Domestic Economy

Couple days back, I had a discussion with my colleagues about the domestic and international economy. The topic is starting from one point, whether the english speaking is the mandatory skill for software industry in China.

My young colleague believes it is yes. Because he believe software is highly intelligent property oriented and being able to communicate and interpretate the IP from english speaking market is crucial. And he also think that companies need to operate in a global scale, and have to conduct business in English.

My position is different. Understanding IP from english speaking is easy stuff. To read patent or tech spec doc does not really need english proficiency. The key is the market. If china market growes tremedously, then it will form a domestic market which is self-sustainable to have chinese speaking and operating only market and will have some companies which only operate in domestic market with domestic language.

This is actually a very interesting topic by looking into Japan and Germany. Germany is on my colleague track, running software business in english and achieving global economies of scale. SAP is the best example. However, domestic market and domestic operating companies are basically non-existing. Japan is sort of reversed. Some of japanese software firms like Fujitsu is running at global scale. But even just look into Fujitsu, some of its subsidinary is running like a traditonal japanese companies, operate only in japan market and do everything in their own language.

Then at this moment, we also need to bring in India in this discussion also. India is also interesting. No domestics market and completely relys on foreign (english mainly) market.

So, of course we can use Dunning's OLI or Porter's five force and diamond model for this. But from market perspective, does india going to be competitive for chinese speaking software industry? the answer is no. So, in the case if china's software market is formed (means chinese language based application), then there is no doubt this market could be domestic by chinese company, or the foreign company with signficant IP which can utilize economies of scale.

This is proven in Japan. In japan, there are quite some domestic companies only operate in their market. They are japanese oriented and know the market better. So, if they are in possession of enough IP, then there is no foreign company can beat them up.
SAP and Oracle are the cases which foreign company have to use more IP (like the world class process this kind of BS) and economies of scale to win Japanese market.

So, for Chinese market and software firm, the future is interesting and tie to each other. If china's software market grows and sustains, then chinese software firms will have their niche market and they even don't need to go outside (means no need to penetrate english speaking market) until they reach certain growth threshold. Recently China government's Linux case is symbolic to establish a unique market.

But if the market is not self-sustaining. Then chinese firms will end up directly compete with global companies on IP and economies of scale, and with India with cost and effiency. Then the future is more blurr.

This is sort of tie back to the domestic demand factor in Porter's dimond model. The sustainability of domestic demand by far is still the most signficant factor in the influence of a industry from country/nation perspective in my personal view. The growth of india software industry and the fail of US auto industry are two intersting and special cases. But we can talk that future later.