To get China software resellers onboard with your product or platform, you need to build trust and excitement through a strong show of commitment and support on your company’s part.
While your technology certainly matters, in China, technological prowess from Western companies is both assumed, and not 100% an advantage: companies without the best technology have been very successful in China. Those successful companies understood that business decisions in China are strongly tied to relationships, deliver on the ground in China, and that putting partnerships and deals into a “China context” are key.
Since most China software resellers prefer to get to know you and negotiate the partnership in conjunction with a real opportunity, it is a huge plus if you can start by providing them with some existing leads or at least be willing to support them during their sales process. You will likely need to push them a bit, but whenever possible you want to speak with their own sales teams to get the word out to uncover some initial opportunities to pursue together. For example, introducing them to the China branch of a multinational that is using your product in other countries, can be a great way to show your willingness to work together.
Know your value
Do your homework on the China market by being prepared and showing you that you have some knowledge of the market and the value propositions that you believe will be attractive in China. Most companies are surprised to learn that the value propositions in China are often very different due to budgeting process, politics, internal non-business oriented KPIs, cost structures, competing alternatives, etc.
Sell through use cases
China software resellers like to learn how companies elsewhere around the world use your products. Case studies and use cases are very important. Many customer prospects may not have a technical orientation, so they will expect a clear value proposition on how it can improve their business. If you provide case studies, expect hard questions on how and why those customers choose your product, and use data driven methodologies to prove your points. You can leave your marketing documents with fuzzy numbers and hyperbole at home.
It’s not enough to prove how amazing your product and technology works outside of China, you need to provide China software resellers proof that it will work in China (and it almost never will in the way you expect). They can accept that you might not be ready on day one, but if your product isn’t ready, then you need to provide a plan that demonstrates you understand the problems and have a clear path to deliver. Special note: if you are a SaaS company then resellers will expect that you’re already educated on the technical, regulatory and political environment that may be associated with your product in China. Saying, “we run on AWS so it shouldn’t be a problem,” will only bring exasperation to China software resellers.
Local market integrations
China has an entire independent ecosystem of services that are typically embedded across products and websites. These could be payment gateways, customer service and communication tools, marketing tools, and other integrations applicable to your products. Partners won’t expect you to come to China with all your integrations working from day one, but will be impressed if you can discuss your plans with them and get, and try to implement, their feedback.
It will also be valuable to have tested your products in advance in China to understand which ones are going to be problematic due to issues with China’s Great Firewall. Keep in mind that many global platforms encounter problems operating smoothly in China – especially during politically “sensitive” times.
Know what you want from China software resellers
Many companies approach partners with an attitude of, “here is my technology, what can you do for me?” Western executives visiting China often walk out of meetings with partners disappointed because the executive didn’t think that the reseller grasped their technology or asked the right technology questions. The reality is, however, that resellers are not interested in learning the ins-and-outs of your product and technology: they see that as your job. What they see as their job is to deliver to a customer a product that is “good enough” to get the deal over the finish line.
While China companies 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 more they are likely to have the right people in the room and respond to you directly so as not to waste time. 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.
While many China software resellers may not actually have a clear sense of the regulatory issues that impact foreign technology companies, they will want to know that you are generally aware of them. We generally don’t recommend that you put too much reliance on the opinions of lawyers on this topic. Laws in China are often open to interpretation and can be years behind industry practice. Lawyers will always lean towards very conservative interpretation in spite of overwhelming evidence to the contrary. We suggest you balance your advice with the opinions of advisors and industry insiders that are far more likely to provide you will practical insight on the real boundaries of the various laws and regulations.
Like it or not, perpetual licenses are how most Chinese enterprises purchase software. While subscriptions are gaining some acceptance (driven largely by Microsoft) buying a perpetual license is the norm in China for a variety of reasons, including that most budgets are project based, e.g. “use it or lose it.” Also, a perpetual license is deemed as an asset that can be capitalized, and is also considered as a way to cut down on corruption. The larger the deal and company, the more likely that they will only purchase a companywide license and not base it by seat. That said, software providers may still be able to gain recurring revenue through support and services. We will generally recommend, whenever possible, that providers maintain an open mind around pricing models.
While there were many drivers to China’s SaaS B2B market in 2020 – including remote work – adoption of SaaS still hasn’t reached its full potential. Even though the B2B China SaaS market has been growing roughly 30% annually according to CAICT, large Chinese enterprises especially in sensitive industries are in the early stages of leveraging public cloud SaaS, still preferring private clouds. However, small-medium enterprises (SMEs) have been more open to looking at public cloud SaaS when there is a robust product offering. In this article, we’ll take a look at current market dynamics, and what we expect this year.
MNCs in China: A great target for global SaaS providers
While many large Chinese enterprises are still emerging targets for most public cloud SaaS platforms in 2021, we anticipate that MNCs operating in China will continue to accelerate their adoption of SaaS. This will especially be true of SaaS that is tied to a larger global ecosystem such as Salesforce or Microsoft Azure. These companies not only want to bring their China operations into alignment with their global procedures, they also are looking to streamline efficiency as labor costs continue to rise in China.
For global SaaS providers that are weighing whether to enter the China market, an existing client base (in other markets) of MNCs operating in China can be the tipping point to making a market entry investment. As it is basically impossible to provide public cloud SaaS in China without being in the country (for a variety of reasons), Western SaaS providers generally have to make a larger initial investment compared to on-premise or desktop solutions. Having a ready customer base of MNCs can certainly help when justifying that investment.
SMEs are adopting SaaS solutions
The real growth for SaaS adoption in China continues to come from the roughly 32 million SMEs in the country. Over 40% of those SMEs were using SaaS by the end of 2019. CRMs, marketing solutions and finance are among the leading categories of China SaaS adoption by SMEs. Unlike large enterprises, SMEs generally do not have the capability to create and manage their own private clouds, making SaaS a more reasonable option. However, pricing for SMEs can be difficult as many are very price-sensitive in the face of lower-cost (and/or pirated) solutions from local providers. Similarly to large enterprises, they also prefer to make a perpetual transaction.
We should also note that often one of the key requirements for SME SaaS solutions in China is to be either mobile first or highly tied into mobile-based applications and platforms. Many business functions are processed on smartphones in China, and while there are certainly areas where desktop applications are still accepted (data analytics for example) productivity, finance, sales and other SaaS areas are more likely to succeed if they are useful on the small screen.
Large enterprises continue prefer private cloud SaaS
As it sits today, the SaaS model can be challenging for many large Chinese enterprises that have largely adopted private clouds – but that is changing. Until SaaS is more fully embraced by these large Chinese companies, SaaS providers are working around this limitation by installing their solutions in their private clouds. Other China SaaS providers offer desktop versions of their solutions, which can be more attractive to enterprises.
There are two main reasons why private clouds are preferred: enterprises often have their own complex processes and requirements that they are unwilling to bend; and regulatory, security and trust considerations make private clouds a much safer bet for Chinese enterprises. SaaS providers – local or foreign – that want to go after certain large Chinese enterprises are going to have to be comfortable going after custom deployments inside of private clouds.
The pricing model of China SaaS solutions is also a heavy sticking point for many enterprises in China – both large and SMEs. The majority of Chinese companies will demand a perpetual license model, e.g. paying for software once for a lifetime license. Additionally, companies often prefer a company-wide deal and do not want to buy on a per-seat basis. Again, a perpetual license is hard to line up with the subscription pricing model that Western companies and their investors prefer. So even if an enterprise buys a true, public cloud SaaS solution in China, they are unlikely to be “true” SaaS customers as they will not be paying monthly, annually or even bi-annually.
Let’s take a brief look at one high-growth sector in China – healthcare – to see what types of SaaS will be hot in 2021. Healthcare is a good example of different sized customers adopting different types of SaaS. While larger, public healthcare networks in tier-1 cites have implemented healthcare information management SaaS solutions, private healthcare providers are more interested in solutions on the business side of healthcare, including marketing. Moving forward, robotic process automation (RPA) and artificial intelligence applications are likely to gain traction in 2021.
In all, SaaS adoption in many sectors in China is on the rise, and Western providers that are looking for a high growth market in 2021 and beyond should start taking at least their first steps into China soon.
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.
As China’s professional workforce has continued to grow, professional users have become more sophisticated and are very interested in using world-class software for their needs. However, especially for more vertical solutions, many global software companies do not yet offer their software legally in China. Customers are then left with a few suboptimal choices to get the software they want: use a VPN and internationally accepted credit card (still not very common) to download the software from overseas; work with a distributor that may or may not have the legal rights to the software; or use a pirated version (oftentimes without even knowing that China software piracy is happening). This kind of activity could easily lead to thousands (maybe tens or hundreds of thousands) of professionals using your software with no revenue benefit for your company.
In fact, we have run into cases where a pirated software version has been selling in China at the full, legal price! A Chinese company saw the value of the product, hacked the software, and sold it to customers at the global price.
Why would customers pay for a hacked version, when they could buy the real product at the same price? This is where it gets interesting. In one case involving one of our clients, a distributor applied for and was granted a local trademark, which gave them access to software development tax breaks, and then built a Chinese language pack, which wasn’t available in the legal version. It was this Chinese language pack addition that was worth the (pirated) price for end users (English versions also “sold”). Remarkably, the distributor was also policing ecommerce sites and actually taking action against other pirated versions as if the distributor was the real software provider. This was definitely a shock to our client.
Before we tell you how we resolved this situation, let’s look at some reasons that Chinese customers, if given the opportunity, prefer to purchase locally, even if it means paying over the global price!
Chinese users want licensed products
While some global companies are aware of these users through anecdotal evidence or “call home” logs, many software providers are completely unaware that they may have a large, existing userbase waiting for them in China. What is especially important to understand is that most Chinese professionals would much rather be using a fully licensed version of the software on their computers. Among other positives, they understand that licensed versions get updates, offer support and training, and are inline with the Chinese government’s push to reduce piracy. Get them onboard, and you will have a near instant group of brand champions. With all this said, what are some of your options to capture this pre-existing userbase to build a large opportunity?
Fight China software piracy by getting active in the market
First of all, to make any kind of significant progress, you need to be active in the China market. While your level of engagement can vary, at a minimum you need to be able to: offer an easy way for users to download your product; offer payment options that are widely used in China; offer official receipts (this requires either your own entity or a partner’s entity); and offer documentation, training and support in Chinese (and easily accessible with the Great Firewall of China). All of this can be offered without having to go through a full China market entry process if you have the right partner to assist you.
Documentation, training and support will be especially attractive to get existing users of non-licensed software to switch to paying your company, even if your price for a legal version is significantly higher. These users have likely had to figure out how to use your software on their own, either by trying to understand English documentation, or through poor translations. While this doesn’t necessarily have to be hosted on a website within China, we always recommend it. Regardless, an active community of users – and timely responses from your support team – will also be welcomed by Chinese professionals, and will benefit your brand as well as your sales through word-of-mouth.
For both existing China software piracy users that you’re trying to bring over, and for new legitimate users, putting your software download locations inside of the Great Firewall will also help with sales, as hosting outside of China can result in excessively slow downloads or even timing out. Additionally, by offering local payment methods and official receipts, it will be much easier for professional users to expense their purchases.
Legal means have strengthened in China
So what happened in the case above? We are pleased to say it ended well, but it’s important to note that not all piracy situations in China end favorably for the legitimate provider. In this specific case, ADG approached the distributor, and after numerous discussions we convinced them of our seriousness in pursuing legal action to nullify their trademark, as well as other further actions. After several months of negotiations we were able to convince them to work with our client. In exchange for covering some costs towards protecting our client’s trademark (and to continue to ferret out other pirated versions), the one-time pirate agreed to transfer over the intellectual property it had stolen, to shut down its website, and to let our client us the Chinese language pack it had developed. Today, the company is a legal distributor for our client and continues to sell the solution.
So, if you are seeing some sales from China, or know that your products are being hacked and pirated there, this might indicate a real market opportunity for you. Additionally, with the significant inroads the Chinese government has made towards cracking down on piracy in recent years, if you commit to entering the market, you may have a strong likelihood to reclaim that lost revenue, and generate new legal users.
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.
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.