July 11, 2002

Linux and the market's big geographic change

Author: JT Smith

- By Jack Bryar -
Is the IT slump in the United States and Western Europe a temporary setback or a
permanent change in the marketplace? Increasingly, Asian IT developers
think that something fundamental is happening in global markets, and they are
turning their efforts away from Western markets. They are also shifting away
from their past emphasis on hardware, on Western exports, and on U.S.
developers of proprietary software. Many leaders in Japan and other Pacific Rim states
believe Open Source software may be a way to improve their domestic
markets and help them penetrate nearby Asian markets still growing at
double-digit rates.
Japan's shift of emphasis is instructive. During the '80s and
'90s, Japan's superior manufacturing skills helped it contend with the United States
for dominance in the personal computer marketplace. The country's once
formidable Ministry of International Trade and Industry (MITI) orchestrated a
flood of innovative computer products by Japanese manufacturers. At the time,
many analysts thought the country would dominate the global PC industry the
much the same way it same way it took over consumer electronics in the
'60s and '70s. Unfortunately, MITI never appreciated the importance of
software. The country never developed a software industry on a par with North
America's. Over time Japan's position deteriorated as the software and services
sector became an increasingly important part of IT, and as other Asian states
took over a greater share of the chips and commodity components marketplace.
That slump became a crash as the U.S. and European markets faded over the last
couple of years.

Today MITI has renamed itself the Ministry of Economy, Trade and
Industry (METI). Along with the name is a change in its attitude. Now, METI
thinks local markets are important. It thinks software is critically
important. And, it has begun to promote Open Source as a way to increase the
efficiency of the country's manufacturing base and to advance Japan's high
technology industries. Over the last two years METI has been the force behind a
number of Linux-centric projects such as the SCore Cluster System software adopted by NEC and Fujitsu.

This week, METI will escalate its involvement with the Open Source
community. It proposes to organize that community into a national resource.

Japan may boast a community of more than 5,000 hackers who are involved with
Open Source development at some level. However, METI considers the community
too small and too, well, disorganized to meet national goals. It
proposes to solve both problems. This week, it is sponsoring a new non-profit
consortium of academic and industry officials to promote Linux and Open Source,
and to help focus its activities. The consortium will be headed by
Japanese professor Masayuki
Ida
, who has worked closely with the Free Software Foundation. The
consortium hopes to recruit as many as 500 engineers to create a Free Software
database program and to set up a training program and licensing support for
Japanese developers. Among METI's goals for the consortium will be the
development and distribution of the latest versions of Open Source software to
Japanese companies, plus training and technical documentation materials. METI
has made the consortium a central element of the country's industrial
structural reform project.

Malaysia is another country whose prosperity has depended on a healthy
Western technology and communications market. The country has been a
manufacturing center for chips and components. Much like Japan, Malaysia's political
and industrial leaders placed little emphasis on software development. That
is about to change dramatically.

The government's Education Ministry announced it is recasting
itself as a center of Open Source software critical to economic recovery. To
that end, the ministry is working with that country's leading computer
industry association to roll out a nationwide curriculum to teach software
skills to the nation's youth. The core of the program will be Linux. According
to Looi Kien Long of the Association of Computer and Multimedia
Industry of Malaysia (PIKOM), Linux and Open Source is critical if the country is to develop the
world's next generation of information and communications technology
applications. PIKOM is polling its members to gauge the degree to which its members
are using Open Source code today, and to identify local companies willing
to take an active hand in the training program.

This new emphasis on software and Open Source is based on a
cold-eyed assessment of the future of IT. Many Asian technology and
political leaders think that the current slump in Western tech markets may be
more or less permanent. Many believe the IT markets of the future are in
technology-hungry countries such as India and China. For a variety of reasons,
Open Source looks like the only approach that will succeed in either market.

China may be the most important market in the world right now. In the
last few years, the country has become an important manufacturing center for
chips and components. However, it may become even more significant as a
consumer of IT products. Unlike the West, sales of IT equipment to China are
still growing rapidly. According to one source, the Chinese market for PCs
grew at approximately 18% over the last 12 months. The market for
sophisticated equipment has grown even faster. In business districts such as
Shanghai's
massive Pudong Development Area, the country's IT infrastructure has become as sophisticated as anything found in many Western cities.

According to a 250-page report being released by the researchers at Evans Data Corp., China's market "is expected to lead the world in IT spending growth for the foreseeable future."

That spending is expected to be largely focused on hardware, but the
software market is growing, too. The Chinese market continues to be a world
center of pirated software, and this may actually be stimulating the market for
Open Source products, according to a variety of analysts. According to recent
studies, more than 90% of the closed-source software found in China is pirated, and
nearly all of that pirated product is being produced locally. At this point,
there a few if any effective legal controls on the market. As a consequence,
closed-source producers have no effective means of generating income. They
cannot control distribution or enforce their licenses. And, Chinese business
and government purchasers face a choice between illegal, low-cost, closed-source
software of uncertain quality that they can't integrate, and legal,
low-cost Open Source products they can examine and adapt to local conditions. In
addition, the Chinese government is intensifying pressure on companies and other
institutions to stop using closed-source products.

The result is that most of the big-ticket industrial or commercial
projects that would interest Japanese or other Asian systems developers are
likely to be based on Linux or a related open platform. Today, Linux usage in
China is growing by an estimated 200% a year.

India is the other big market in Asia, and many of the factors that are
stimulating the Linux market in China are at work in India. Like China, the Indian
IT market is growing rapidly. Today, the Indian Software Association claims that there are more than 2,700 software companies based in
India, with another 500 primarily Indian software development companies that have
formal headquarters in the West. Cities like Bangalore and Mumbai
(Bombay) feature world-class development centers that produce nearly error-free
code.

Much of that software is developed for the export market, and features
a mix of proprietary and open code. The internal market is smaller and
more primitive, but it too is growing rapidly, and it is much more focused
on Open Source products.

Until recently, the national government has not focused much attention
on its internal IT market or the infrastructure needed to support that
market. Many Indian universities and research centers have yet to get a
functioning Internet link. Electric power can be a "sometimes" thing, even in such IT
centers as Bangalore.

That is beginning to change. As the Indian government teetered on the
brink of war with its neighbor Pakistan, government officials realized that
its lack of an organized IT infrastructure represented a national security
problem. The government is attempting to put together a crash program to put
together an Internet map of the country and organize a national disaster
recovery system. At the center of that plan is a national conversion of all
government systems to Open Source. Indian defense and security officials want the
country to mandate use of Open platforms for all systems connected to the
Internet.

In addition, many of India's local and state governments are promoting
the use of Linux in schools and government offices. The most recent example
was the announcement by the state of Goa that it was deploying Red Hat
Linux as part of a training program for the state's 600 public schools.

These changes have begun to generate an explosion in the size of the
Linux market. Sixty major Indian cities now feature Linux user groups.

The country's software engineers have begun to focus on developing improved
Linux distributions for Indian and global markets. Among these is Hyderabad's
Everyone's Linux (ELX), a desktop platform that the company hopes to launch in
both India and globally this summer. Another major initiative is the Simputer, a handheld device based on Linux and targeted to the local Indian market. More significantly, large-scale projects for India's government and private industries are increasingly based on Open Source.

These markets may still be small compared to the United States or Europe, but they
represent about the only growth markets in IT in 2002. And, as global IT
developers reformulate their strategies to attack these new markets, Open Source
will become a more significant part of their businesses.

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