Generally speaking, the largest difference between software distributors in China and other markets is the comparatively extra workload that Chinese resellers put on Western software companies. This is especially true for software that is not already a well-known solution in its space. While Chinese partners will often seem excited when approached, in our experience they will not commit to your products or services immediately to the level that your company is hoping for.
When Western brands do put this expectation on their software distributors in China, it often leads to significant problems. Simply put, Chinese resellers have different motivations and are not equipped to take the lead on running your channels, even if they say they will.
For example, through one of our clients, we’ve had the opportunity to work with one of the top software distributors in China in a specific vertical. The reseller is the company’s top channel in China, with over US$10 million in annual revenue, has a dedicated sales team with nearly 200 technical support staff, provides China certification, creates localized training and does monthly marketing events. When we asked the software vendor about their opinion on this partner, they answered, “they are better than most and very strong technically, but like all of our vendors in China, they don’t do much to sell or close deals and still heavily rely on us to bring them leads.”
Most partners will not agree to any meaningful business plan or minimum requirements in the early stages of a partnership. Software providers should not view signed agreements at this stage as binding, as partners very often will not. Mostly, partners see agreements in the beginning as a way to appease Western companies in order to get the partnership started. Their willingness to materially invest, however, is dependent on how the first 3 to 6 months progress. During this time, resellers will expend some resources to find qualified opportunities, but they are still taking a wait-and-see approach towards the viability of the partnership.
In these early stages, partners prefer the process of going after projects to be a collective activity with the software provider. Generally, they will start by conservatively reaching out to a select group of internal business development team members that will have discussions with their internal sales teams. Often, they will be reluctant to let providers speak directly to their sales teams – or bring you to customers – until they are familiar with your team personally, understand your products, and have confirmed the value proposition with their sales teams. As trust develops, they will start bringing you more deeply into the process, including joint sales calls with select customers.
In order to operate independently, resellers require that providers deliver detailed FAQs, case studies, technical documents and other collateral that can stand on their own and answer questions clearly and directly. In China, given the communications challenges and the number of people that can be involved in the evaluation and decision-making process, if it is not written down then it might as well not exist – too much is missed in conference calls and face to face meetings.
The sales process will typically be longer than in the West and will start at a more basic level. Once your team is involved in sales calls, expect to have to repeat basic information every time (e.g. provide the “big picture”), as there will almost certainly be new people brought into the conversation on the customer side.
Technical teams are usually only in meetings in order to receive answers to questions that their executives have asked them. It’s important to note that their evaluation process is often based on technology from previous projects. What this means, is that unless you have a local resource that can work with them on a new testing methodology, your key advantages may not come to light as their testing is based on criteria developed for another software.
Training – for both resellers and end users – is key. Software distributors in China expect providers to supply not only an extensive and localized knowledgebase, but also be available to offer hands-on support for complex issues. Many Western providers assume that Chinese end-users will “just get” the basics of their products. However, in practice, Chinese users have varying levels of experience and education, and fundamental differences in accepted UI/UX practices between Western and Chinese software mean that understanding and usability should not be taken for granted.
Well developed China channels can be a great go-to-market strategy for global technology solutions companies. On a regular basis, we are approached by companies that want to use a China channels strategy to expand into the market. Typically, the conversation, goes something like this:
“We want to find a few key China channels to invest in our business and take the lead on developing the market. We have been very successful with this strategy in [insert country] and want to replicate this in Asia.”
We wanted to touch on some of the reasons why global technology solutions companies need to be clear about what they want, and take a hands-on approach to China channels building.
China channels expect you to do the heavy lifting, at least at first
China channels have been working with Western companies for over 40 years and they know firsthand that the key to success in China is not in their hands, but in how the Western company approaches and invests in the China market. Generally speaking, the largest difference between China channels and other markets is comparatively extra workload that Chinese channels put on Western tech companies.
While Chinese channels will often seem excited when approached, in our experience they will not commit to or follow through on what your company is hoping for when first approaching the market. There are legitimate reasons why they cannot take the role you envision; and you don’t really want them to either, as it often creates more problems than solutions.
Simply put, China channels have different motivations. While they do know the local market, for most solutions they are not equipped to take the lead on building proper messaging and sales strategies.
Trust needs to be built
China channels expect and need you take the lead on driving your business in a new market. Surprisingly, they may even expect you to be equally focused on bringing them deals. They are also evaluating your credibility as a partner, and need to choose partners that show commitment to China.
In the early stages, China channels prefer the process of going after projects to be a collective activity with the provider. Generally, they will start by conservatively reaching out to a select group of internal business development staff, who will then reach out and have discussions with their internal sales teams. Often, they will be reluctant to let providers speak directly to their sales teams – or bring you to customers – until they are familiar with your team personally, understand your products, and have confirmed the value proposition with their sales teams. As trust develops, they will start bringing you more deeply into the process, including joint sales calls with select customers.
Know what you want from your partner
Many companies approach partners with an attitude of: “here is my technology, what can you do for me?” Western executives often walk out of meetings with potential China channels partners disappointed because they felt the partner didn’t grasp their technology or ask the right questions to demonstrate their level of seriousness. The reality is, however, that many resellers or distributors don’t need to learn the ins-and-outs of your product and technology: they see that as your job. What they see as their job is to deliver a product that is “good enough” to get the deal over the finish line. Ultimate success will rely on many more aspects than simply your technology and price.
While potential China channels partners are happy to discuss all the ways in the world that you can cooperate, in an ideal world it is best to be clear on your expectations in advance. Do you expect them to bring you opportunities? Host your infrastructure? Provide technical support? Co-market or independently market your products? The more you can share with them, the better. We recommend using a straw man model or proposal whenever possible so both parties have a clear starting point to discuss what is possible and realistic. Open ended discussions almost never go anywhere useful.
With over 870 million smartphone users* (which is still only 60% of the population) China continues to be a very attractive market for Western technology companies, from distribution to integrations. However, it is also one of the most competitive and dynamic smartphone markets. Western companies need to be realistic and adaptive to have a chance for success when working with a single China smartphone OEM or many at once.
We’ve worked on dozens of China smartphone OEM engagements for Western companies in China with our Sales Accelerator program. Having built strong relationships with nearly all smartphone OEMs in China, we wanted to share some advice on what your company should be prepared to offer to get them interested and eventually committed to your product or service:
You need to prove that you are worth the risk to be on millions of devices
Pricing power is straight forward if you understand your real value
In order to get the most out of your China opportunity, you need to make sure that both you and your OEM targets understand what you are bringing to the table. In general, most Western companies’ solutions fall into one of the following four categories:
Must haves — Very few products fit this world. Typically, these are solutions around batteries, screens and camera technologies. If your technology brings users to the China smartphone OEM, you can earn healthy revenues.
Marketing story — OEMs may use your solution to demonstrate innovation at their latest event or launch. You can earn some revenue, but only if your product can go beyond a few devices to mass market.
Nice to haves — A cool feature or alternative to something in the market. You need to be easy to work with and offer a very attractive price. Even so, in China it’s nearly impossible to build a profitable business around a “nice to have.”
Unique technology — Technology, by itself without a clear demand or use case, is a dime-a-dozen. China isn’t the right market for your solution unless you can invest the time and effort needed to develop it into something special that meets specific business needs.
Unless the China smartphone OEM CEO makes it happen (which is rare) you can expect consensus decision making
Above all, what you need to constantly remind yourself is that the best business cases and relationships usually win out in China. Along the way, you are going to need to convince a lot of people:
Everyone can be a champion or a blocker, so always be selling and tell the high level story to every participant along the way.
Everyone you meet will tell you they are the decision maker. It is often true but only for a very small aspect of the overall process.
Don’t let your product get stuck in endless technical reviews. Unless you generate support from executives, product managers, planning departments, and local markets, you’re likely to end up in a never-ending cycle of review and analysis.
Cross-department and multi-level lobbying & collaboration is necessary. This is due to the siloed nature of the China smartphone OEM organizations. Even your champions are unlikely to push above their bosses to bridge other decision makers and influencers. You need to do it yourself — and often for — the OEM teams.
OEMs are rarely experts and need lots of handholding — if they trust you, they will follow you
OEMs typically won’t have the same depth of experience that your team does, so help them get their overall product to the market — even for areas not directly related to you — and your efforts pay dividends in the future.
When they look to test your products, tell them exactly what to test, and how to test, being sure your strengths shine — many OEMs are truly trying to understand your solutions and their strengths, and many people want your product to pass these tests as much as you do.
Onsite support is required — but not like you think
The China smartphone sector is intensely competitive, and any bug, poor user experience or delay can cause major damage to the reputation of the China smartphone OEM. Local vendors (and successful global vendors) all provide local China support and you’ll be expected to do the same:
Offering support from outside of China often runs into problems with China’s Great Firewall: there may be slow or highly controlled access to the Internet; an inability to send / receive large files; blocked USB ports… you get the idea. So if you are supporting from abroad, expect everything to take longer than it normally would, with a lot of back and forth communications to even get started.
OEMs don’t need your best team onsite, and even so, they are only needed during critical times.
One of the key roles is to be there when something goes wrong. That said, your team doesn’t necessarily need to have the skills to solve the problem. They just need to be there as a representative to hear the issues and make sure it gets addressed.
Reliability is everything for a China smartphone OEM
When discussions become serious on real projects, you need to be straightforward on what is real and possible. Respond quickly and work with OEMs to solve problems. This is even more important than having a perfect product.
Don’t believe everything they tell you and don’t give up
Many times a “no” or news of losing to the competitor is just the beginning of the discussions:
At least 50% of ADG China’s wins started with finding out we lost. If you feel you should have won, you need to fight hard to explain your technology, get new evaluators and find out where are the real blockers to getting the deal done.
There can be games played in China, and complaining to higher-ups can sometimes bring them out and reverse poor decisions.
If you have the right relationship, people will generally be open and honest with you about you about what is really happening.
There is often time to change your position, pricing, tweak the technology, etc. If it results in a better outcome for them, they will work with you towards a win.
If you are persistent, then they know you’re the type of long-term partner they want to work with.
The white whale of trying to close a China business deal from afar. We endlessly see Western technology executives lose sound judgement and spend a year or more chasing gigantic deals with state owned enterprises (SOEs) or other public companies for large, highly competitive projects. For a number of reasons, this will never work out. Here is how it generally happens.
An enterprise software company that doesn’t have a presence in China is approached by a large China company, usually at a trade show or through their board’s network. A high-level executive at the public company is impressed by the technology and assigns a resource to investigate and pursue cooperation. The Western company sees only green (or red in this case). After a number of emails they get very excited and mark the public company as a top prospect and their gateway into the China market.
A year later — after having spent an untold amount on free trials, sales time and frequent trips to China — they are convinced that a deal is just around the corner. But it’s not.
How a China business deal generally goes (and shouldn’t)
We have seen this time and again, and in practice the real story is as follows:
The SOE executive was genuinely interested in the technology, and he passed it onto his R&D team to take a look. His team was excited to meet the company and learn about a technology that they only previously read about. The R&D team gets trials, meets with the Western company, and learns everything they need to know about what the technology does. They have accomplished their goal — from the Chinese company’s perspective that is the end of the story.
Why? Well, the problem is that in most cases, unless there is a compelling reason championed by a business person, the technology will never leave the R&D department. In reality, there might be an excellent use case, but if it is not a perfect fit then R&D will typically not be able to suggest deployment.
However, the Western company does not understand that this is the end of the line. Thinking that the deal is still near completion, they continue pinging the Chinese company, offering suggestions, and trying to push the project forward. Out of respect to a foreign company that is showing them so much “face,” the R&D team continues to communicate and share ideas and look for projects together.
After nothing happens, the Western company gets frustrated and flies its executives out to China thinking they can close the deal that way. They are usually treated well, taken to dinner, and some Chinese executives will come in and say some pleasant words about how they hope they can find a way to work together. Or in other cases, the key executives will suddenly have a last-minute emergency and send a replacement. Obviously, this is not a good sign.
Where ADG comes in
This is usually the point of the process in the China business deal where ADG is engaged. After an assessment and speaking directly to our contacts at both the Chinese company and in our partner network, we’re usually forced to come to the conclusion that there is no real traction for a deal (much to the surprise of the Western company). In some cases the barrier to a deal may be issues related to the business model or other issues that the Chinese company thought were not possible to resolve (and was uncomfortable bringing them up with a Western company). However, in many cases, there was never any intention on the part of the Chinese company to make a purchase.
In the end, the Chinese company will not take either a political or business risk to be an early customer of a company that has not fully committed and invested in the China market. This is especially true in today’s world if you are an American or European company. While most Chinese companies have good intentions, a China business deal is highly tied to personal networks, and if you don’t have a presence in China, your company simply does not have a network. Also, many deals at public companies have some level of government involvement in the background, which is another barrier for Western companies trying to do direct sales.
China is a unique market, and Western technology companies can rarely close major deals from outside of the country. In the vast majority of cases, they need an experienced and dedicated team on the ground inside of China to even close their first China business deal, never mind to work towards long-term growth and success. So, don’t be Ahab: do it right and build from the ground up in China.
A question almost every one of our clients asks early on is, “what about China intellectual property protection?” It’s an important question. The good news is, it’s getting better for global tech companies.
China in general is respecting IP more than ever, especially as China companies are increasingly developing their own IP; there are new China intellectual property laws providing better protections for intellectual property and global tech companies; the courts are getting better at China intellectual property enforcement; and the pool of attractive China partners is expanding — many publicly listed overseas and or with globally trusted investors and boards.
Still, you need to be smart and need an integrated, comprehensive IP protection strategy that fits your unique situation. So what are some of the strategies for protecting your IP? Here’s some practical ideas:
Do the basic legal things — register your patents, trademarks, and copyrights
Register your patents, trademarks, and copyrights in China. If there is ever an issue this could help later. Do it early in your China development process. If you don’t register your patents, trademarks, and copyrights in China, you won’t have any formal IP protection.
Use all possible technical measures to secure your China intellectual property
We’ve seen companies come into China with software that could be simply copied. Do whatever you can to protect your China intellectual property technically. Provide code that is obfuscated instead of source code. Require a revocable license key for software to run, have it be cloud based/SaaS, Don’t share everything with your partner/JV (i.e. maybe withhold key elements and provide as needed). Compartmentalize critical IP elements and processes and strategically limit access.
The key is partner selection and partner engagement
From our experience the best strategy to protect your IP in China is selecting and managing the right partners. If foreign tech companies lose IP in China, they typically lose it to unscrupulous (often smaller) companies that they have limited engagement with.
Work with companies that are leaders in the China ecosystem and when possible that are listed outside of China such as in HK or the US or elsewhere. Work with those that are expanding globally — these companies have a lot to lose in reputation and want to avoid litigation and market access issues. Seek out partners that you have good chemistry with the management team and that are invested in by reputable investors (many global investors have great China portfolio companies that can make compelling partners).
Often when we see tech companies that have China intellectual property or partner issues — it’s the companies that met their China partner at trade show or conference or via a delegation where they had limited engagement prior to entering the partnership or where they didn’t reach out to a broad set of potential China partners (i.e. 10, 20, or more) in order to find the partner(s) that fit best.
After finding and engaging the right partners — ensure you stay deeply engaged with them on a local basis — through your own team or a local representative/go to market partner — and that your team stays connected with their teams across levels and departments. Maintain a great relationship with the partners’ management teams and communicate with them often.
The China fly-in-fly-out approach without a local presence or trusted local representative greatly increases your IP risk.
Even when selecting great partners and staying close to them, it’s important to have regular, cooperative audits (don’t wait for problems).
Ensure your contracts are developed specifically for the China market.
This way you can more easily bring legal action against an IP infringer in China. Contracts should developed specifically for the China market and not just translated/adapted from your home market. We see many companies thinking they can do a simple translation without understanding what’s required in the China market.
Foreign judgments typically won’t be enforced in China so you should consider using China jurisdiction (China courts/China arbitration) for dispute resolution.
Regardless, seek expert legal advice as there can be critical differences related to various industries, sectors, solutions, as well as different China provinces and cities.
Become the customer of your partner
A strategy, which can help by maintaining a lasting, mutually beneficial relationship, is to become the customer of your China partner. Develop a deeper alliance where you have your China partner engage in some level of R&D or product development for your global products and solutions. It could be a key feature or subsystem but whatever it is, being the customer of your China partner can reduce their incentive to hurt the relationship while at the same time can help expand your product development capacity and potentially be a cost reduction strategy as well. Cross investments into each other’s parent companies is another way.
Partner (or JV) with a large enforcer — have a major China strategic partner protect you (while they’re protecting themselves)
Many China tier 1 players have such a strong market position that others in the market don’t want to oppose them. By partnering with a China major, the risk of IP loss can be reduced as the China major will be your IP enforcer in China. If you’ve set up a JV or licensed your technology to a tier 1 player, your partner will work to ensure other less ethical local players don’t steal your IP. They can also work with the China government around standards, certifications, and licenses — which may also help.
Stay on the technical edge and promote your roadmap — “the best defense is a good offense”
And while all the various strategies have their costs and benefits and effectiveness, as they say — “the best defense is a good offense”.
Maintain an aggressive innovation and product development program and ensure the market is aware of your roadmap. China customers want the latest and best product features and functionality — so if your IP is compromised, make any benefit to the thief short-lived.