China's Large Scale Adoption of Cloud - Opportunities for Enterprise SaaS providers

The rise of SaaS and cloud-based products and services is a very clear trend worldwide. Asia Pacific is no different, with countries like China and Singapore driving these trends.

In China, as with the rest of the world, cloud-based apps and software are the norm in the consumer sector, with Alibaba, Tencent, Baidu, DaZhong DianPing, and JD.com leading the charge with cloud-delivered app, mobile and desktop products and services. This widespread adoption in the consumer sector has now turned into a suite of fantastic opportunities for Enterprise SaaS providers.

What is most interesting for enterprise SaaS companies is that China is quickly adopting a cloud-based alternative to previously local or “on-premise” enterprise systems. Oracle, SAP, AWS and Microsoft are experiencing strong growth in their cloud platforms and cloud-delivered, Enterprise Software businesses.

According to Gartner, Enterprise application software spending is expected to reach $5.1 billion, rising more than 18% year on year. This growth is in no small part due to the partnerships and collaboration these Western companies have developed with Chinese solution providers, cloud platforms and system integration partners.

Oracle has developed a relationship with local services & system integration partner Gurong Information Technology Consultancy Ltd to deliver its Life Science software products in the Chinese market. Many of their customers are hosting on a cloud platform provided by Alibaba, Alibaba Cloud, which itself grew 93% YoY between FY17 and FY18.

In 2014, Microsoft became the first international cloud provider to bring its technology to China in a partnership with 21Vianet, one of the leading third-part neutral data center operators in China, to deliver a localised Microsoft Azure platform. After three years of double digit growth, signing leading Chinese brands such as Haier, Lenovo, Huawei, Mobike, and Xiaomi - Microsoft and 21Vianet agreed to extend their partnership in 2018. This combination of global cloud leadership & expertise as well as on-the-ground support & local market knowledge has led to a fruitful business for both companies in China.

AWS have employed a similar partner model for their Beijing and Ningxia cloud regions in China, joining forces with Beijing Sinnet Technology Co., Ltd. (Sinnet) and Ningxia Western Cloud Data Technology Co. Ltd. (NWCD) respectively to bring their cloud service to market.

In mid-2018 Google Cloud were also reportedly in talks to bring their cloud service to China, despite their search engine being blocked in the country since 2012. Potential partnerships with Tencent Holdings, Inspur Group and other Chinese companies were mentioned at the time.

Domestic SaaS Providers

There is stiff competition from domestic SaaS providers in China who are quite rightly taking advantage of this shift in cloud adoption. Kingdee is a very well known SaaS provider offering products in HR, ERP, Accounting and Office Automation (OA) with approximately 7.2% SaaS market share (Source: IDC). Companies such as Beisen and DOIT provide leading HR and CRM solutions and are working in partnership with market giants such as Tencent, who are themselves an investor in DOIT. Niche providers in more business-critical systems such Quality Management Software, Document Control Software and Clinical Trial Management Systems are also making strides, such as ForceClouds, MacroWing and Guangzhou Caidie Software Technology Co., Ltd. These companies are also taking advantage of regulatory trends, which are promoting data integrity and digitization, all of which is easily achieved using a cloud-based SaaS approach.

Succeeding with a Partner-led Model in China

Chinese SaaS companies are quickly reaching global “Best of Breed” status, which is further motivation for Western companies to better localize, adapt and collaborate with local vendors and partners, while ensuring IP and proprietary information is secure. In particularly turbulent business environments, a partner-based approach in China will help to protect revenue and growth. The success of Chinese partnerships enjoyed by Microsoft, AWS and Oracle are a testament to the benefits of this model.

New SaaS providers considering the Chinese market, should be exploring partnership opportunities as part of the regular pre-market entry due diligence and research - this will unlock true, sustainable growth in China’s SaaS market.  

Ciaran has studied and worked in and around China for the last 4 years and already loves Chinese food more than his native Irish fare. He loves travelling and took the photo for this post himself! We are lucky to have him as our Senior Business Development Advisor at Asia Market Entry.  

China, Enterprise SaaS, Cloud