Besides, foreign companies may not fully understand the needs of mainland enterprises. They may also appoint domestic sales agents for the marketing of software in China. Due to the short supply of IT personnel and higher costs in Hong Kong, many companies in the SAR are exploring the feasibility of outsourcing software development and support services to the mainland. Meanwhile, although China encourages foreign organisations to set up scientific research centres in the mainland, few are really interested because the current business environment is not considered favourable. However, after China enters the WTO, its business environment is expected to improve significantly.
Software is a capital-intensive industry.
At present, China's software industry is still in its development stage where the foundation is relatively weak and the scale of enterprises generally small. Besides, these enterprises lack access to financing and have to rely on operating profits to fund business expansion. Banks are the primary source of financing for mainland enterprises. As a rule, banks follow conservative operation guidelines and require fixed asset collaterals or credit guarantee in extending commercial loans. However, the most valuable assets of hi-tech enterprises are often intangible.