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Spain's Panda Software, hoping to sell more anti-virus software to mainland government offices, has signed a joint-venture agreement with Shanghai Founder Yanzhong Science & Technology Group (FounderTech).

FounderTech, a unit of one of China's largest personal computer manufacturers, will hold 51 per cent of the new company.

Panda Software China general manager Peter He said a key reason for entering the venture was to focus on the enterprise market in China and 'in this area, the purely international companies are at a disadvantage'.

Plans for the venture included developing new products tailored for China's police and public security bureaus, an area where buying software from foreign companies was not prohibited but where software makers faced extra scrutiny, Mr He said.

After losing a Shanghai municipal Government software bid last month, Panda, reportedly the fourth-largest anti-virus software company worldwide, decided not to participate in recently closed Guangzhou Government bidding.

The Guangzhou bid was open only to Chinese companies, Mr He said, and Panda planned to complete its China reorganisation before participating in other government bids.

FounderTech's vice-president Tang Xue-jun will be named chairman of the venture, while the management team for Panda Software China will remain in place and all of its operations will be transferred to the new entity.

Government offices are among the biggest buyers of software on the mainland, especially with an official campaign being conducted to replace pirated software with licensed packages.

A recent estimate by CCID Consulting, which is based in Beijing and connected with the government-run China Centre of Information Industry Development, put last year's software market at 28.5 billion yuan (about HK$26.71 billion) and projected a growth rate of at least 25 per cent for the year. Growth in the network security market, at 61.8 per cent, outpaced that of all other segments.

No figure for government spending on software was given by CCID, but Mr He expected governments in large cities such as Shenzhen and Chongqing to award contracts worth up to 200 million yuan in total this year.

Other large consumers of information technology under the government umbrella include telecommunications companies, banks and security bureaus.

A trend towards favouring Chinese-run companies in government software purchasing, at least at the municipal level, was predicted by many in the industry in December, when Beijing awarded more than 15 million yuan in contracts to six companies, all majority Chinese owned.

In recent years, foreign software makers such as Microsoft have won large contracts from governments in cities such as Shanghai. But Microsoft was snubbed in the Beijing contracts, which also favoured companies specialising in developing software for the Linux operating system that competes with Microsoft's Windows.

Panda is not the first foreign software company to enter this type of joint venture on the mainland. Hong Kong's Culturecom, which develops the Linux-based Chinese2000 office suite, participated in December's Beijing contracts through a joint venture 51 per cent owned by Shanghai's Red Flag.

In January, Microsoft announced it was entering a joint venture based in Beijing, its first in the world. Called Zhongguancun Software and capitalised at 100 million yuan, the venture will be 51 per cent held by Beijng Centergate Technologies. Hong Kong-listed Stone Group will hold 30 per cent and Microsoft the rest.

Microsoft said then the joint venture would offer enterprise and government application software, as well as integration services.

Panda and FounderTech were in the process of registering their joint venture and would not disclose amounts invested until registration was complete, Mr He said.

The co-operation included an agreement to extend pre-installation of Panda's anti-virus software on Founder's computers to those earmarked for the enterprise market. The two companies previously had an agreement for pre-installation of Panda software on PCs sold to consumers at the retail level.

Founder's personal computer unit shipped about one million PCs per year, of which about 600,000 to 700,000 have factory installed software.

Panda trailed Norton Anti-Virus and Network Associates in China's enterprise network security market, which has annual sales of about 200 million yuan, Mr He said. In the retail market, domestic players dominated and Panda had no interest in pursuing greater sales there.



Panda eyes government deals with new software venture