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The influence of WTO for ICT Business

Tariff reductions scheduled to take effect on January 1, 2005, will significantly affect the information technology (IT) industry in China and Beijing.

On that date, customs tariffs on all IT products will be reduced to zero because of China's commitments to the World Trade Organization (WTO) affecting the industry. China's IT policies will fall into line with international conventions, but the move also means China's IT producers will lose the comforting protection of many protective trade barriers and policies as they face the world market system on their own merits.

The new reality will influence the entire world of IT, including industrial chain operations and the service industry. It will affect how intellectual property is considered and many other aspects of the business. The effects are expected to be felt industrywide, from production all the way to terminal sales.

Even though there will be more foreign rivals and even though they should become more powerful and competitive in China under the new policies - there are already 3,000 Taiwan-invested IT enterprises on the Chinese mainland -- the Chinese IT industry should be able to withstand these pressures.

In the recent years, our country has made great progress in manufacturing. Many products can be produced in domestically. As a result, terminal price reductions could play into the domestic producer's hands. An opportunity exists to become much stronger in competition.

But, when foreign vendors get the right to sell on the mainland's domestic market, it could come as a great shock for some domestic enterprises that now benefit from non-market business and sales channels.

The development of foreign enterprises in China will result in the reformation of terminal sales activities, because the costs of purchasing and management will be lower than that of current domestic franchisees of foreign companies. In addition, proven, high-quality international brands can be expected to quickly win the trust of customers in the market. The sales of these foreign enterprises will undoubtedly pose a threat to domestic retail sales.

Under the current tariff situation, software is more highly protected than hardware, but this will soon change. More European software enterprises can be expected to focus on the Chinese home market at a time when the ability to sell Chinese software overseas is rather weak. Therefore, software enterprises in China should likely concentrate on strengthening their presence in the home market.

With trade barriers and policy protections becoming weaker and weaker with China's deepening embrace of the WTO trade regime, domestic enterprises will face greater challenges. However every coin has its two sides. For all domestic enterprises, opportunities will also come into view, and home enterprises will have an opportunity to find their ways in an increasingly, fiercely competitive IT industrial world.

Jack Zhong is the principal of one of Beijing's fastest-growing information technology consultancies, SinoCMS.  His column appears monthly in Business Beijing.  Any comments on this column can be sent to jack.zhong@btmbeijing.com.