You’re a North American software vendor. You’re considering setting up shop in China. You know that the risks are formidable, but so are the potential rewards.
Among the risks: intellectual property piracy issues, cultural adaptation challenges, currency restrictions, and governmental censorship (see The cost of doing business in China: Privacy for an excellent post on the Chinese government’s practice of monitoring Skype traffic).
However, the potential rewards are substantial, from a business perspective. A guide to doing business in China, published by Enterprise Ireland, suggests that although it’s “somewhat naïve” to imagine that you’re suddenly going to have a billion-strong market, there are certainly a good 300 million customers who may be in the market for what you’re selling. Also, the Chinese market is generally tech- and software-savvy, which may explain why the software partnership/reseller network is so huge.
We thought we’d take a look at why one western giant is doing so well in China. It may surprise you to learn that smaller software vendors can adopt the same strategy for success.
What’s SAP’s Approach?
Although SAP China was founded in 1995 in Beijing, I was interested in this tidbit from http://www.sap.com/china/company/saplabs/index.epx:
Having started development in 1997, SAP Labs China was officially established in November 2003. It has developed into one of the eight largest SAP Labs, and is one of the fastest growing SAP subsidiaries, with more than 200 employees from all over the world… SAP Labs China will further strengthen its commitment to the regional and local market, and its position of a world class R&D center, while growing to 350 to 400 employees in 2005 with a target of around 1500 in 2009.
Considering the challenges of setting up shop in China, this gives pause for thought.
The vendor seems to have adopted the strategy of arbitrage. Careful: this is not the dictionary definition of arbitrage.
Rather, arbitrage in this case refers to the ability to create additional value by exploiting differences between countries and cultures, according to Pankaj Ghemawat in his book Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter.
And here’s some “additional value” for you: SAP charges more for license fees in China than elsewhere. According to this article (in Chinese), in fact, the vendor charges 6,400 euros—twice as much as in Germany or Japan.
Fascination in the Chinese market for western products is one element in SAP’s favor, but the vendor also seems to have understood that Chinese consumers are powerfully attracted to a company’s character (unlike western consumers, who are generally drawn to the what’s-in-it-for-me factor).
That’s certainly a gross oversimplification, but the website titles for various local SAP About Us pages provide perfect examples:
Our Role in the World’s Largest Business Software Company
Committed to Excellence in the Canadian Marketplace
35 Years in the Business of E-Business | 12 Million Users. 60,100 Installations. 1,500 Partners. 23 Industry Solutions
(The Management Guru behind the Fortune 500)
…But Can You Make Arbitrage Work for You?
Yeah, right, you’re thinking. Why don’t I just adopt SAP tactics? Especially with my annual budget that’s less than half of what SAP spends on paperclips?
The fact is, arbitrage is not limited to the big players.
One smaller software vendor, who shall remain nameless here, was able to clinch a deal in China by taking advantage of what might appear at first glance to be a disadvantage.
It had to do with user training for the software. No local trainers? No problem! The vendor offered to provide training courses in the US—with travel costs expensed to the buyer organization. Since visas for US travel are still somewhat difficult to obtain for Chinese nationals, the buyer saw this as a unique—and deal-making—opportunity. That’s arbitrage in action.
The moral of the story: setting up shop in China is not without its challenges. But be careful not to assume that these challenges will scuttle all hopes of success. Those very challenges may in fact be the winning differentiation between you and your competitors.
I have chance to talk with many c-levels in Chinese manufactories.
Now, they are eager to find a suitable ERP solution.
According to their saying, this is one way to survive in this economic crisis.
One owner told me he has a manufactory with more than 2000 employees in China. His manufactory runs very well, profitable, but he encounters the management problems. For example, he needs to quote the price for order. Because of the price of raw and processed materials changes very quickly, he can’t give an accurate quotation. If he gives a higher quotation, he will lose the order; if he gives a lower quotation, he will lose money. He told me he just lost 12K USD because of one order. The price of raw and processed materials increased a lot. He needs a software can give him accurate quotation quickly.
His concerns are not about the price of the ERP solution. He said I had money and I knew it was costly. His concerns are whether the ERP solution can really help him and can be easily operated. He heard many unsuccessful stories about ERP. Also, he said his management had low level of education, most of them only graduated from junior high school. He can hire assistants for them, but the operation of the ERP system will definitely not be too complicated.
Hello David and Kurt,
I found that Joyce’s insider story was also interesting. There is demand, and the potential buyer’s concern is not money.
Selling software in China is a little different from western countries.
There are some priorities for the Chinese clients to select a software vendor.
First, Brand. If the Chinese clients believe that you are a world-wide brand, they are more likely to trust you.
Second, install base. If you tell your Chinese clients that you have some sucessful install base, they are more likely to trust you.
Third, recommendation. If someone important can help recommend your product to your Chinese clients, they are more likely to trust you. That is an useful selling way in China.
Finally, higher price. If the chinese clients belive that your product is good, they are supposed to think that the price should be also higher than the normal price. Selling with a higher price is also a selling way in China.