November 2009 CRISIS in Chinese Wei

November 2009

CRISIS in Chinese… Wei : Danger Ji: Opportunity

Country profile Formal name: People’s Republic of China (PRC) Capital: Beijing President: Hu Jintao Language: Mandarin Currency: Renminbi (RMB/Yuan) Land size: 9. 600, 000 km 2, the third-largest Population: 1. 36 billion (10% have western life standard) System: The Communist Party of China (CPC) Capitalist The Five Year Plan

Organisation • Administrative organization: – – 23 Provinces 5 Autonomous regions 4 Municipalities 2 SAR (Hong Kong and Macao) • 171 cities > 1 M Citizens • 20 cities > 5 M Citizens % of population living on < $1. 25 a day § 1981 § 1990 § 2005 Source: World Bank

Internet population Source: World Bank

GDP forecast (in b. US$) Source: IMF

ie: Shanghai • • Shanghai’ population = 18, 88 M people (including 5. 2 M migrants and 152, 100 foreigners) Shanghai’ GDP = Brazil’ GDP

Consumption « In this current financial crisis, IDC expects to see governments coming up with various stimulus packages » Source: Moody's Economy. com

Where money is invested

ICT Import (in b. US$) #1 USA 273. 360 #4 Germany 105. 502 #2 China 255. 195 # 3 China HK 154. 416 #5 Singapore 80. 674 source: OECD

ICT growth in 2009 by IDC « Certain markets can expect higher growth, such as BRIC » • Brazil 9. 0% (#10 GDP, #26 ICT import) • Russia 7. 5% (#11 GDP, #19 ICT import) • India 10. 0% (#12 GDP, #22 ICT import) • China 9. 0% (#3 GDP, #2 ICT import)

Foreign prospects More than 500, 000 foreigninvested enterprises • US$ 1 billion foreign investment per week • Over 430 of the Fortune 500 are present in China • 90% of the leading IT companies are in China Source: OECD

Chinese prospects • Fortune 500 list includes 37 Chinese companies (11 in 2003) • Chinese companies are going international July 2009

in Telecom • 7 Principal Telcos in China • Hundreds subsidiaries all over China

in Banks • 31 Nation wide Retail banks + Thousands Regional banks • 90 Foreign banks

in Insurances • 86 Chinese insurance companies • 40 foreign insurance companies & JVs in China

in Airlines • 27 airline companies • 16 state owned 8 privates 3 JVs

in Distribution • +150 major Retail / Distribution companies • Fully open to foreigners since Dec. 2004 • Some Chinese: – – – – – Bailian Group Beijing Gome Dalian Dashang Suning Beijing Hualian Wu Mart Nonggongshang Yongle Chongqing General Trading Group HOYODO

in Utilities: Electricity • More than 200 suppliers: – China Southern Power Grid Co. , Ltd (CSG) – North China Grid Co. , Ltd – East China Grid Co. , Ltd – West China Grid Co. , Ltd – North United Power – China Huaneng – Datang Power – China Huadian – China Power Investment Corporation (CPI) – Shenhua Group – …

in Utilities: Water • • • Shanghai Water Beijing Water Shenzhen Water Chongqing Water Exist in all the cities • … one per large city !

in e. Commerce Purchase value of 325 billion €

2008 software sales revenue in Mainland China

Piracy? Large accounts • Punishment No No, but user count Medium • CCPC SME Low SOHO High Consumer Extremely High

Chinese culture and mindset • Remember – – – – 5000 years history 23 Dynasties 56 ethnic groups 2000 years of wars Confucius Guanxi (关系) Mian Zi (面子) Feng shui

Confucius • Confucius’ teachings and philosophy have deeply influenced Chinese thought and life • Core concepts – Ren (仁): humanness – Li (礼): Social level and customs • Chinese social system: Hierarchical (Rank) – – Son & Father Employee & Leader Women & Man Young & Old Tip: Always negotiate with similar persons (gender, age, title)

Guan Xi (关系) • What is Guan Xi? - Literal: Relationship - In the business sense: social connections • Now, any business, including local companies as well as foreign investors and marketers, inevitably faces Guanxi dynamics. • - The right Government officials - Key personnel in companies Tip: To succeed in business it is not what you know, but who you know

Mian Zi (面子) • What is Mianzi? – Literal: Face – The dignity of the person • “Men live for face as trees grow for bark. ” Tip: You only suggest ideas and let your interlocutor to take the leadership

Motivations of buyers • Price – They negotiate to be sure they make the best deal. « Guanxi » • On-site Support – Tangible: To use the technology – Emotional: To take leadership « Hierarchy » • Technology and innovation – Proud to buy the latest one « Face » • Strength of the foreign brands (Technology: Germany, Home appliances: Japan, Cosmetic: France) – To be secured – To enforce his image and reputation – Again and again: « Face »

Business models Best model • First or two first years • Sales partners + 1 local Pre-Sales Consultant (Virtual Office) • 2 nd / 3 rd and following years • Opening of your own subsidiary (WOFE, not Rep. Office)

• German ISV specialised in Document Management • Actions: – Four Distributors – One Pre-sales Consultant (Virtual office) K… (BJ) M…. (BJ) Q… (SH) E… (SZ)

• Complex solution: EAI-EDI-Bto. B integration • Strong competition: IBM-Websphere, BEA-Weblogic, Seeburger, Influe, etc. • Expensive products • No PR budget • Unknown in Asia or In China • Targeting medium & large enterprises

Tough competition, ie: BEA – Chinese CEO, Mr. Alfred Chuang – 30 Distributors – 3000 Partners – 2000 customers in China – 200 employees – December event « limited » to 4200 attendees

Actions: • Strong leverage with the best players: – Chan… (Beijing), the leader in retail – Dea… (Shanghai), the leader in SCM – Ebiz…. (Taiwan), the leader in EDI for Greater China and ASEAN countries – Core (Hong Kong), the #1 one VAN for Greater China • Local support with Presales Engineer Results: • Break even on the first Fiscal Year • Indirect ROI for the North American and European businesses • A positive impact on employees and external relationships

French ISV specialised in ERP for Fashion and Distribution market • 2005: Two market Discovery • 2006: Detailed market study • 2006: Appointment of two Distributors (ERP for fashion) • 2006 – 2008: Virtual office (local support) • 2008: Set-up of their WOFE Dec 2007: Prize PME France - China

German ISV specialised in CAD for The harness automotive industry (narrow market) • Discovery of the Chinese market • One strong local Support Engineer (Virtual Office)

• US ISV specialised in application & IT monitoring for large accounts • Actions: – Three Distributors – One Pre-sales Consultant (Virtual office) Kun… (BJ), large Governments Imo… (SH) large Enterprises Newd… (FZ, BJ) Telecom

Chinese ISVs also needs « Guanxi » : An Hong Kong ISV ranked 12 th worldwide, Listed on US Nasdaq, 1700 employees, 50 offices, 300 M US$ revenue Needs of four additional Distributors Tal… & Vis… …. (Beijing) Eas… (Shanghai) Chin… (Shenzhen)

• UK ISV specialised in EAM/CMMS mainly for the manufacturing market • Four Distributors • One Sales and One Support Yoy T… . Beijing (Telecom) High-C…. Beijing (Manufacturing) Ewa…. Shanghai. Xiamen. Guangzhou (Manufacturing)

Soft. Database profile • Established in 1992 • Key differentiators – Entirely and ONLY dedicated to the software industry. – 200 satisfied customers – Average of 4 missions per customer • Shanghai subsidiary (WOFE) started in 2004 • Atlanta subsidiary started in Oct 2008 • A unique database – 95% of the world enterprise software ISV, VAR, SI – « Manually » updated

200 satisfied customers

谢谢 (Thank you) www. softdatabase. com. cn gpardon@softdatabase. com. cn ljfan@softdatabase. com. cn