China puts a stop on outsourcing software
Preetam Singh, Special Correspondent
November 26, 2004

China is poised to pass a law on making sure Government procurement agencies procure software from local vendors. Government buyers will be ordered to distinguish between software that is “domestic”, “non-domestic” and “preferred non-domestic”. According Chinese officials, the policy is based on Chinese procurement guidelines that favor domestic vendors.
In a statement made public on Thursday, Li Wuqiang, of the ministry of science and technology, railed against costly and faulty foreign software. “The departments responsible for procurement in many provincial and city governments pay no regard to national interest and security and buy foreign software on a large scale,” online magazine Zhishi Jingji quoted Mr Li as writing.

Beijing municipal government recently bought $3.6 million worth of software from Microsoft and that created a big time protest within the country. In China common people feel US holds an unjustified monopoly on traditional software market.

Draft policy details issued this month suggest that officials have set a relatively high benchmark for a software product to be defined as “domestic”, requiring vendors to prove that at least 50 per cent of its development cost was spent in China.

For software services, the proportion of value that must be based in China is 70 per cent.

Nascom refused comment at this time. They are studying the rules carefully. The companies that can get hurt are mainly the American software companies selling operating systems software, utilities and database products. Indian companies have little to lose as they mainly supply bodies to Chinese companies.

According to the draft document, some international companies may be able to win a place on a list of “preferred non-domestic” vendors if they meet benchmarks involving the scale of their Chinese investment, workforces, R&D and tax payments. Government departments will have to apply for special permission to buy “non-domestic” software.