The Dao of Outsourcing

As the global economy slows, many business software companies are seeing fewer sales opportunities as businesses cut software budgets and delay purchases.  Despite the current economic climate, there is still a large and growing market for business software in China.  An increasing number of US software companies are focusing on China market entry strategies and leveraging the knowledge of Chinese software outsourcing companies to aid with China market entry.

A recent study sponsored by Dextrys titled Marketing Business Software in China discusses the Chinese market for US business software.  The key findings from the study are:

China has enormous potential for business software sales - 87% of the companies surveyed evaluated or purchased business software within the past 12 months

• US software companies are neglecting this market - only 30% of the companies considered US software products
• Chinese companies can and will “Buy American” - 52% of respondents would like to see more US software on the market and an additional 27% are willing to buy software from any location
• Traditional mass marketing is a poor investment for entering China – potential buyers rely on peers and the Internet for their information
• Quality and price are the two most important product attributes – and fortunately, 84% of survey respondents perceive US software quality to be high
• Chinese companies buy software following traditional models – 90% prefer to buy software licenses; leasing and hosted solutions have very low market penetration

Many US companies have not entered China yet because of the risks and lack of China experience, but working with Chinese software outsourcing companies can significantly mitigate the risks associated and provide much needed local business knowledge.  In recent years, a significant and increasing number of US software companies have leveraged partnerships with Chinese outsourcing companies to enter the Chinese market.  As a result, some Chinese outsourcing companies have experience working with multiple US software companies an a variety of different market entry strategies.  These outsourcing companies now understand the best strategies for US software companies entering China.  So, US software companies entering China can significantly reduce the learning curve by partnering with local outsourcing companies.

Typically, American software companies’ China initiatives begin with outsourcing software localization to China, but as sales grow, so do the offshore teams as product customization and support is required.  So, Chinese software outsourcing companies have a vested interest in ensuring their US clients success in China and enthusiastically help in order to grow the account.   These win - win outsourcing and market entry partnerships are also used by Chinese outsourcing companies to offer value added services over India.

The most common concern when entering the China market are fears around IP.  US software companies are concerned if their IP is leaked then they will create competitors.  However, I believe this view is short sighted, and that competitors will be created purely due to market demand.  If there is a demand in China for a software package, the entrepreneurial Chinese will soon develop software to fill the gap.  Initially the software may be inferior to the American companies software, however without competition from US software firms, the Chinese company will corner the market in China and invest in improving their product. As has happened in many other industries, after perfecting their product by servicing the local market, the Chinese companies will use their China cost advantage to compete globally.

Chinese outsourcing companies have a strong understanding on how to protect IP in China and since they have a vested interest in the US software companies results, they are able to offer informed advise on how to protect IP in China.  The risk that in the future a US software company will need to compete with their Chinese competitors far outweighs the risk around IP in China .

Although how to market and grow revenue from business software sales in China, may be a question mark for US firms.  It is certain that the Chinese business software market will continue to grow as China further develops.  US firms are well advised to develop a China strategy that includes working with Chinese outsourcing companies to take advantage of this growing market.

When given the option, it is always better to co-operate rather than compete with Chinese companies, ask anyone in manufacturing and I am sure they will agree.  Although the local Chinese have not made as many advancements in business software as manufacturing, rest assured, they will, and US companies should be the ones leading the way with high quality localized business software.

Related posts:

1. Indian outsourcing companies change China market entry strategy
2. Advice for selecting a Chinese software outsourcing company