Industry Overview

4.1.1 Key characteristics of Information Service industry in Taiwan

Information Service industry in Taiwan is considered a capital and technology-intensive industry with a relatively low entry threshold. Based on the statistics published by the Directorate General of Budget, Accounting and Statistics, Taiwan in 2001, there were a total of 5,385 IT service provider companies in Taiwan. It is common knowledge that industry in Taiwan essentially consists of many small and medium-sized enterprises (SME) with fewer large enterprises. This also reflects in the information service industry, in which there were only 6 firms with over 500 employees and 63 firms with around 100 to 499 employees, while firms with less than 100 employees accounted for 98.7%.

Although the uses of information service encompass a somewhat diverse field, it can be observed that the application areas of information service in Taiwan involve primarily these three categories: product, project and service (see Figure 4-1).

Product refers to software products that can be used directly after downloading and installing from a complete installation package such as, software system and applications. With the rise of many application service providers (ASP) today, selling types have shifted from product-centric mindset to a more service-centric approach. It can thus be seen that in addition to safety and bandwidth, service level is now also a significant variable to be considered in product development. This new business model along with emerging trends of e-business have helped grow the size of the total market. However, market growth can be slow if there is a shortage of innovation, bad

Project involves interrelated tasks of software development, consultation, training, and computer facilities services that are carefully planned to achieve a particular aim based on the demands established by customers. Growth in the market mostly credited to government support and policies to push the development of information service within Taiwan. The initial plan was to focus on developing supply chain management systems, before expanding into a more diverse field to include manufacturing, finance, agricultural and architecture, etc.

Service includes the provision of Internet-related services, including electronic information and Internet connection services. Size of the market has continued to go from strength to strength, taking advantage of the ever-growing number of Internet users in Taiwan. In fact, there were nearly 18.83 million Internet users in Taiwan as of 2015, which equaled 80.3% of the population. In the last few years, Taiwan has seen a new rise in the B2B & B2C ecommerce services, online advertising, Internet banking and online shops. All these have undoubtedly boosted the size of the total market.

Figure 4-1 Information Service Industry Value Chain

4.1.2Market conditions

Taiwan’s information service market generally comprises of system integration, IT outsourcing and cloud computing service segments. System integration segment primarily focuses on providing system infrastructure and deployment services, as well as business processes development and business consultant services. IT outsourcing segment includes software support and hardware maintenance services. Companies in this segment usually carry and sell original factory-sealed software and hardware from overseas, then bundle basic maintenance and support fees into it. Cloud computing service segment, on the other hand, involve offering services according to three standard models, which are Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS).

Table 4-1 Information Service Market Scope

Market Segment Details

Information Service

System Integration System infrastructure, development, integration, construction and consultation

IT Outsourcing

IT Outsourcing (ITO), Business Process Outsourcing (BPO), software development outsourcing, system maintenance and support, training

Cloud Computing IaaS, PaaS, SaaS

Source: MIC (2001)

According to a recent research by Taiwan’s Market Intelligence & Consulting Institute (MIC), global information service market is projected to grow at a compound annual growth rate (CAGR) of 4.4% from 2016 to 2019, reaching an expected value of $ 948.9 billion by the end of 2019. In 2016 alone, the number reached $ 836.8 billion, with cloud computing service remaining as the fastest-growing segment at a value of $ 480 billion. In the following years, big data, intelligence, mobile internet, system integration and cloud computing will still play a pivotal role in promoting the growth of global information service market.

Following the anticipated growth in the global information service market, Taiwan’s

end of 2018. The market reached NT$ 156.7 billion in 2015 and the number is expected to further grow to almost NT$ 177 billion in 2018.

Table 4-2 2013-2018 Taiwan Information Service Market Size

Year 2013 2014 2015E 2016F 2017F 2018F

Market Size

(NT$ billion) 141.5 148.1 156.7 164.9 171 176.3

Growth (%) N/A 4.6 5.8 5.2 3.7 3.1

Source: MIC (2015)

Different from the condition in the global information service market, system integration segment is apparently the biggest contributor to the overall growth in Taiwan’s market. This is because more and more companies of all sizes, particularly from the manufacturing, finance, and circulation industry, are seeking to expand beyond domestic borders. They need to have an integrated IT infrastructure in place to support effective information sharing and guarantee communication quality across the world. Furthermore, the government has also been strongly promoting the Industry 4.0³ movement since the last few years. The concept foretells advanced real time communication across the entire value chain made possible via the Internet. Under this movement, growth of Taiwan’s system integration segment is expected to accelerate further in the next few years.

3First conceived in Germany in 2011, Industry 4.0 is the “fourth industrial revolution” after the steam power, electrical power and industrial automation. It is the current trend of

Figure 4-2 2013-2018 Taiwan Information Service Market Size by Segment Source: MIC (2015)

A further breakdown of the system integration segment reveals that system construction service took up most of the market (see Figure 4-2). Global business expansion, replacement of outdated system and the importance of cross-function or cross-enterprise integration resulted in the constant demand coming from large companies and public sectors that ultimately help boost the market.

Figure 4-3Breakdown of Taiwan System Integration Segment Source: MIC (2015)

2013 2014 2015E 2016F 2017F 2018F

System Integration 100.31 104.52 110.81 115.45 120.03 123.02 IT Outsourcing 30.88 32.05 33.20 34.68 36.01 37.20 Cloud Computing 10.35 11.61 12.70 13.85 15.01 16.15

0

System Infrasructure 16.22 17.39 18.35 19.23 20.26 20.81 System Construction 76.66 79.39 84.26 88.58 90.74 92.72

Consultant 7.43 7.74 8.20 8.64 9.03 9.49

0.00

4.1.3 Industry trends analysis

a. Emerging trends in enterprise application software

Competition for customers and markets has intensified significantly in response to the phenomenon of globalization. Companies are forced to grow more competitive if they are to survive in the market. In response to this, the government has taken measures to raise industry competitiveness and improve Taiwan’s economy by introducing the e-business policy that includes B2B, B2C and B2G program in general. These government-funded programs will most likely create new demand for e-business applications like ERP, SCM, CRM, etc., to facilitate effective enterprise integration for companies to stay ahead of the competition.

According to MIC, Taiwan market for enterprise solutions will rise to NT$ 45.3 billion in 2017, with ERP, CRM and e-business systems being the main drivers of growth. Most of the large companies in Taiwan today focus primarily on the application of CRM and Business Intelligence (BI), while the SMEs invest heavily on ERP and CRM system. IT service provider companies in Taiwan also tends to seek out opportunities to work with large and enterprise sized businesses. They then shift their focus to target on the SMEs when the market for large companies passes into the maturity stage.

b. System integration gaining importance

The system integration market is further propped up by an upsurge in demand for enterprise application software including ERP, SCM, data management and BI.

Companies have a tendency to embark on continuous improvements mission, especially when their existing system and application software have been under development for quite some time. They extend the value of those applications and enhance processes by integrating with other enterprise software solutions such as the BI system, which are becoming an essential part of the organizations information systems. BI system helps deliver and integrate relevant and significant business information in an organization. The resulting insights allow companies to better evaluate, understand and adapt to trends in customer behavior. As such, many companies that first started with ERP, SCM or CRM system are seeking out potential integration opportunities to achieve greater business efficiency with BI system.

With enterprises keen on moving toward consolidating multiple software and capabilities into a single suite and sharpening efficiency of business operations, system integration market is expected to scale greater heights in the years to come. In fact, the market is projected to grow to NT$ 123.02 billion in 2018 according to MIC.

As companies grow increasingly dependent on external entities, the need for B2B integration becomes more apparent and critical. However, for many enterprises, in-house application integration still remains to be the top priority.

Opportunities for systems integrators

Increasing revenues and sales is a constant challenge for all companies. Since maintenance fee is the main source of income for most system integrators, they always strive to offer integrated and innovative product lines or services to capture high-margin projects, generate new sources of income and ultimately grow their business. That being said, emerging cloud technology today presents huge opportunities for system integrators. It is now common practice to use Software as a Service (SaaS). From the traditional role of providing software, hardware installation and support, system integrators can now develop their software to include a modified service offering, with a scalability and usability of thousands and even millions of end users, without customers having to make senseless investments into hardware.

In addition to cloud computing phenomenon, there is also a shift in the system integrator market towards specialism. As mobile devices become an integral part of everyday work in many companies, it is of paramount importance for companies to ensure that corporate confidential data are protected when used on mobile devices.

Mobile Device Management (MDM) helps address those security issues and offers data protection services on mobile devices. There is just immense potential that can be leveraged when it comes to implementation and management of MDM services.

4.1.4 Industry value chain

As most IT service providers in Taiwan are SMEs, focusing resources on a specific customer segment allows small businesses to better serve a target market and help expand the industry. Basically, the focus is on the three main areas of e-Taiwan (e-Government, e-Business and e-Society), that serve as the key growth drivers for the

among operator, infrastructure provider, storage provider, content provider, value added service provider, internet service provider, developer, system integrator, embedded solution provider, etc. The impact of the three major programs on the industry value chain varies significantly across all these components as shown in Table 4-3.

Table 4-3 The Impact of Three Major Programs on the Information Service Industry Value Chain ensure that citizens would have confidence in using government services that can be accessed anytime and anywhere. Some of the key e-government initiatives include setting up a government portal site, developing online services like official document electronic interchange (G2G), e-procurement (G2B), e-taxation (G2C), etc.

The current e-government program further employs innovative methods to provide superior integrated services that allow the government to provide end-to-end applications, information queries, download and online fee payments services. For these projects to be successful, active involvement of information service industry is very crucial. It can thus be seen that promotion of these e-government projects will be

Note: Secondary influencer Primary Influencer Source: MIC (2001)

expand markets for software developer, value added service provider and embedded solution provider.

Figure 4-4 e-Government Value Chain Analysis Source: MIC (2001)

e-Business

Taiwan’s e-business program development is believed to accelerate growth in the information service industry. With the increasing demand on e-business applications as either a service or a project, the role of ASP, ICP, ISP, value added service providers, system integrator, IT consultant and embedded solution provider becomes more important than ever. But of all, system integrators will contribute the most to the development of e-business program. They have adequate business domain knowledge as well as the knowledge on technological advancements that can facilitate end-to-end connectivity and communication. That being said, system integrator is more likely to see more demand coming in the future.

On the other hand, Internet service provider (ISP) also has growth potential. ISPs

advantage to build a network that can be shared by many senders and receivers to exchange multiple data across all applications or platforms at all times. In addition, many ISPs are offering packages tailor-made for specific markets and expanding into value added service (VAS) sector.

Figure 4-5 e-Business Value Chain Analysis Source: MIC (2001)

e-Society

In the society today, people use digital media in most relationships, including peer to peer relationship, government to other, other to government and peer to other.

Companies are also creating and selling products that are mostly tied to digital communications and computational technologies nowadays. Promotion of the e-society program is likely to create new opportunities in the information service industry. The Internet enables information service providers like system integrator, embedded solution provider, content provider, value added service provider and developer to deliver more innovative value-added services.

Figure 4-6 e-Society Value Chain Analysis Source: MIC (2001)