China market , what are the risks and opportunities?

An adverse IT security environment has shifted the importance of IT security to a strategic level within various organizations and industry. With the recent spates of hacking incidents happening globally. Organizations and even governments have raise their alert beacon on their own security defense perimeters.

This present huge opportunities for security vendors and providers alike. China and India which are the 2 super powerhouse in Asia Pacific have seen an influx of security vendors & providers home-grown ( H3C, Kingsoft, Rising etc) as well as global players (Cisco, Checkpoint, Fortinet , Kaspersky etc) clamouring for a slice of the lucrative pie.

The China infosec market is predicted to reach a compound annual growth rate of 21.5% in 2011 and 2012. Market research has further reported that the market is likely to enter a fast-growing phase in forthcoming years. Its size is estimated to be CNY 16.658 billion [$2.53 billion; £1.58 billion] by 2012, and it will enter a growth period after 2012.

One of the biggest players in the Chinese infosec market, and with pretensions to become even bigger, is Kaspersky Lab. Despite Asia-Pacific business contributing only 7% to Kaspersky Labs’ total revenue, this is their fastest-growing market.

There have been IP issues and regulatory concerns for foreign companies when doing business in China. One of the key concerns is about regulation around encryption technology. When importing a product into China – say a security product such as a router or a switch that has some sort of encryption technology – then you have to hand the encryption algorithm/technology to the Customs. Many companies are concerned about this because they consider their encryption as a trade secret, and they don’t know whether the Chinese government will leverage that platform to steal their IP. This is a critical issue; but the Chinese government insists it is for national security – and that’s why it is with Customs and not the Ministry of Commerce. Though, this is still viewed skeptically by the companies.

I believed that companies have to manage their risks, and understand the Chinese culture and how the market operates and what is the competition; and all these things must be understood and taken in perspective in order to make the right decisions.

China has leapfrogged to 2nd place as the 2nd largest economy in 2010 with a GDP of USD 5.88 trillion and poised to overtake US by 2020-2030. It is crystal clear that any major company that does not go to China will be irrelevant within a few decades.

As the Chinese saying goes “You have to enter the tiger den , in order to get the cubs”.