Marketing Business Software in China


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Marketing Business Software in China

  1. 1. Marketing Business Software in China A Survey of China Market Interest, Buyer Perceptions and Effective Practices January 2009 Sponsored by Dextrys With Analysis and Assistance from Clarity Consulting, Inc. © 2009 Dextrys, Inc. All Rights Reserved. Contents of this document may be quoted with proper attribution.
  2. 2. Table of Contents 3 Executive Summary 4 Survey Demographics 5 Market Opportunity 6 Market Inhibiters 7 Purchasing Challenges 8 Market Familiarity 9 Marketing Methods 12 Product Purchasing and Implementation 14 Recommendations 16 Company Information 17 Appendix
  3. 3. Marketing Business Software in China Executive Summary With a population of well over 1.3 billion people, an expanding economy, rapidly modernizing infrastruc- ture, and emerging business community, China offers enormous promise as a market for US software products. Current economic conditions in North America and Europe are leading software providers to take a fresh look at China as an opportunity to find new revenues. Many US software companies have already entered the Chinese market, but many more sit on the side- lines wondering how to get started. Multiple myths color the perceptions of this large, complex and con- tradictory country, and too many companies shy away due to the perceived hurdles to success. Although some of the myths have a basis in truth, others are outdated, wrong or the result of a lack of knowledge. Amazingly, despite its potential size, little objective data exists to shed light on this fascinating and seem- ingly incomprehensible market. Dextrys commission this survey to address this gap. The Dextrys’ China Business Software Buyer Survey is an independent evaluation of the opportunity for US developed business software in China. It bases its conclusions on interviews with almost 800 compa- nies throughout China. These interviews produced a wealth of objective data on a number of important market factors. The goals of the survey are to: • Benchmark China’s level of interest in US developed business software products. • Learn how Chinese companies differ from US companies when evaluating and buying software • Understand how Chinese buyers perceive US software companies and their products • Identify the most effective approaches for serving the Chinese market This report delivers the highlights of the survey analysis and seeks to provide real information to counter the misconceptions that pervade the market. Dextrys provides this information to enable US software companies to develop their own viable strategy for capitalizing on the opportunities for selling business software within China. Survey Highlights 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 li- censes; leasing and hosted solutions have very low market penetration MARKETING BUSINESS SOFTWARE IN CHINA | 3
  4. 4. Survey Demographics The Marketing Business Software in China survey collected data from a broad industry and geographic cross-section of Chinese businesses. Over an eight-week period, the survey team interviewed respon- dents at 781 Chinese companies. Their demographic breakdown is shown in figure 1. Understanding the demographic make-up of these survey respondents provides important context for interpreting subse- quent survey findings. Given the size and breadth of this sample, Dextrys believes the survey provides a solid representation of the views of business software buyers in the China market. In addition, the survey’s sample size is suf- ficient to support a variety of statistically valid analyses and demographic breakdowns. FIGURE 1 Company Size Geographic Location Industry Sector 2% 2% Liaoning 13% Guangdong 2% Retail 9% All Others 9% 2% Small (<100 employees) 16% 2% 9% 9% Large (1000 to 5000 2% 22 % 3% Fujian 16% Jiangsu 2% 2% Transportation 14% Professional 24% 2% 2% employees) 3% Services 3% 3% Shandong 16% All Others 2% Pharmaceutical 24% Medium (100 to 1000 3% 49% 49% Manu- 4% 4% Tianjin 22% Shanghai 3% Healthcare employees) 7% facturing 16% 5% Shenzhen 3% Government 65% Large (1000 to 5000 5% 65% 8% Beijing 9% 7% Education employees) 8% 13% 9% 9% Zhejiang 14% 9% Hospitality Industry Sector Survey participants self-classified their organizations into one of sixteen possible industry categories. Not surprisingly, manufacturing is by far the largest industry sector representing almost half of all participat- ing companies. While this percentage reflects the importance of manufacturing to the Chinese economy, it also indicates a sector that contains large numbers of small to medium-sized companies. At the other end of the scale, agriculture, financial services, mining, telecom, utility and wholesale sectors each ac- counted for fewer than 1% of survey participants. Geographic Distribution Survey participants represent almost every province and major metropolitan area in China, covering Hain- an in the south to Heilongjiang in the north to Xinjiang in the west. However, as expected, most respond- ing organizations are located in the more developed urban areas in eastern China. Shanghai accounts for nearly one quarter of the survey participants. Company Size For demographic purposes, the survey classified company size by the number of employees. Survey participants self-classified by size category. Participants from multi-national companies tended to clas- sify themselves based on the size of the Chinese subsidiary rather than the entire company. As shown in the chart, medium-sized companies make up the largest segment of survey participants. Interestingly, the level of exposure to US software products correlates with company size, with exposure rising by size. As discussed later in this report, a significant opportunity for software vendors serving the small to medium business market. MARKETING BUSINESS SOFTWARE IN CHINA | 4
  5. 5. Level / Position / Role of Respondents The survey targeted IT managers as its initial contacts and drew candidates from purchased contact lists of IT executives and managers in China. As a result, 74% of survey respondents were in management positions. • 1% - Corporate Executive (CEO, Owner, CFO, VP) • 2% - Technology Executive (CIO, CTO, VP) • 71% - Manager (Director, Project Manager, Team Leader) • 26% - Contributor (Product Evaluator, Architect Programmer, etc.) Note: the distribution does not add up to 100% due to rounding of individual numbers Market Opportunity Although modernizing rapidly, the Chinese market still lags western markets in terms of business soft- ware deployment. However, this gap is narrowing, as most Chinese companies are actively purchasing business software. The expansion of the business software market offers considerable opportunity for US software companies as the majority of Chinese organizations have yet to consider US software as an option. Chinese businesses are buying software 87% of the companies responding to the survey have evaluated and/or purchased business software within the past 12 months. Only 30% of responding organizations considered US software With the exception of large and very large companies, the Chinese market for US business software has been largely untapped. In the previous 12 months, only 30% of respondents considered US software in their purchase evaluations. This low rate of penetration holds true across industries and geographic regions. Of the 70% of responding companies who did not consider US software, few cited factors that would preclude future consideration and purchase. These factors will be discussed later in this report. Chinese companies want to “Buy American” Contrary to the perception that China sets high barriers to the purchase of foreign software, 79% of the respondents are willing to buy software from suppliers in any country as long as that software meets their needs. Chinese businesses have a strong positive impression of the quality of American software with 84% rating it as “good’ or “excellent,” and 52% of respondents would like to see more US software available in the China market. Of the 30% of respondents who considered US software in the previous 12 months, 91% (or 27% of overall survey respondents) purchased and implemented US software in that period. Small to medium businesses (SMBs) offer the largest opportunity As expected, market penetration correlates to company size. Larger companies have greater software needs, higher awareness of globally available products and are more like to receive direct sales and mar- keting activities. As shown in the accompanying chart, exposure drops quickly as size decreases. While the potential revenue per company is lower for SMBs, the large number of companies in this category equates to a very large untapped market. MARKETING BUSINESS SOFTWARE IN CHINA | 5
  6. 6. Market Inhibiters Reasons for Not Considering US Software Given the size of the Chinese business market, many US software companies could do quite well target- ing the 30% of the market already familiar with US products. However, the remaining 70% represents considerable latent demand, and offers a ground floor opportunity to build market share and create brand awareness while facing limited competition. While not all companies in this category are open to potential US software purchases, a reasonable percentage of these companies could be reached through properly developed sales and marketing efforts. During the interview, companies in this category were asked for their primary reason for not considering US software; respondents provided a variety of reasons, but few showstoppers. Their responses fall into the following categories. No immediate need for purchase All survey candidates were drawn from IT manager contact lists, indicating that their organizations were software users. Only 13% reported not evaluating any software during the previous 12 month period. A further 10% reported no requirements to purchase software at the present time. As expected, the high- est percent of these respondents were in small companies. Although not immediate prospects, these two groups represent latent opportunity as Chinese reliance on software grows. Prefer to “Buy Chinese” Although most Chinese businesses had little issue with considering software from foreign sources, 14% of respondents indicated they preferred to buy software from Chinese providers. The desire to buy local may be an obstacle in many cases, but it may also be a reaction to other market factors such as pricing, language barriers, or understanding Chinese business practices. Insufficient marketing and sales support Respondents cited a variety of reasons for not considering US software, however, most have experienced little if any exposure to sales and marketing activities that could build interest and stimulate demand. Evaluation efforts are further complicated by language issues and sales approaches not tuned to Chi- nese business practices. Although lack of localization is cited by 2% of the respondents as their primary reason for not considering US products, its effects are much more significant. For example, Chinese evaluators’ perceptions of a company are colored by the quality of its web site localization, and many re- spondents restrict their considerations to Chinese language web sites and materials. Perhaps affected by this issue, 5% of respondents reported they were unaware of US products that could fit their needs. An additional 7% reported that the effort required to purchase foreign software was simply too high and 1% reported they were not contacted by US companies offering their desired products. Software decisions made elsewhere Some respondents worked at outposts of larger organizations or were a subsidiary of a foreign company. Representing 8% of the sample, these respondents reported that their software purchase decisions were made elsewhere. Much as their counterparts in similar US organizations, these respondents are typically reached through their parent organization. Prefer to build their own software Although China has a considerable pool of software development talent, only 4% of respondents cited developing their own software as a reason for not considering the purchase of software products. MARKETING BUSINESS SOFTWARE IN CHINA | 6
  7. 7. Purchasing Challenges The next two sections of this paper focus on responses from the 30% of survey participants whose com- panies considered, evaluated and/or purchased US software over the past 12 months. These respondents were asked to assess the impact of six challenges on their ability to purchase Ameri- can software products as shown in figure 2. Additionally, they were asked to rate the overall ease of pur- chasing US software. The six factors are ranked in importance by the strength of their statistical influence on ratings for this bottom line question. FIGURE 2 Rating Distribution Rank by Score Good or Fair or Poor Average Purchasing Challenges importance Average Excellent It is easy to negotiate the right deal for my company 1 3.23 12% 54% 35% It is easy to get funding to buy products my company needs 2 3.36 14% 36% 50% It is easy to get approval to purchase the products 3 3.33 11% 45% 44% It is easy to find Chinese versions of the products I want 4 3.34 18% 30% 52% It is easy to find products that support the way my company does business 5 3.46 8% 38% 53% It is easy to buy software from US companies 3.20 19% 42% 39% The purpose of these questions was to understand where Chinese buyers faced the greatest difficul- ties when buying US software. As these questions were answered by respondents from companies who had considered or purchased US software in the previous 12 months, it is not surprising that most found the buying challenges “average” or easier. All of the challenge factors had a positive correlation with the bottom line question, however, financial and approval issues are most important. This data leads to the following observations. Chinese companies can buy the software they want Obtaining funding to buy the products they need was easy for about half of the respondents. Obtain- ing purchase approvals is only slightly more difficult. The challenge for US companies is to package and promote their offerings in a way that creates perceived deal value. US companies need to make it easier for buyers Ease of doing business is an important factor for winning business in any market, however, less than 40% of respondents rated the ease of buying from US software companies as “good” or “excellent.” Chinese buyers view negotiations as the most challenging step The ease of negotiating the right deal is by far the biggest influencer on the perceived ease of buying soft- ware from US companies. Although Chinese buyers are commonly perceived as cost sensitive, this sur- vey finds this view to be overly simplistic, and noted that respondents take a broader, more holistic view of the components of a deal. Pricing is important, however, it is part of a larger package of concessions, which in whole provides an advantageous deal for the company. For example, providing extended sup- port, additional training or custom features are all components that can combine to create a good deal. MARKETING BUSINESS SOFTWARE IN CHINA | 7
  8. 8. Market Familiarity Respondents who considered US software products were asked to assess the familiarity of US software product companies with the needs of the Chinese marketplace. This familiarity was assessed using the five factors shown in figure 3. Additionally, they were asked to rate US software companies’ overall under- standing of the needs of Chinese companies. The five factors are ranked in importance by the strength of their statistical influence on ratings for this bottom line question. FIGURE 3 Rating Distribution Rank by Score Good or Fair or Poor Average US familiarity with the Chinese Market importance Average Excellent American software companies know how to sell products in China 1 3.35 11% 46% 44% American software product designs support Chinese business practices 2 3.23 15% 47% 39% American software companies know how to support their products in China 3 3.28 16% 42% 43% American software companies offer high quality products 4 3.85 2% 14% 84% American software products are fairly priced 5 2.55 55% 31% 14% US companies understand the needs of Chinese companies 3.26 14% 47% 39% China is a very different market for US companies used to selling products domestically or serving West- ern European countries. Companies that adapt to local practices have considerable advantages over those who attempt to serve China with less country specific approaches. Chinese evaluators view com- panies who invest in understanding their needs as better potential partners. Most respondents rate US companies as average or slightly better in their understanding of the needs of Chinese companies. On the surface, product quality is US companies’ biggest strength and pricing is the biggest weakness, however, the other factors are more important for establishing a reputation as a company who understands China. Potential buyers expect China knowledge Respondents expect US software companies to know and adapt to China and its practices in the way they sell, market and support their products. The importance of the first and third place factors highlight why US companies are often unsuccessful when attempting to enter Chinese market without strong local support. Quality is the US software “brand” US software has an excellent reputation for quality in China, with 84% rating it “good” or “excellent.” This perception is an important advantage as software quality is the top product attribute sought by Chinese buyers. Yes, US software is expensive, but it’s worth it Most Chinese buyers perceive US software as expensively priced, with over 55% rating it negatively. Yet, 91% of the companies responding to these questions bought US software in the past 12 months. Al- though only 14% of respondents rated US software prices as “good” or “excellent,” even fewer (5% ) rated pricing as “poor.” Further, pricing has little correlation with respondents’ perception of US compa- nies understanding of the needs of their companies. These points bolster the argument that pricing is just one component of a larger picture. Embrace cultural differences The perception that US products can’t support Chinese business practices is an underlying market inhibiter. While some software is truly culturally independent, in most cases, US software companies can benefit from customizing their products to some level to adapt to Chinese business practices. As a demonstration of a US company’s knowledge of, and commitment to, the Chinese market, the ability of product designs to support Chinese business practices ranks a close second in importance to knowing how to sell products in China MARKETING BUSINESS SOFTWARE IN CHINA | 8
  9. 9. Marketing Methods Chinese business culture and practices differ from those in the US, requiring software companies to re- think their marketing and sales approaches in order to reach their desired audience. Chinese businesses are more relationship driven than their US counterparts, a critical difference which influences how product evaluation candidates are identified, selected and purchased. Another factor is China’s high percentage of young computer professionals. These younger professionals are very Internet-oriented and quick to perform on-line research to find what they want, but are less attuned to the “traditional” marketing ap- proaches used by US businesses. This survey used two approaches to understand how to best reach software buyers in the Chinese mar- ket. The first approach asked respondents to select the top three methods they use to identify candidate products from a list of possible options. The second approach used an open-ended question, which asked respondents to provide their preferred method for identifying candidate products. Figure 4 shows the percentage of respondents that included a given marketing method within their top three methods. FIGURE 4 How Chinese Businesses Choose Products to Evaluate (Relative Ranking) 60% 50% 40% 30% 20% 10% 0% Recommendations Recommendations Internet Research Magazine Articles Vendor mailings Advertisements Miscellaneous Presentations Conference Attendance Webcasts Analyst Sales Peer Peer recommendations are the top method for identifying product candidates Although Internet research ranked first in the open-ended question (see figure 4), peer recommendations was easily the first choice, being listed by 57% of the respondents as one of the top three methods for identifying product candidates. The difference in responses indicates that Chinese buyers may not always go to their peers first, but their peers’ opinions hold high weight. The importance of peers highlights the need for software companies to build multiple levels of relationships in China to promote their products and create a network of potential references. Possible methods for building these relationships include developing reference accounts, participating in trade associations and working with well-connected part- ners. MARKETING BUSINESS SOFTWARE IN CHINA | 9
  10. 10. Figure 5 tabulates the responses to the free form question, which asked respondents to name their pre- ferred method for picking product candidates. FIGURE 5 Respondents' preferred methods for picking product candidates % Respondents Internet Marketing 41% Internet research 21% Websites 9% Webcasts 10% Download trials 1% Social Networking 27% Peer recommendations 17% Decided by others 10% Traditional Interactive Marketing 11% Sales presentations 6% Analysts 3% Conferences 2% Traditional Mass Marketing 6% Magazines, Advertising 3% Mailings 2% Vendor contact (email, telemarketing, etc.) 1% Other 15% It depends on situation 7% Miscellaneous 7% A strong Internet presence is essential for success in China Product evaluators are quick to turn to the Internet for research and webcasts, resulting in high rankings in both the top three methods used (figure 4) and as the preferred approach for picking product candidates (figure 5). Having an Internet presence is crucial, but software companies cannot rely on their existing US websites and English-only software to crack the Chinese market. Although English skills are growing in China, it is still not a common language, and in their comments, many survey respondents noted that they did not visit software companies’ US websites. Launching a Chinese language web site is critical for ef- fectively reaching a broader market. Attention to web site design offers a good opportunity for differentiation Respondents who visited US software company web sites were asked to assess their experiences using the five factors shown in figure 6, and were asked if the web sites represent their companies well. The five factors are ranked in importance by the strength of their statistical influence on ratings for the bottom line question. FIGURE 6 Rating Distribution Rank by Score Good or Fair or Poor Average Website Factors importance Average Excellent Most websites are correctly translated into Chinese 1 3.13 23% 38% 39% Most websites are visually appealing 2 3.41 7% 46% 47% Most websites are well organized 3 3.67 3% 32% 65% Most websites are respectful of Chinese culture and business practices 4 2.98 23% 52% 25% Most websites provide the information I need to evaluate their offerings 5 3.59 8% 24% 68% Most websites represent their companies well 3.53 3% 43% 55% MARKETING BUSINESS SOFTWARE IN CHINA | 10
  11. 11. Respondents generally rated US websites as “average” or “good” in each factor, but very few rated the websites as excellent in any given factor. The only exception was “most web sites are well organized,’ which garnered a 5% “excellent” rating. In contrast, no respondent answered “excellent” for “most web sites are correctly translated into Chinese” or for “web sites are respectful of Chinese culture and business practices.” These findings highlight a number of opportunities for software companies to differentiate themselves in this market as well as the importance of investing in local Chinese expertise to support site design and development. • The quality of the Chinese localization of a website reflects strongly on the reader’s perception of the company and its products. US Internet users are often amused by foreign websites with silly English translations, but the reverse is true as well. One respondent found humor in a site that exhorted him to “Invest Risk!” Investing in high quality translation services is essential to protect a company’s brand and image. • Chinese tastes in visual design differ from western tastes. Simply translating a US web site may be sufficient for basic business purposes, but designing a new site to appeal to the Chinese audi- ence can be a strong differentiator. • US web sites are the weakest in their sensitivity to Chinese culture and business practice. Al- though not one of the strongest influencers (perhaps indicating some latitude on the part of the respondents), it also presents an opportunity for companies to differentiate themselves as a potential partner. Sales presentations are effective, but don’t reach much of the market Sales presentations can be an important step in building a relationship with potential buyers, but the sur- vey showed they are underutilized. Given the cost of doing direct sales calls, it is not surprising that their use is concentrated with the largest companies. When viewed by company size, sales presentations rank first in importance for very large companies, but drop to 3rd, 4th and 5th place in large, medium and small companies respectively. Only 6% of respondents consider sales presentations to be the preferred method for making selections (figure 5). Although 33% of the respondents report relying on sales presentations as part of their evaluation efforts (figure 4), only 1% of respondents attended a sales presentation on a US software product in the past 12 months. Traditional mass marketing approaches have little influence Common US marketing approache s such as vendor mailings, advertisements and magazine articles have a much smaller reach in China. Their effectiveness ranks low across all company size categories. Al- though they can provide some value, US software companies entering the China market will receive higher returns from their marketing investments by establishing a localized Internet presence, localizing their soft- ware and engaging in relationship building activities. Likewise, conferences are less important in China than in the US as an influencer in product evaluations and decisions despite their potential as a means to build relationships. MARKETING BUSINESS SOFTWARE IN CHINA | 11
  12. 12. Product Purchasing and Implementation This section explores the criteria Chinese companies use to evaluate products and their preferences for licensing and implementing their chosen products. The survey questions supporting this section were directed to the survey respondents whose companies had considered US software within the past 12 months. The survey results show that Chinese companies take a conservative approach to software li- censing and implementation, preferring to buy and implement their software themselves rather than adopt newer software distribution models. The interesting question for a future survey is whether these prefer- ences are due to inherent differences in culture and/or business practices, or are a reflection of a relatively new software market with limited exposure to the newer models. Chinese buyers rank quality first, price second when evaluating products Survey respondents were asked to select the three top criteria they use to evaluate software products. Each criterion was tabulated and ranked by the percentage of respondents choosing it. The results of this ranking are shown in figure 7. FIGURE 7 Product Purchase Influencers % Choosing Rank Quality of products (stable, bug free) 60% 1 Price 53% 2 Best of breed capabilities 35% 3 Ease of use 26% 4 Localization (i.e. Chinese language interfaces, documentation, etc.) 26% 5 Quality of customer support 24% 6 Breadth of product functional capabilities 16% 7 Reputation of the software provider (Brand) 15% 8 Ability to integrate with internal applications or other software products 10% 9 Scalability 2% 11 Total cost of ownership 3% 12 Reputation of the local distributor 1% 13 Relationship with your sales representative 1% 14 Quality of documentation 0% 15 Other 5% NA When evaluating software products, Chinese buyers are similar to their US counterparts, seeking value in terms of high quality products with best of breed capabilities and a good price. For most Chinese soft- ware buyers, quality is their top criterion followed closely by price. This ranking was consistent across demographics including company size and industry sector. The emphasis on quality bodes well for US software given survey respondents’ perception that US software companies provide high quality products. Although the reputation of the software provider (brand) is important to 15% of the respondents, this per- centage is lower than expected given the level of brand consciousness in the Chinese consumer market. It is likely a reflection of relatively low marketing presence of US software companies. Chinese companies prefer to purchase licenses Unlike the US, software leasing does not appear to be a popular option in China. A large majority (90%) of Chinese companies prefer to purchase licenses for installation on their own equipment. Only 3% of the responding companies use leasing, although another 6% stated their licensing preferences depend on circumstances. Leasing had some attraction for small (10%) and medium (3%) companies, but was not mentioned by any respondents from large or very large companies. MARKETING BUSINESS SOFTWARE IN CHINA | 12
  13. 13. Hosting and Software as a Service (SaaS) have yet to gain traction in China Although some analysts recommend using hosting and SaaS models as an initial entry point into the Chinese market, the survey results indicate this approach would be an uphill sell at least in the short term. Only 1% of respondents reported a preference for accessing software as a hosted service. All of these respondents pay by usage or transaction volume. No respondents reported using a hosted service on a fixed monthly fee basis. As mentioned in the previous point, another 6% of respondents stated their licensing preferences depend on circumstances; however, it is unclear how many of these respondents consider hosting as a viable option. Company size drives software maintenance preferences As shown in figure 8, Chinese companies are less unified in their preferences for purchasing maintenance contracts for software upgrades and support. Interestingly, 4% of respondents are willing to pay extra for premium support, while another 4% is unwilling to pay for any support at all. FIGURE 8 Software upgrades and support purchasing preferences % Respondents Pay an annual fee that covers upgrades and support 35% Bundle the cost of upgrades and support into the initial purchase price 28% Pay for support and upgrades by usage 13% Buy premium service to get additional support above basic levels 4% Don't buy upgrades and support 4% Buy hosted services where upgrades and support are included in the service fees 1% Depends on circumstances 14% Miscellaneous 2% The choice between the two most popular options, paying an annual fee and bundling the cost of support into the initial purchase price, differs by company size with small companies preferring to bundle sup- port, while larger companies tend to prefer annual fees as shown in figure 9. Some differences are noted in industry sectors as well; for example, approximately two-thirds of the respondents in the Professional Services and Education sectors prefer to bundle costs. FIGURE 9 Upgrades and Support Purchasing Preferences by Company Size 70% 60% 50% 40% 30% 20% 10% 0% All Small Medium Large Very Large Pay Annual Fee Bundle cost into initial purchase price MARKETING BUSINESS SOFTWARE IN CHINA | 13
  14. 14. Many Chinese companies install software themselves, but local support is critical Understanding how Chinese companies prefer to install purchased software has important implications for US software vendors seeking to enter the China marketplace, especially given time zone and language dif- ferences. For example, a significant percentage (44%) of Chinese companies prefers to install purchased software themselves, a preference that necessitates simple deployments, good documentation and ac- cess to support during Chinese business hours. Another 32% prefers to install software with assistance from locally based software vendor personnel. Only 1% of respondents expect to install with assistance from headquarters-based software vendor personnel. Using local consulting firms, specialized consulting firms (such as ERP specialists) and hosted service providers each account for about 1% of responding companies. Finally, 21% of respondents report their choices depend on circumstances. Recommendations The data in this survey highlights both the opportunities and challenges of entering the Chinese business software market. Over time, China will clearly be a major market for US software companies, but it offers early adopters a unique opportunity to build brand and capture market share in the near term. Chinese businesses are interested in US software products, but to reach those businesses, US companies must be willing to adapt to the Chinese marketplace. As the findings from this survey demonstrate, Chinese practices often differ from their US counterparts. Failing to account for differences in marketing strate- gies, product packaging and purchasing challenges will at best lead to costly missteps. To assist software companies considering the China business software market, Dextrys offers the follow- ing recommendations. Create a Chinese Web Presence Marketing in China is a combination of building relationships and establishing a strong Internet presence. As shown by the survey results, Chinese buyers rely heavily on the Internet for finding products and evalu- ating potential vendor partners, but seek Chinese language sites. Creating a Chinese language web site is a good first step for establishing a market presence and it offers a foundation for developing local relation- ships with potential partners and distributors. When developing this web site: • Find an experienced partner to assist in design and translation – mistakes will damage your brand before it has a chance to become established. • If possible, adapt your web site design to your intended Chinese audience rather than simply translating the US version of the web site – this customization will differentiate you company and offerings and show commitment to the China market. • Translate and localize at least the basic set of marketing materials available from your site. • Remember distance and time zone differences; if your web site doesn’t already support it, con- sider adding self-service marketing (ex: flash demos, downloadable trials) and support capabilities to serve the China market. Consider Including Social Networking as a Component of Your Digital Marketing Strategy If appropriate for the market segment your company serves, adding web-based, China-centric social net- working capabilities to your web site offers a means to combine the two top ranked marketing approaches (peer recommendations and Internet research) into a powerful vehicle for building relationships. Social networking encourages productive communications between customers, prospects and other interested parties and provides an efficient means for building a community that spans China’s broad geography. If executed properly, a social networking strategy can jumpstart the process of building a peer network to promote your company and products. MARKETING BUSINESS SOFTWARE IN CHINA | 14
  15. 15. Establish a Local Base of Operations China is very difficult to understand and support from afar. Establishing a local base of operations is crucial for developing relationships, supporting sales and serving newly acquired customers. Potential software distributors will want you to demonstrate commitment to the market to gain their trust. One at- tractive option is to set up a China-based localization and development center as an initial step. The de- velopment center provides the expertise and cost effective resources to localize, translate and customize products for the Chinese marketplace. The product knowledge gained from these activities enables the development center to offer local product support to customers. Working with a partner can enable your software company to launch a development center faster and more cost effectively than possible on your own. The right partner has the knowledge and established relationships to simplify and speed successful entry into the China market Prepare Your Products for China Products need preparation to successfully sell in the Chinese market. Some product companies make the mistake of looking for sales first before funding localization and other necessary customizations. This approach is often self-defeating as it severely limits potential sales and risks establishing a negative brand image. A better method is to take a phased approach of localizing and launching a small set of products and expanding as the market warrants. • Localize product interfaces, help files and supporting materials. • Consider how the product can be customized to support Chinese business practices. In some cases, language localization is sufficient for the business application, in other cases, a post-sales customization effort may be appropriate, but even small customizations can offer significant dif- ferentiation. Working with a knowledgeable local partner can help determine the optimal strategy. • Remember that quality is the top product attribute for Chinese buyers. Ensure all translations are correct and all product changes have undergone thorough quality assurance and testing before release to prevent potential brand damage. • Package your solutions for Chinese buying preferences. How you offer and bundle your solution components (products, upgrades, support, training, implementation, etc.) can increase the attrac- tiveness of your offerings and provide you with the latitude to better support Chinese negotiation and buying practices. Build Relationships Doing business in China requires building many levels of relationships among distributors, trade associa- tions, government entities, technology partners, customers and sales prospects. Your company will need to establish a network of supporters to assist in introductions and to provide peer recommendations. As these relationships expand, so will your business in China. Building a strong relationship with an initial partner provides a foundation for launching this network. Your partner can serve as your guide for getting established in China and can open the doors to broader relationships. MARKETING BUSINESS SOFTWARE IN CHINA | 15
  16. 16. Company Information About Dextrys Dextrys is a US-based Chinese outsourcer providing Product Engineering and Application Services glob- ally. With more than 1400 employees across California, Massachusetts, New York, Atlanta, Shanghai, Beijing, and Suzhou, China, Dextrys combines more than 20 years of US technology delivery experience with world class engineering centers in China. Dextrys helps customers accelerate profitable growth through cost effective, low risk services that improve the speed, quality and responsiveness of their soft- ware development and quality assurance organizations. Dextrys specializes in “Making China Easy” for customers, enabling them to capitalize on the cost, skill and business opportunities available within one of the world’s largest and fastest growing markets. Dextrys Product Engineering Optimization Services Specializing in the unique needs of companies who produce software as or within their products, Dextrys offers services that optimize the full product lifecycle. Whether launching a new product, expanding inter- nationally, ensuring the integrity of a major product release or implementing a new release on a customer site, Dextrys Product Engineering Services help software vendors and hardware manufacturers acceler- ate product delivery cycles, reduce development and support costs, and enhance overall quality. These services help product companies: • Accelerate product delivery and reduce development and QA costs using China-based Develop- ment Centers • Modernize products to reduce support costs, extend cash flows and add market expanding plat- forms • Offload release support for mature product lines, protecting maintenance revenues while lowering costs and freeing internal engineers for next generation development • Enter new geographic markets through localization and translation services • Gain access to engineers skilled in the latest technologies and methodologies • Improve quality by providing dedicated QA teams • Establish a presence in China with localized products, relationships and support • Extend professional services capabilities and increase profitability through onshore and offshore implementation, training and customization capabilities For more information, please email or visit About Clarity Consulting Clarity Consulting, Inc. is a Massachusetts based management consulting firm specializing in technol- ogy strategies, emerging trends, markets and challenges. Relying on superior situation analysis, solution formulation and communication skills, Clarity Consulting helps its clients devise creative solutions to complex issues and capitalize on the opportunities presented by technology. Our international client base includes corporate IT organizations, professional services firms, product vendors and legal and financial services firms. Clarity Consulting was founded in 1993. MARKETING BUSINESS SOFTWARE IN CHINA | 16
  17. 17. Appendix The Survey Methodology Overview Dextrys commissioned the Marketing Business Software in China Survey in August 2008 to obtain an ob- jective assessment of the emerging market for US-developed business software in mainland China. The goals of the survey methodology were: • Develop survey questions that permit a meaningful assessment of the market and the factors that influence it and lead to actionable recommendations • Gather data from a broad cross-section of industries, regions and company sizes to understand the market as a whole while permitting drilldown by demographic segments • Obtain a sufficient sample size to permit statistically significant results • To ensure the independence of the survey results, Dextrys commissioned Clarity Consulting, Inc. to handle survey design and data analysis. Dextrys provided the resources to conduct data col- lection. Survey Construction The survey questionnaire consisted of ten sections of multiple choice questions designed for quick col- lection using telephone interviews. Several open-ended questions were provided to capture free-form respondent opinions. The initial section of the questionnaire captured demographic information from all respondents. The next section of the survey queried respondents’ experience with US software products. This information was used to direct respondents to the appropriate follow-on questions. Respondents who had considered US software products in the past 12 months were asked to complete all remaining sections of the survey to understand their selection process, marketing influencers, imple- mentation considerations and overall impressions of US software. Respondents who had not considered US software products completed a shortened version of the survey, which focused on their reasons for not evaluating US products. Data Collection Survey data was collected via telephone interviews over an eight-week period in September and Octo- ber 2008. Dextrys provided a team of China-based telemarketers from its BPO practice to conduct the interviews. To avoid bias and ensure a well-distributed sample, interview candidates were drawn from IT manager contact lists purchased specifically for this project. Interviews were conducted in Chinese by na- tive speakers. Survey results were translated and sent to Clarity Consulting on a weekly basis for review. Data Analysis Clarity Consulting validated the quality and completeness of the collected data. A series of Microsoft Excel models were built to analyze the data, perform statistical correlations and develop the findings pre- sented in this report. The data was analyzed as a whole and by demographic segments. MARKETING BUSINESS SOFTWARE IN CHINA | 17