The number of jobs in Hong Kong's software industry has fallen by 22.2 per cent in just two years as software developers relocate to the mainland, a study by the Hong Kong Productivity Council (HKPC) shows. The survey of 166 independent software vendors (ISVs) in Hong Kong showed an increasing number of local software developers were turning to the mainland to open branch offices or even relocate their operations. In that time, the number of people working in the industry has dropped from 18,000 to 14,000. Since 2000, the number of software firms in Hong Kong has dropped by 10 per cent from 800 to 720, while the number of firms setting up offices in the mainland has risen from 31 per cent in 2000 to 43.4 per cent in this year's second quarter. Natalie Wan, consultant at the council's Software Industry Information Centre, said the fall in the number of jobs was largely due to the end of the dotcom phenomenon as well as a worldwide economic decline that saw the overall IT industry shrink. Ms Wan said the exodus of Hong Kong software companies to the mainland did not necessarily represent a brain drain. 'We think that the growth of the mainland software industry is critical to the health of the local software industry. It means the pie is getting bigger. It is good news to see local software entrepreneurs expand into China. We saw the same pattern with the manufacturing industry,' she said. Over the next 12 months, local staff numbers are expected to grow marginally by 2.8 per cent while the number of employees in mainland offices will grow by 10.9 per cent. Ms Wan said local software companies were relocating their research and development and programming tasks to the mainland, where IT talent is abundant and salaries are lower than in Hong Kong. Offices in the mainland are larger, with most companies employing between 20 and 50 staff compared to 10 or fewer in Hong Kong. Almost 24 per cent of companies employed more than 50 staff on the mainland, whereas only 5.4 per cent employed as many in Hong Kong. 'The role for Hong Kong ISVs is in value-added services such as software design, quality control, project management, sales and marketing, as well as to adopt software quality assurance tools and standards to enhance their competitiveness.' Ms Wan said the local industry had to piggyback on the growth of the Chinese software industry, which is the fastest growing in the region. While software sales in the mainland have for years been hindered by rampant piracy, China's push to become a member in good standing of the World Trade Organisation has resulted in the government cracking down hard on the problem. The Chinese software market totalled US$1.6 billion last year, led by IBM, and is expected to grow by 36.7 per cent per year to 2006, when it is projected to reach US$7.8 billion, according to International Data Corp. Ms Wan pointed out that while more software jobs were going to the mainland, there would be increased cooperation between software firms in Hong Kong and the mainland. However, the sector is recovering. The HKPC study showed that it is projected to grow by 11.3 per cent in terms of revenue this year. Projected revenue growth from Hong Kong vendors based in the mainland is expected to rise by 16.4 per cent this year. Exports from the sector to the mainland and other regions have increased from 19.7 per cent in 2000 to 30.1 per cent in this year's second quarter. Hong Kong is still the major market for local vendors, accounting for 69.9 per cent of market share. Ms Wan said last year was a pivotal year for the software industry as a result of the economic downturn that had dampened the IT industry overall. She said exports to the mainland in particular would grow rapidly as local software firms gained a greater foothold.