market research report : software market in china 2014 - sample
TRANSCRIPT
Software Market – China
October 2014
2 SOFTWARE MARKET IN CHINA 2014.PPT
Executive Summary
Market
Drivers and Challenges
Competition
Software market in China was valued at USD xx bn in 2013 and is projected to grow at a CAGR of y% between 20–
to 20--
Eastern region of China earned USD xx bn, accounting for z% of the total software revenue in China in 20--
Government Initiatives
Government Measures to Cut Software Piracy
Lower Duties and Tariffs
Standards and Regulations
Drivers:
- Increase in R&D Activities
- Large Internet and Mobile Phone User Base
- Increased Adoption of E-commerce
- Rise in Income
- Largely Untapped Rural Market
- Strong Education and Training
Trends Increasing Importance of Cloud Computing
Rapid Growth of Smartphones and Apps
Challenges:
- Language Barrier
- Loss Due To Software Piracy
- Lack of Intellectual Property Rights Protection
- High Costs of Entry
Beijing’s 12th Five Year Plan (2011-2015)
for Software Market
Major National Policies Regarding
Software & IT Service
Increasing Importance of SaaS
Increasing Investment in Software and IT services
Major Domestic Players
Player 1 Player 2 Player 3 Player 4 Player 5 Player 6
Major Foreign Players
Player 1 Player 2 Player 3 Player 4
3 SOFTWARE MARKET IN CHINA 2014.PPT
•Macroeconomic Indicators
•Introduction
•Market Overview
•Software Outsourcing
•Direct Investment Scenario
•Drivers and Challenges
•Government Initiatives
•Trends
•Opportunities
•Competitive Landscape
•Mergers and Acquisitions
•Strategic Recommendation
•Appendix
4
SAMPLE Economic Indicators (1/3)
Current Account Balance
Exchange Rate: Half Yearly
0
USD bn
20--e
f
20--e
e
20--e
d
20--
c
20--
b
20--
a
5/1/14 4/1/14 3/1/14 2/1/14 1/1/14
USD/INR
c
a
b c
a
b
c
a
b
c
a
b
b
a c
Period Low Period High Period Average
SOFTWARE MARKET IN CHINA 2014.PPT
5 SOFTWARE MARKET IN CHINA 2014.PPT
Software Industry - Definition
Organizations engaged in sales of computer software or services related to computer systems
Software Industry
Data for ISIC Rev.3 division 72, which includes activities related to the design, setup,
operation and maintenance of computer systems and networks, as well as custom
software development and software publishing
OECD Statistics
Takes its point of departure in the products and markets, and thus include packaged software,
custom software, and computer-related services such as system design, maintenance
Private Sources of Statistics
Software that handles different request for
using the hardware, many housekeeping work,
storage of data and other tasks
Software that handles a specific task and are
developed to fulfill specific requirement of the
user
Major Types of Software
System Software Application Software
Note: OECD refers to Organization for Economic Cooperation and Development and ISIC Rev.3 refers to International Standard Industrial Classification of All Economic Activities Revision 3
6
SAMPLE China’s software industry is not only highly promoted, but also a heavily regulated sector
SOFTWARE MARKET IN CHINA 2014.PPT
State Council
National Development and Reform Commission
Ministry of Industry and Information Technology
Ministry of Science and Technology
General Administratio
n of Press and Publication
Ministry of Finance
Ministry of Commerce
National Development and Reform Commission
• Text
Ministry of Industry and Information Technology
• Text
7
SAMPLE managed by several government authorities at both the macro and micro levels
SOFTWARE MARKET IN CHINA 2014.PPT
Ministry of Science and Technology
• Text
General Administration of Press and Publication
• Text
Ministry of Finance
• Text
Ministry of Commerce
• Text
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
Remarkable annual growth rate and demand from a wide range of industries has boosted software market in China
• By the end of 20--, it is estimated that the Chinese software market will generate revenues worth about USD xx bn
• In the year 20--, the top 10 players accounted for almost y% of the total revenue generated in the market
• The rapid development is on account of the initiatives by the government and growing demand from software users
Demands for ERP, CRM and accounting software has significantly increased post their adoption and usage by SMBs
• Promotion of cloud computing by domestic and foreign players along with major government support accelerated the
growth of the software market
Strong adoption of cloud or subscription based services by enterprises and increased usage of cloud based software and platforms are
driving the software market
0
USD bn
20--e 20--e
e
20--e
d
20--e
c
20--
b
20--
a
X% f
China Software Market Overview
Software Market Size & Growth - China Software Market Revenue Composition – China
2013 2014*
f%
e%
d% c%
b%
a%
Segment 6
Segment 5
Segment 4
Segment 3
Segment 2
Segment 1
f%
e%
d% c%
b%
a%
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
• China is the world’s fourth largest information technology (IT) market by spend after the US, Japan and Germany
• In the first four months of 2014, software products and information system integrated services generated most of the software revenue
followed by data processing and operating services
Segment - wise Software Revenue
Software Products
System Integrated
Services
Embedded System Software
Software Segments
IC Design IT Consulting
Services
Data Processing and Operating
Services
0
USD bn
d
c
Segment 3 Segment 6
f
Segment 5
e
Segment 4
b
Segment 2 Segment 1
a
Revenue Composition – China Software Market (Jan – Apr 2014)
Software sub-sectors in China are expected to be the areas of highest growth presenting attractive opportunities
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
East China is a major growth pole for future software development
• Beijing and Shanghai located in the eastern region are the two main hotspots of the software industry
• By region, revenue from the eastern area of China was USD x bn, accounting for y% of the total software revenue in
China in 20--
• By Nov, 2013, the software revenue in region1 grew rapidly, with an increase of x% y-o-y, while that in Region 2 climbed
at a slower pace with z% y-o-y growth rate
Region - wise Software Revenue
Region 3
b d
Region 2
c
Region 1
a USD bn
Region 4
Revenue Composition – China Software Market (Jan – Dec 2013)
11
SAMPLE Imported software product registration guidelines (1/2)
SOFTWARE MARKET IN CHINA 2014.PPT
• According to the Administrative Measures for Software Products, the term “software product” refers to the
computer software, or software embedded in the information system or equipment, or accompanying computer
software being utilized when technical services such as computer information system integration or application
service are offered
• “Imported software” refers to software products developed outside of China, but are produced or under business
operation in various forms within China
Text
GUIDELINES
Text
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
• Text
Text
• Text
Imported software product registration guidelines (2/2)
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SAMPLE Import and Export of software products - Do’s and Don’ts
SOFTWARE MARKET IN CHINA 2014.PPT
According to relevant Chinese regulations, the development, production, sale and import/export activities of any software product must not • infringe on the IPR of others • contain computer viruses • cause harm to computer system security • fail to meet China’s software regulation standards • contain contents prohibited by law and administrative regulations
• Text
14
SAMPLE China is fast emerging as a major global software outsourcing destination
• Text
China’s Strategic outsourcing locations
SOFTWARE MARKET IN CHINA 2014.PPT
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
• China’s rising importance in the global outsourcing market is evident
• China is rapidly emerging from the competitive software outsourcing industry as one of the world's leading suppliers of software outsourcing services
Emphasis on ISO standard compliances, creating incentives and building a robust infrastructure along with a proper process orientation will help China emerge as a prominent outsourcing destination and
will soon enable it to compete with India and Japan in the global arena
0
+X%
Period 2
b
Period 1
a
USD bn
Exports – Outsourcing Services
0.0
Period 2
+Y% b
Period 1
a
USD bn
Outsourcing Services
Despite being faced with challenges the development of the China’s outsourcing market cannot be overlooked
16
SAMPLE Software Parks in China (1/5)
SOFTWARE MARKET IN CHINA 2014.PPT
Xi'an Software Park
It is located within the Xi’an High-tech Industries
Development Zone, a special economic
development area
Set up in 1998 to promote and develop software and service outsourcing industries
Spread over an area of 7 square kilometers, it has been engaged in the cultivation of high tech environment and infrastructure construction
The parks‘ main activity is to bring the national preferential policies to the member companies and absorb global investors
In 2009 total revenue of the park from software and
information service outsourcing industry
reached USD 4.669 bn with 41% y-o-y growth
The total export earnings reached US$ 154 mn, marking year-on-year growth of 36% in 2009
In 2009, the total number of enterprises were
increased to 870 and the total number of employees
to 82,000
The Xi'an Hi-tech Zone Software Industrial Supporting Policies
• House rent subsidy • Personal income tax subsidy • Market exploration reward • Export reward • Telecommunications data reward • Corporate merger reward • High-end talent finding reward • The best employee reward • New staff's internal training reward • Intern reward • Corporate capability certification reward • Corporate loan discount reward
17 SOFTWARE MARKET IN CHINA 2014.PPT
Direct Investments – Player 1
X%
Total Investments – Sector-wise IT Investments – Geography-wise
Sector
IT Investments – Segment-wise
0% 20% 10% 50% 60% 30% 40% 80% 90% 70% 100%
100
A%
B%
Region 2
Region 1
Segment
Investment Snapshot
• The company has invested in the IT sector only
A total of 4 investments were made in the x sector
• Maximum number of investments were seen in the region 1
SAMPLE
18 SOFTWARE MARKET IN CHINA 2014.PPT
Drivers & Challenges – Summary
Drivers
Increase in R&D Activities
Large Internet and Mobile Phone User Base
Increased Adoption of E-commerce
Rise in Income
Largely Untapped Rural Market
Strong Education and Training
Challenges
Language Barrier
Loss Due to Software Piracy
Lack of Intellectual Property Rights Protection
High Costs of Entry
19
SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
• In 20--, software and IT services industry R&D expenditures was USD x bn an increase of x% from the previous year
• R&D investment ratio (R&D expenditure as a percentage proportion of main business income) was more than y%
• China’s investment in R&D as a percentage of its GDP shows a strong and steady growth and if the growth rate remains consistent China will surpass the United States by the next decade
• China’s 12th Five Year Plan (2011-2015) targets R&D spending at 2.2% of GDP by 2015
Increase in R&D Activities (1/2)
Increase in China’s R&D expenditure on software has Paved the way for the country to become a
Major Software R&D Centers in China
Impact
A
B
C
D
Note: The list is not exhaustive
Major companies with their R&D centers in China
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
Improving condition of e-commerce will boost further growth in China’s software market
Increased Adoption of E-commerce Impact
0
2015e
d
2014e
c
2013
b
2012
a
No of buyers bn +x%
No of online buyers
• China is expected to become the world’s largest e-commerce market surpassing the US
More than x mn Internet users in 2013 and y mn online shoppers in 2013
In 2010, x% of China’s urban population shopped online, which is to become y% in 2015
• Growth in e-commerce market is one of the key factor that will drive growth in software market
Chinese shoppers spent around USD x bn on online shopping in 2012
By June, 2013, China e-commerce transaction reached USD y bn
Around x mn people work in e-commerce enterprises
• Mobile e-commerce market has also witnessed a high growth rate
Increasing smartphones and tablets are fuelling the growth of the mobile e-commerce market
0.0
Jan-Jun 2013
b
Jan- Jun 2012
a
+y%
USD bn
B2B revenue
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
Language barrier is the key challenge for bringing software …
• For companies trying to enter Chinese market, the biggest challenge is the language barrier
China’s large market attracts different customers from diverse backgrounds and cultures, many of whom do
not read or speak Chinese, leading to serious negotiation problems
In China, all verbal and written communications would need to be in Mandarin, which would further be
complicated by thousands of local dialects
– Capturing pertinent data in systems presents a challenge even if these problems were solved
• Language barrier hinders software exports, since communication is a critical component of
software development
• Language barrier affects e-commerce as it hinges on language too, thus indirectly affecting
software market
Language Barrier (1/2) Impact
Foreign Perspective
22
SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
Software piracy is hampering the growth of e-commerce market
• China’s estimated software piracy rate remains excessively high despite some progress in recent
years and the overall value of stolen software has increased with the growth in Chinese software
market
The proportion of China’s personal computers with pirated software installed was 77 percent in 2011
‘BRIC’ economies of Brazil, Russia, India and China are home to rampant piracy inspite of being the world’s
fastest-growing technology markets
• In China, almost four out of five programs in use are pirated
Piracy poses a problem for companies such as Microsoft Corp. (MSFT), the biggest software maker, as PC sales
growth is fastest in countries that have high rates of software theft
A company could lose USD 114 bn yearly if its IT system crashes because of pirated software
Loss Due to Software Piracy Impact
Chinese private enterprises, state-owned enterprises and government agencies continue to use pirated software
The commercial value of unlicensed software in China was $8.9 billion in 2011
• The lack of criminal remedies against this form of software piracy
• Ineffective civil • enforcement procedures
• Inadequate administrative
enforcement
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
Government initiatives have contributed to the recent drop in piracy rate, still there is scope for further development
• Bilateral negotiations with the US through the Joint Commission on Commerce and Trade (JCCT) includes the following commitments Ensuring the use of legal software in government agencies and state-owned and other enterprises
Requiring pre-loading of legal operating system software on computers produced or imported into China
Delaying indefinitely the implementation of certain discriminatory government procurement regulations
• During the 2007-2010, Chinese government has spent USD 169.84 mn on purchasing copyrighted software
• In 2011, central and local government computers were investigated by teams of inspectors to ensure that all
the departments are using authorized software and inspections of software pre-installation on computers sold
in the country are stepped up
135 central government departments, including all ministries, completed installing licensed software at a cost of more
than USD 22 mn in May 2011
• Copyrighted software has already been installed in central government departments, and it was popularized
among local authorities in 2012
• The government's frequent campaigns against IPR infringement helped create a sound business environment
and greatly boosted the development of the country's software industry
• By the end of 2013, most of the Chinese government departments have started to use licensed software in
the latest move to IPR rights and to provide business opportunities for software providers
Government Measures to Cut Software Piracy
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Summary – Trends
Increasing investment in Software and IT Services
Increasing importance of SaaS
Increasing importance of cloud computing
Rapid growth of Smartphone devices and Apps
Trends
SOFTWARE MARKET IN CHINA 2014.PPT
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
Increasing importance of cloud computing (1/2)
Prioritization of cloud computing by the Chinese government has caused the market to boom in China
Government Initiatives and Investments
Strategic Partnerships in Investment by Foreign Players
Promising National Policy
Chinese government will invest USD 1 bn to drive cloud computing deployment in China over the next few years and has set up several projects for the development of key domestic cloud computing hubs
Strategic partnerships among domestic vendors like 21Vianet and Microsoft and investments' made by foreign players including IBM and HP are driving the cloud market in China
The 12th 5 year plan has recognized the need of cloud computing and has formulated policies that support the cloud business
NDRC has established a Cloud Computing Special Fund with an initial investment of USD 101.54 mn in 15 pilot
projects in Beijing, Hangzhou, Shanghai, Shenzhen, and Wuxi to launch the initial development and
innovation for cloud computing under supervision of MIIT as of Oct 2011
Investment in new cloud computing projects in China are on the rise
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SAMPLE
SOFTWARE MARKET IN CHINA 2014.PPT
Though software piracy issue shadows the country, still it’s a huge market and provides sales opportunities
Opportunity in IT Consultancy and Outsourcing Sector
Note: ERP refers to Enterprise Resource Planning; CRM refers to Customer Relationship Management
Foreign companies entering with IT systems which are integrated with their operational processes (e.g. ERP and
CRM systems) are implemented in China Need for Service Providers
China’s second and third tier cities with scarce quality
service providers
Potential Source of Opportunity
More foreign companies and organizations
entering China
Setting up their own websites
Good opportunity to web developers for building attractive
and stable websites
By the end of 2015, China will have 350 mn online shoppers
Boost to e-commerce in China
Underdeveloped consultancy services market
Banking and health sectors as they upgrade their systems
More online activities driving demand for compatible software
Opportunity in Web development
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SAMPLE Porter’s Five Forces Analysis
Competitive Rivalry • Text
Bargaining Power of Buyers • text
Threat of New Entrants Text
Impact High
Impact High
Impact Medium
Bargaining Power of Suppliers • Text
Impact Medium to High
Threat of Substitutes • Text
Impact Low
SOFTWARE MARKET IN CHINA 2014.PPT
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SAMPLE Competitive Benchmarking (1/4)
Trading Comparables (FY 2013)
SOFTWARE MARKET IN CHINA 2014.PPT
Player 1 Player 2 Player 3
Market Capitalization (USD mn)
Share Price (USD)
EV/EBITDA (USD)
EV/Revenue (USD)
PE Ratio
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SAMPLE Key Ratios of Major 3 Companies – Operational Basis (FY 20--) (x/x)
Competitive Benchmarking (x/x)
• xxx
0
2
4
6
8
10xx
Player 3
Player 1
Player 2
xx
xx
Debtors Turnover Ratio
Note: Assuming all sales are credit sales
SOFTWARE MARKET IN CHINA 2014.PPT
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SAMPLE Public: Domestic Company – Player 1 (x/x)
Key People
Products and Services
Company Information Locations – China
Corporate Address
Tel No.
Fax No.
Website
Year of Incorporation
Ticker Symbol
Stock Exchange
Name Designation
Headquarters
Category Products/Services
Software related products
SOFTWARE MARKET IN CHINA 2014.PPT
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SAMPLE Financial Snapshot Key Ratios
Financial Summary
• The company earned a net profit of USD xx mn in FY 20--, as compared to a net profit of USD xx mn in FY 20--
• The company reported total Income of USD xx mn in FY 20--, registering an increase of xx % over FY 20--
• The company earned an operating margin of xx% in FY 20-- an increase of xx percentage points over FY 20--
• The company reported debt to equity ratio of xx in FY 20--, an increase of xx % over FY 20--
Financial Summary
Total Income Net Profit/Loss
c b
b
0 0
a a
y
x
20--
y y
Profit USD mn
x
Total Income USD mn
x
20--
y
x
20-- 20--
Indicators Value (12/05/2014) Market Capitalization (USD mn) xx
Total Enterprise Value (USD mn) xx
EPS (USD) xx
PE Ratio (Absolute) xx
Improved Decline
Particulars y-o-y change
(20--) 20-- 20-- 20-- 20--
Profitability Ratios
Operating Margin
Net Margin
Profit Before Tax Margin
Return on Equity
Return on Capital Employed
Return on Working Capital
Return on Assets
Return on Fixed Assets
Cost Ratios Operating costs (% of Sales)
Administration costs (% of Sales)
Interest costs (% of Sales)
Liquidity Ratios Current Ratio
Cash Ratio
Leverage Ratios Debt to Equity Ratio
Debt to Capital Ratio
Interest Coverage Ratio
Efficiency Ratios Fixed Asset Turnover
Asset Turnover
Current Asset Turnover
Working Capital Turnover
Capital Employed Turnover
Public: Domestic Company – Player 1 (x/x)
SOFTWARE MARKET IN CHINA 2014.PPT
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SAMPLE
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Industry1 Region 1 Region 2
Key Business Segments Key Geographic Segments
Key Recent Developments
Description News
Overview
Approval
Joint Venture & Cloud news
SOFTWARE MARKET IN CHINA 2014.PPT
Public: Domestic Company – Player 1 (x/x)
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SAMPLE
• Text • Text
• Text
• Text
T O
W S Strength Weakness
Opportunity
Threat
Public: Domestic Company – Player 1 (x/x)
SOFTWARE MARKET IN CHINA 2014.PPT
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SAMPLE
Key People
Products and Services
Company Information Locations – China
Corporate Address
Tel No.
Fax No.
Website
Year of Incorporation
Category Products/Services
Solutions
Services
Product Name Designation
Regional Offices
SOFTWARE MARKET IN CHINA 2014.PPT
Private: Foreign Company – Player 2 (x/x)
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SAMPLE Financial Snapshot Key Ratios
Financial Summary
• The company earned a net profit of USD xx mn in FY 20--, as compared to a net profit of USD xx mn in FY 20--
• The company reported total Income of USD xx mn in FY 20--, registering an increase of xx % over FY 20--
• The company earned an operating margin of xx% in FY 20-- an increase of xx percentage points over FY 20--
• The company reported debt to equity ratio of xx in FY 20--, an increase of xx % over FY 20--
Financial Summary
Total Income Net Profit/Loss
c b
0
b
0
a a
x
y
Total Income USD mn
x
y
Profit USD mn
20--
y
x x
20--
y
20-- 20--
Indicators Value (12/05/2014) Market Capitalization (USD mn) xx
Total Enterprise Value (USD mn) xx
EPS (USD) xx
PE Ratio (Absolute) xx
Improved Decline
Particulars y-o-y change
(20--) 20-- 20-- 20-- 20--
Profitability Ratios
Operating Margin
Net Margin
Profit Before Tax Margin
Return on Equity
Return on Capital Employed
Return on Working Capital
Return on Assets
Return on Fixed Assets
Cost Ratios Operating costs (% of Sales)
Administration costs (% of Sales)
Interest costs (% of Sales)
Liquidity Ratios Current Ratio
Cash Ratio
Leverage Ratios Debt to Equity Ratio
Debt to Capital Ratio
Interest Coverage Ratio
Efficiency Ratios Fixed Asset Turnover
Asset Turnover
Current Asset Turnover
Working Capital Turnover
Capital Employed Turnover
SOFTWARE MARKET IN CHINA 2014.PPT
Private: Foreign Company – Player 2 (x/x)
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SAMPLE
0%
B%
A%
Z%
x
Y%
x
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Y%
20--
Z%
A%
0%
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Y% Y%
20--
x x
Y%
20--
Industry1 Region 1 Region 2
Key Business Segments Key Geographic Segments
Key Recent Developments
Description News
Overview
Approval
Joint Venture & Cloud news
SOFTWARE MARKET IN CHINA 2014.PPT
Private: Foreign Company – Player 2 (x/x)
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SAMPLE
• Text
• Text
• Text • Text
T O
W S Strength Weakness
Opportunity
Threat
Private: Foreign Company – Player 2 (x/x)
SOFTWARE MARKET IN CHINA 2014.PPT
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SAMPLE Mergers and Acquisitions (2011-2014) – (1/6)
SOFTWARE MARKET IN CHINA 2014.PPT
Announced Date Closed Date Target Buyer/Investors Sellers Size (USD mn)
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SAMPLE • Text
1 Text
2 Text
3 Text
Brand Building And Creating Brand Awareness
Text
Strategic Recommendations (2/2)
SOFTWARE MARKET IN CHINA 2014.PPT
40
Thank you for the attention
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SOFTWARE MARKET IN CHINA 2014.PPT