profit (net profit) of each enterprise. Neusoft, which ranks top in turnover, ranks fourth in total profit, while China Soft International, which ranks second in turnover, drops to sixth. In contrast, Insigma Zhejiang University, which ranks fifth in turnover, becomes the leader in total profit. Although this does not mean that Insigma Zhejiang University has a higher profit margin, it is self-evident how low the profit margin brought by the "market capture strategy" of Neusoft and China Soft International is. (The turnover of Shanghai Hailong Software is only one fifth of that of Neusoft, but its total profit is even higher than that of Neusoft which ranks top in turnover.)
This chart shows the comparison of profit margins of various enterprises. Neusoft, the top one in turnover, has a profit margin lower than 5%, and China Soft International, the second one, just passes the 5% threshold by a narrow margin. The outstanding performers are Shanghai Hailong Software and Insigma Zhejiang University. Although their turnover is at a medium level, their profits rank among the top three. Driven by the low profit of the top two industry leaders, the average profit margin of the 12 listed enterprises is only 5.44%.
In addition to the overall market size, we have tried to investigate the number of outsourcing service providers. Unfortunately, we cannot obtain reliable information through formal channels (the business scope registered with industrial and commercial authorities does include relevant businesses, but that does not mean the enterprise actually engages in outsourcing business). Industry veterans with many years of experience have given estimates ranging from 20,000 to 30,000, and some say 70,000 to 80,000, so we take the median of 60,000 as an assumption:
The expected market size in 2017 is nearly 600 billion RMB. Assuming the average value of one project is 50,000 RMB, the calculation is as follows:
600 billion RMB / 60,000 enterprises = 10 million RMB
600 billion RMB / 50,000 RMB per project = 12 million projects
12 million projects / 60,000 enterprises = 200 projects per enterprise
200 projects / 12 months = 16.7 projects per month
Judging from this, an enterprise needs to receive 16.7 projects per month to match the 600 billion RMB market size. We do not have an accurate answer for whether the average price of one project is 50,000 RMB. But considering promotion channels, the trend of "de-App" is gradually becoming obvious. More and more applications are mainly based on web pages (HTML) and WeChat. The rise of WeChat Mini Programs in the future will further accelerate the "de-App" phenomenon.
China's Software Outsourcing in the Global Market
Export is one of the three troikas of China's economic growth strategy, and China also has a presence in the IT outsourcing industry. According to a survey from China Industry Insight Network, China will account for nearly 100 billion RMB (14 billion US dollars) of the global offshore market in 2017. But globally, China's offshore IT outsourcing cannot compete with overseas industry leaders in terms of competitiveness.
India occupies a large share of the global IT outsourcing market. WiPro, HCL, Infosys, and TCS are all internationally renowned outsourcing enterprises. TCS alone had a turnover of 14.5 billion US dollars in 2015, which exceeds the total size of China's entire offshore market in 2017. (The park in the photo is TCS's headquarters in India.)
Partial client list of TCS:
Once, a leader of an Indian outsourcing enterprise shared on stage and took out a CD, saying: "If your company outsources your business to a Chinese enterprise, after a week, anyone can buy a CD of your company's intellectual property for 10 US dollars on the streets of China." This greatly reduced the willingness of Westerners to cooperate with Chinese outsourcing companies at that time... After all, to gain customers' recognition in the enterprise service sector, the key factor is "trust".
Software Outsourcing and Enterprise Services
Besides trust, what do enterprises actually care about when it comes to outsourcing providers? We will analyze the trends, key points and other relevant practical insights of outsourcing through a three-year survey conducted by Deloitte, one of the Big Four accounting firms.
The respondents of this survey are all enterprises with an annual turnover of more than 1 billion US dollars. It covers all regions around the world and includes more than 70 relevant survey items. 78% of the respondents expressed recognition for outsourcing business.