Development of and change in the software and IT-enabled services industry in Dalian, China

The software and IT-enabled services (ITES) industry in Dalian, China exhibits certain characteristics given its deep relationship with Japan. However, of late, the proportion of exports to Japan has decreased substantially. Hence, Dalian must progress from being an offshore base for Japan. This study discusses the changes in the domestic and international environments and analyzes their causes to explain the growth in the ITES industry in Dalian. In recent years, software and ITES companies in Dalian have been upgrading offshore services to Japan and expanding their business for the domestic market. Meanwhile, the positive lock-in effect to Japan has effectively advanced to upstream or high value processes in the software industry through long-term business relationships with Japanese partners. Furthermore, China's domestic business is facing a spillover effect from the use of the human resources and technology accumulated through offshore development in Japan. However, there are negative lock-in effects, too. For example, some companies cannot avoid dependence on offshore contractors because their range of business skills and knowledge is limited. Other companies are familiar with operating in the mature Japanese market, making it difficult for them to function efficiently in the highly volatile Chinese market.