Welcome everyone to another edition of my China Tech Law Newsletter. Today I’m going to share a short post about a long-running theme I’ve seen in working with SaaS clients going to China. Some people are frankly surprised when asked what is one of the most common type of clients I work with, and I describe to them path for how enterprise SaaS companies haven’t slowed down one bit in expanding to China.
These companies are often recently public on NASDAQ in the last few years, or late stage venture-funded. Going to China is often something their investors are nudging them to do, for business reasons and as part of their pre or post-IPO story. It’s a natural question from analysts, why aren’t you guys in China?
And the reason is two-fold. First, for many companies’ cloud offering, the solution represents a genuinely better experience that local providers simply don’t offer. Chinese corporate customers also are now much, much more willing to pay for software of this kind. Local competitors may develop over time, but there’s no denying that the opportunity to grab market share exists today. Chinese companies despite all the obstacles, are becoming more global and using software that is best in class for their industry is part of that process.
The second reason for companies going to China is about the user experience. Companies often are providing a local solution on regional servers throughout the world, for example, to the China market via hosting in Singapore. But given the latency of having software run from outside China through the Great Firewall and back, the user experience is usually far less than optimal. Global corporate clients prefer a global solution that's easily accessible everywhere. For example, project management or learning management software. And the SaaS provider's customer will hear (vociferously) from their China teams that the global solution is simply not working for them. At that point, the SaaS provider has a choice. Either get the solution running on a local server or risk losing the client both in China and globally. Surely one competitor has started to offer their product in China.
What is the big deal you ask? Well again if you’ve followed this blog, you know SaaS companies need to consider a lot of things relatively unique to China. Both in terms of any special licensing they need, setting up a company or other unique corporate structure, and data regulations particularly on export of (sensitive) personal or other data. It’s a challenge the company may not have seen before, although with the right advisors, certainly a challenge that can be met. Through the different stages of deciding on the path to take to navigate these factors, the one refrain I hear most often is, well they don’t make it easy as other countries, but we have to be in China.
Short post today, thanks everyone for subscribing and see you back again in a couple weeks!
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