Software firms have to globalize

A disturbing trend is afoot in the stock market these days. Of the more than 10 listed companies on the GRETAI Securities Market (the nation's over-the-counter market) that have ceased trading or switched to full payment stock transactions, many are software businesses.

Gone the days when software companies scrambled to list on the GRETAI and the Taiwan Stock Exchange with the help and support of the Ministry of Economic Affairs (MOEA), as share prices shot up. Skyrocketing stock prices for electronic and conventional industries are the order of the day; only software companies are stagnating with prices of less than NT$10 per share, leaving many in the industry grumbling.

Industrial policy

Three years ago, many people were enthusiastic about the government's IT initiatives as part of the Ten Major IT Construction Projects. The idea behind this policy program was to establish an integrated IT network within Taiwan together with a set of quality measures.

For the software sector this meant cultivating more software engineers and giving them practical experience to prepare for the international marketplace. The government finally launched its eTaiwan Project, in which the MOEA followed India and China's example by complying with the so-called Capability Maturity Model Integration (CMMI) system -- which helps firms gain better control over their software development, and allows comparison of different firms on the basis of a standardized benchmark.

Given considerable financial resources that have been ploughed into this project, though, one has to wonder how much it has really done for Taiwanese software companies.

Of course, there are success stories. The obvious example would be Trend Micro, which is listed on the Japanese stock exchange. But there are also CyberLink and Springsoft, whose stock prices have been riding high for some time now and which are still attractive firms for both domestic and foreign investors.

If you look closer at these three companies you can see they have certain things in common: They have all concentrated on the international market, and each has a competitive edge in a specialized area.

It is clear, then, that the major factor behind the long-term stagnation of the domestic software industry, which has fallen far behind its counterpart in India, is the lack of entrepreneurs who can function capably in international markets. To stimulate these industries, it is woefully inadequate to rely only on domestic demand and government subsidies. In the final analysis, the domestic market is limited, and CMMI-compliant Taiwanese software companies are going to be under severe pressure if they enter into price wars with Chinese software companies which also follow CMMI.

Entrepreneurship

Recently two consultancies that originally advised software companies on CMMI quality guidelines decided to go into software development themselves, as a result of seeing the despondency and inertia within the industry.

They made themselves competitive by applying the CMMI quality, process and management principles which they are so familiar with. They secured orders for software from domestic and international clients, conducted the appropriate systems analysis, worked out the requirements specifications and then farmed out the design work to software companies in China.

After initial trials, the rest of the process is carried out in Taiwan, where final assessments and "beta" tests are conducted, before the software is handed over to the client.

Isn't precisely the kind of thing that is happening with the international division of labor in the Taiwanese hardware industry, where part of the work is conducted in China? It is a development that should be wholeheartedly endorsed in the software industry.

True, this kind of thing has been tried unsuccessfully by many companies. But key stumbling blocks were a lack of competency in requirement management and project management, which meant that the products they released were not what clients were looking for.

I believe that if the Taiwanese software industry is going to get itself out of its current predicament, it must go the international route. More international-level managers and marketing talent are needed, and quickly.

The knowledge industry is king these days, and it is of paramount importance that the government provide guidelines to help domestic software companies improve.

More is needed in software requirements analysis, management, and testing, and more project managers must be cultivated.

Cheng Chia-chi is chairman of the Chinese Software Quality Association.

TRANSLATED BY MAX HIRSCH AND PAUL COOPER