Depa aims to curtail software slump

Sector predicted to shrink by 4-5% a year

Thanachart: Impact from cloud services

The software and service market in Thailand is expected to keep on declining in 2017-18 after its first contraction in a decade last year.

The sector is expected to shrink by 4-5% a year due to economic slowdown, rapid change of business models and digital transformation.

The Digital Economy Promotion Agency (Depa) is working hard to foster Thailand's software industry through tax incentives to encourage SMEs to use local software. It has set an ambitious goal to have the industry rebound to a value of 52 billion baht in 2017. Without such measures the local software and service industry is likely to continue to decrease by 4-5% a year, with its total value is estimated to be only 48.1 billion and 47.6 billion baht in 2017 and 2018, respectively.

"Local software and service suffered a big impact from the popularity of cloud-based services and digital transformation which chased local players out of the market, and forced them to change their business models to software-enabled service," said Thanachart Numnonda, executive director of IMC Institute Inc, in the 2017 Thai software market survey, sponsored by Depa.

He pointed towards software-enabled services such as ride-hailing apps that earn revenue from each transaction.

The local software and service market grew only 1% in 2015 to a value of 52 billion and shrank the first time, by 4.63%, in 2016 to 50.1 billion baht.

"Some local software moved into software-enabled and cloud services which the survey did didn't account for," said Mr Thanachart.

In 2016, 46 billion baht of the local software market was from domestic use and 3.7 billion baht was export earnings. Domestic use decreased by 5.72%, while exports increased by 11% as multinational and Thai companies established physical offices abroad.

In terms of product categories, packaged software faced the highest impact, contracting by 9.5%, to a worth of 12.7 billion baht while services, including system integration and customized services, were valued at 37.3 billion baht, a contraction of 2.8%.

"The market has changed rapidly. The survey is supposed to cover software enabled-services, but it's hard to collect data on the revenue from cloud services because some are foreign cloud service providers and those revenues are out of the country," said Mr Thanachart.

Nuttapon Nimmanpatcharin, president and chief executive of Depa, said Depa will introduce three measures to help stimulate market demand and strengthen the cloud capability of software developers.

On June 2017, the cabinet approved a 200% tax exemption for SMEs who procure or rent local software, at a cost not over 100,000 baht. The local SMEs who can apply this tax exemption need to have less than 5 million in registered capital and less than 30 million baht of revenue.

Local software companies need to register with Depa and must be ISO 29110 or CMMI (Capability Maturity Model Integration) certified.

Depa has prepared some 10 million baht in partnership with Nectec and the Management System Certification Institute (MASCI) to subsidise local software businesses to become ISO 29110 certified. Each business can apply for a 70% subsidy of the total standard certification cost.

Over the next three years, Depa wants to have 800 of the 1000 local software companies certified.

Depa also plans to spend 900 million baht to establish an IoT Institute in 2020 in the Eastern Economic Corridor (EEC). The IoT institute will include cloud innovation and data centres supporting IoT technology and data analytics.

In 2017, the embedded software market is expected to grow by 5%, said Mr Thanachart. The growth is due to the government approving the allocation of the 920-925 MHz spectrum for use with IoT technology which should help drive demand.

In term of users, financial institutes, the government and the travel industry are the top three spenders on local software and services, while telecoms, public and state agencies and healthcare are the top three sectors in embedded software.

The survey found that in 2016, the software workforce grew by only 0.38%, and accounted for 56,000 workers in total.

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