As China’s businesses gradually resume their activities following the slowdown in reported coronavirus cases, Li Zhaojun is already working 16 hours a day. The chief executive of XinTaiRuan, a Shanghai-based provider of human resource management software, saw demand more than quadruple during the past few months. Strict quarantine rules that forced people to stay home is boosting demand for his cloud-based software that allows managers to remotely track working hours, pay salaries and file government tax reports. Li says he now wants to enlarge his team by 50% to 150 people to better handle with the extra workload.
“We used to educate the market about how to use our product,” says the 30-year-old. “But now this virus is making everyone migrate online.”
Enterprise services that range from teleconferencing to cloud-based productivity tools are enjoying an unexpected surge in demand amid the otherwise battered Chinese economy, which some now expect to contract as much as 11% in the first quarter. After the virus known as COVID-19 led to factory shutdowns and office closures, tens of millions of people had no choice but to give them a try. Although some are now returning to their normal office schedules, entrepreneurs and investors point to the rising use of the platforms as an indication that China’s fragmented enterprise services market is finally shifting into high gear.
“The pandemic is having a big impact on user behavior, and new working habits have been formed,” says Zhou Wei, founder of Beijing-based investment firm China Creation Ventures.
While some are growing accustomed to workplace communication apps like Alibaba’s DingTalk or Tencent’s Meeting, many of the country’s small- and medium-sized enterprises are getting a new appreciation of the benefits of productivity software. Previously, they had been reluctant to try the services, let alone pay for them, because they were thought to be non-core and expensive amid China’s abundant supply of cheap labor.
This means that the country, which relies on its 30 million SMEs for more than 60% of GDP, doesn’t have a standardized enterprise service provider anywhere near the same scale of Salesforce. Other western companies – for example, IBM and Oracle–have long been available, but they only target large firms.
Overall, information technology spending–which encompasses everything from cloud and data centers to enterprise software, accounts for less than 4% of China’s GDP in the first three quarters of 2019–compared with more than 10% in the U.S.
The digital tools Chinese SMEs have been acquiring are tailored specifically for their needs. Take, for example, Zhou Yuxiang’s Black Lake Technologies. The 30-year-old entrepreneur was worried when the virus first struck, because he couldn’t travel and meet clients face-to-face. But the startup’s cloud-based software, which tracks inventories and matches medium-sized factories with suppliers through data analysis, took on unexpected new customers throughout February.
“Some of our customers are face mask factories,” he says. “They can’t travel and secure supplies in person in the current environment, so they use our product to buy.”
Ken Xu, an investor at Shanghai-based Gobi Partners, says users for some communication services–such as government workers or school teachers–will inevitably go away after normalcy fully resumes, but he sees further adoption of personal-assistant software in areas ranging from remote document signing to digitalizing the country’s vast manufacturing sector.
“People are realizing going online is actually more convenient,” Xu says. “It is easier to work directly on a digitalized product prototype than printing the whole thing out, traveling and meeting each other to decide on what to do.”
Still, despite the promising signs, investors say it will take China some time before the birth of a hundred billion-dollar giant similar to Salesforce. One reason is the more fragmented market situation, meaning startups can’t rely on standardized procedures and have to invest considerable resources toward tailoring their programs to different needs. Plus, they often offer services for free or at a discount to win new customers, which raises questions about future revenues.
But optimism is rising. Yeh Kuantai, an investor at Shanghai-based Qiming Venture Partners, says Chinese companies in recent years have grown a lot more willing to pay, and the pandemic is making them further realize the benefits of productivity software. China Creation Ventures’s Zhou agrees. He says to make Chinese companies pay, startups need to do a lot more than their western counterparts.
The investor points to his Hangzhou-based portfolio company Yunhu technologies, which not only develops diagnostic and management software for the country’s healthcare clinics, but goes so far as arranging logistics for testing samples to be sent to qualified labs. This is because many clinics, especially those in remote areas, don’t have testing equipment or labs, making accurate diagnostics impossible.
“As a startup, you have to make customers clearly realize that this is your contribution,” Zhou says. “You can’t just be a consultant and provide software, but need to work much closer with their business.”– Yue Wang (Forbes Asia)