China is poised to become the world’s fastest-growing market for IT enterprise software, according to a March report from research firm Gartner. The report predicted that the market will increase at a compound annual growth rate of 14.6% between 2008 and 2013. The market is expected to reach $9.4 billion by 2013 and make up 30% of China’s total software sales and 3% of total worldwide software sales.
The report also predicted that the nation’s enterprise software market will top $6 billion this year. According to the report, the strongest growth will be seen in the industries of manufacturing, financial services, communications, and government. Chinese businesses have generally preferred to develop their software systems from within because of lower labor costs, but this practice has generally resulted in inefficient legacy systems that quickly become obsolete. A 2009 Gartner survey found that 46% of respondents in China planned to increase their software spending in 2010, significantly higher than other countries surveyed.
One company successfully capitalizing upon this emerging market is NetSol Technologies, Inc. (Nasdaq:NTWK) (Nasdaq Dubai:NTWK), a U.S. corporation providing global business services and enterprise application solutions to private and public sector organizations worldwide. In late May, NetSol secured two major projects worth over $3 million to implement its NetSol Financial Suite (NFS)™ Contract Management System with a major international automotive manufacturer’s captive finance company in the Asia-Pacific Region. Then, in June, NetSol announced that Sany Corp. of China, the largest concrete equipment manufacturer in the world, signed a contract of significant value to install NFS™ to run its newly formed finance company. The complete NFS™ suite of products will be deployed by Sany Corp. across its vast dealer network as well as its business back office centers across China.
On July 6, NetSol announced the successful implementation of its NFS solution by Minsheng Financial Leasing Co., Ltd., the Company’s first major banking-oriented financial leasing client in China. According to Minsheng, the system’s installment has helped it to normalize and standardize its business processes, increase Minsheng’s participation in the financing sphere, and significantly improve its operational efficiency. China’s rapidly developing financial leasing industry, which experienced a growth rate of 139% in 2009, is playing an important role in the nation’s growing adoption of advanced IT solutions. An increasing number of Chinese financial institutions are seeking to streamline their operations by replacing their initial IT systems with flexible, integrated enterprise technology solutions.
RedChip Visibility recently initiated research coverage of NetSol with a Strong Buy rating and a price target of $3.00, representing a potential upside of over 260%. As China’s enterprise software market continues to grow, investors would be wise to keep an eye on this promising company.
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