Don't count on China: Gartner

Market researcher Gartner has warned IT enterprises away from dependency on Chinese products and services if Sino-Japanese relations continue to crumble.

Gartner this week issued a report encouraging enterprises to reduce any dependency on products and services from north-east Asia. Pundits had warned of unstable relations between China and Japan for the foreseeable future, Gartner said.

Sino-Japanese relations hit the headlines in recent months with news of tension and civil unrest in China following Japan's refusal to concede responsibility for certain activities in World War II. Chinese commentators have accused Japan of trying to rewrite the history books and whitewash its own wartime actions.

Dion Wiggins, a director at Gartner Research, said some 95 percent of the largest 2000 companies in the world had "extensive" interests -- including investments and staff -- in China and Japan.

"Most large global companies will have to adjust their strategies and plans if the China-Japan situation remains volatile. For many companies, it is no longer ‘business as usual’ in north-east Asia," Wiggins said.

A large "disconnect" between the business and political relations of China and Japan could negatively affect commerce and trade in both countries and have an influence on commerce in many other parts of the world, he said.

"We believe that all IT-using and IT solution-providing enterprises globally need to reassess their business models, investments, trading partners and strategies for both Japan and China," Wiggins said.

IT companies should examine the causes, current status and potential trigger points in the relationship. All participants in the IT economy of northeast Asia should consider reducing their dependencies on supply of products and services from this region, he said.

That also presented an opportunity for some other companies to offer alternatives, he added.

Gartner said escalating tensions between the two countries could spread to Hong Kong, places such as Korea that have their own issues with Japan, and other nations with strong links to China.  That "extreme outcome" could hasten the onset of a global recession, it said.

That impact would also kill initiatives on joint standards, in areas such as fourth generation mobile networks, RFID, open source software and next-generation internet, it added.

"In this scenario, Japanese technology firms will reduce their commitment to the Chinese market, with many ultimately withdrawing completely," Gartner said.

"India, actively supported currently by the Japanese government, would become Japan’s new base for low-cost manufacturing. Chinese industry will suffer as its source of leading-edge technology dries up amid continuing export restrictions from the US and Europe."

IT firms from North America, Europe and elsewhere in Asia could acquire Japanese assets at attractive prices but others would steer clear and divert sourcing away from an unstable region, Gartner said.

A medium-severity scenario would involve uncertainty and volatility with a broad business impact. China and Japan would become biased against each other's products, Gartner said.

"Chinese IT service and software firms will reduce their Japanese business initiatives. As they refocus on North America and Europe, these Chinese firms will meet more direct competition from established global IT service firms, particularly those from India," Gartner said.

Economic growth in both countries would suffer, with the shock enough to drive Japan into recession and perhaps act as a catalyst for business and government reform. China surpassed the United States as Japan’s largest trading partner in 2004, with trade between China and Japan increasing more than 30 percent to US$213 billion, Gartner said.

"Both nations are each others’ second-most-important export market after the US," it said.

However, Gartner believed the impact might be restricted primarily to Chinese and Japanese companies. Japanese companies that have temporarily frozen investment might resume most activities, but with greater due diligence and an increased focus on disaster recovery planning and risk management, Gartner said.

"Chinese antipathy will cause Japanese organisations to be more interested in offshore IT and business process service providers elsewhere in the region, such as the Philippines, Vietnam, Thailand, Malaysia and Australia, that are positioned to meet their needs," Gartner said.